24108 Marketing Foundations

UTS 2014 – Marketing Foundations

Lecture 1 – INTRODUCTION and the MARKETING ENVIRONMENT

Chapter 1 – Introduction to MarketingDEFINITION OF MARKETING

Marketing is the activity, set of institutions and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large. (American Marketing Association – AMA)

The definition refers to ‘’activity, set of institutions and processes’’, recognising the broad scope of marketing – that it is not just a function that exists as a ‘marketing department’ within an organisation, and that marketing is about much more than advertising.

‘’Creating, communicating, delivering and exchanging offerings that have value’’ recognises that marketing must involve an exchange that benefits both the customer who buys the product (a good, service or idea) and the organisation that sells the product.

‘’Customers, clients, partners and society at large’’ recognises that organisations need to conduct their marketing in such a way as to provide mutual benefit, not just for the users of their products, but also for partners in the supply chains, and that marketers must consider their impact on society.

THE MARKETING EVOLUTION Increasing importance of service-dominant logic in the progression of marketing thinking. Over the past 100 years marketing has evolved through the following stages: Trade orientation – people exchanged what they have for what they wanted. Production orientation (late 1800s/early 1900s) – new technology + infrastructure = firms

were able to produce greater volumes of ever-increasing range of products (where demand was strong). Marketers’ offerings were largely determined by what could be made & what people bought was largely determined by what was available. (Henry Ford philosophy)

Jimmy Ngo Page 1


Sales orientation (1930s) – which focused on increasing profits through advertising and one-to-one selling. As competition increased, companies could no longer rely on consumers to want + buy everything they make. AMA definition in 1935: ‘Marketing is the performance of business activities that direct the flow of good and services from producers to consumers’.

Market orientation (mid to late 1900s) – approach to marketing in which businesses worked to determine what potential customers wanted and then made products to suit. In second half of 20th century, customers had so many products to choose from that they could not buy them all. When they did want to buy a particular product, they could choose from many similar items. In a new era of increased competition, firms realised that customers would not automatically buy any devised product (essential to respond to market’s needs and wants).

Societal market orientation (2000s) – is where companies implement practices and policies that seek to minimise their negative impact on society and maximise their positive impact. Today businesses are increasingly faced with not only satisfying customer wants but ensuring they are socially responsible corporate citizens. Businesses face well-informed customers with an enormous number of competing products vying for their attention. The market is now viewed as not just customers, but also broader society. This is reflected in marketers’ consideration of issues such as the sustainability of their products and the benefits their products might bring to society generally. The future of MARKETING? The most recent advancement in marketing is the idea of service-dominant logic, which represents a shift from a goods-dominant mentality. Marketing inherited a model of exchange from economics, and traditional definitions of

marketing refer to the exchange of ‘goods’ or manufactured output.o Service-dominant logic focuses on intangible resources, the co-creation of value, and

relationships. Today, the dominant logic for marketing is that service provision, rather than a traditional goods focus, is fundamental to market exchange. Co-creation is the process whereby consumer experiences are used to drive organisation

improvement and change, resulting in enhanced market performance drivers for the firm (loyalty, relationships, customer word of mouth).

- Service-dominant logic embraces concepts of value-in-use and the co-creation of value, rather than the value-in-exchange and embedded-value concepts that were characterised in more traditional marketing.

- Thus, instead of firms being informed to market to customers, they are instructed to market with customers, as well as other value-creation partners in the firm’s value network.

- Companies following service-dominant logic have co-created product flavours, improved software, advertisements and marketing campaigns with their customers.

THE MARKETING APPROACH TO BUSINESS Marketing is an approach to business that puts the customer, client, partner and society at

the heart of all business decisions. Marketing is used by:- Small businesses and large multinational corporations- Businesses selling goods and businesses selling services- For-profit and not-for-profit organisations- Private and public organisations, including governments

MARKETING – A SCIENCE, A LEARNING PROCESS AND AN ART Marketers need to learn what customers, clients, partners and society want. This is an ONGOING process as customer preferences are continually evolving. Customers’ needs and wants change with each product purchased, magazine read,

conversation had or television program watched. Marketers must use information to maintain their understanding. Marketers must be creative and able to develop new ideas. Marketers are cluttered and there are many options available to consumers. The best marketers are able to offer something that is unique or special to consumers.

Jimmy Ngo Page 2


THE MARKETING PROCESS The marketing process is a process that involves understanding the market to create,

communicate and deliver an offering for exchange. The marketing process is an ongoing cycle and often marketers will be undertaking multiple tasks simultaneously.As this cycle is ongoing, marketers need to constantly monitor and understand their effectiveness in all aspects of this process (understand, create, communicate and deliver).

THE MARKETING EXCHANGE – THE EXCHANGE OF VALUEo The aim of marketing is to develop mutually beneficial exchanges. Exchange refers to the mutually beneficial transfer of offerings of value between the buyer

and seller.o For a successful marketing EXCHANGE, the transaction must satisfy the following conditions:- 2 or more parties must participate, each with something of value desired by the other party.- All parties must benefit from the transaction- The exchange must meet both parties’ expectations (e.g. quality, price)o Exchange can occur for all different types of organisations – large and small, for-profit and

not-for-profit and private and public.o Exchange is a value-creating process because it leaves both parties better off.

VALUE – A PERCEPTION Value is a customer’s overall assessment of the utility of an offering based on perceptions of

what is received and what is given.

Value=QualityPrice

∧Value=Benefits ExpectedBenefits Received

o Some marketers view this simply as a ratio between quality and price. This is the ECONOMIC view of value. According to this view, value is a comparison between what a customer gets and what a

customer gives; i.e. the benefits, a customer receives from a product in relation to its price. o Other marketers view value as unique and determined by the beneficiary. According to this view, value is idiosyncratic, experiential, contextual and meaning laden. When value is viewed this way, it is not thought of in terms of one transaction. Rather value

is thought of in a way that helps to promote customer loyalty and to consider the lifetime value of the customer/client to the firm – what does the firm offer in exchange for loyalty?

However, the quality-price ratio view is simplistic as value refers to the ‘total offering’ . This includes all aspects, from the reputation of the organisation to how the employees act, the features of the products, the after sales service, quality and price.Most companies have competitors and value is relative to the competition as the competing offerings influence how a customer perceives value.

o Value evolves continually as it changes with each purchase, experience and a conversation that a person has. Furthermore, value means different things to different people.

o Value is unique for each individual. Some customers perceive value when there is a low price while others perceive value when there is a balance between quality and price.

It clear that then that value is a matter of individual perception (marketing is complicated). THE MARKET

A market is a group of customers with heterogeneous (different) needs and wants. Examples include geographic markets (e.g. Malaysian), product markets (e.g. smartphone)

and demographic markets (e.g. age, gender, education, income). - Markets can also cover different types of customers – according to most recent AMA

definition; marketing is aimed at ‘customers, clients, partners and society at large’. - Different marketers have to market to different groups. - The group that the marketer has to market to is the focus of all marketing activities.

Jimmy Ngo Page 3


- Successful marketers are those who view their products in terms of meeting customer needs and wants.

CUSTOMERS Customers are those people who purchase products (goods and services) for their own or

other people’s use. While, consumers are people who use the good or service. - E.g. Mother purchases item but her children also uses item. Children = consumers.

CLIENTS Clients refer specifically to ‘customers’ of the products of not-for-profit organisations or

social marketers (i.e. those seeking to encourage social changes). - E.g. ‘customers’ of Medicare, Centrelink, or a public hospital and viewers of anti-drug ads.

PARTNERS Partners are organisations or individuals who are involved in the activities and processes for

creating, communicating and delivering offerings for exchange. - E.g. an advertising consultant who is hired to develop marketing communications, a supplier

or raw materials or a retailer in the distribution channel.- Marketers need to understand how their relationship will benefit the partner.

SOCIETY Society is a body of individuals living as members of a community.- Society is a highly structured system of human organisation for large-scale community living

that normally furnishes protection, continuity, security and an identity for its members.- Marketers must understand the needs of the societies in which they operate.- Successful marketers demonstrate an awareness of community concern about the natural

environment, responsible use of resources, sustainable practices and social equity.- Studies suggest that companies with CSR have higher profits + market capitalisation.

ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE MARKETING For businesses, it has long been debated just where the balance should be between profit-

motivated activities and secondary purposes (e.g. creating employment) – and whether it is appropriate to consider them ‘secondary’ at all.

ETHICS Ethics refer to a set of moral principles that guide attitudes and behaviour. More simply, ethical behaviour involves doing what is ‘right’.- Ethics is subjective and depends on social, cultural and individual factors. - Many marketing decisions involve ethical issues, in which a choice must be made between

multiple possible courses of action, which each involve different ethical, legal, social, economic and environmental considerations. Competing priorities are the source of many ethical dilemmas in business. Some of the most common that arise in marketing are truth in advertising, the marketing

of products that may be dangerous or contribute to poor health and engaging in fair competition with rival businesses.

Responsible businesses often implement a code of ethics or code of conduct to help govern their actions and guide the decisions of those who work in the business.

- The Australian Marketing Institute, a peak body representing marketers, has developed a code of conduct to guide marketing activities.

LAW In addition, the way individuals and organisations conduct themselves in society is governed

by law. Most law is derived from ethics, but it is quite possible to act unethically within the law, and to act illegally but nonetheless ethically.Laws (and regulatory bodies) represent society’s attempt to ensure individuals and organisations act in a way that society deems beneficial, or at least acceptable.

- In Australia, business conduct is governed by numerous laws, including, for example, the Competition and Consumer Act (formerly the Trade Practices Act) and the Privacy Act.

Jimmy Ngo Page 4


- In addition, there are regulatory bodies – e.g. the various STATE Offices of Fair Trading and federally, the Australian Competition and Consumer Commission (ACCC).

CORPORATE SOCIAL RESPONSIBILITY (CSR) Corporate social responsibility is simply the obligation of businesses to act in the interests

of the societies that sustain them.- This is an overarching responsibility that affects all aspects of a business’s operations and

involves all of its stakeholders, including: Owners – business must generate long-term wealth by acting profitably + sustainably. Employees – businesses and not-for-profit organisations provide jobs that ensure wealth

is shared among members of society, and provide employees with reasonable working conditions.

Customers (and clients ) – the business must attract and retain customers by offering products of value.

Partners – business must act in such a way toward its partners that those partners can achieve their own business aims + meet their own corporate social responsibilities.

Government – business must abide by laws and regulations. Stakeholders are the individuals, organisations and other groups that have a rightful interest

in the activities of a business. - At the heart of CSR is a business’s obligation to act ethically, lawfully and in the best

interests of all its stakeholders, including the society in which it operates.- Devoting resources to ensure their operations act in the interest of all stakeholders.

Firm that meets its CSR can expect benefits from good PR/absence of restrictive regulations.- CSR activities extend philanthropic (giving) actions to make them of strategic benefit to the

business – voluntary acts benefit parts of society AND benefit the business.Conversely, a business that acts with disregard for its society can expect a customer backlash and the imposition of rules to force it to comply with society’s expectations.

- This is demonstrated by the ongoing public debate about (junk) food advertising during children’s television programming.

- Current regulation does not protect children from being bombarded with ads for junk food.- Around 54% of TV food ads aired between 6am and 9pm are for unhealthy foods.- Various organisations are, thus, lobbying governments to introduce regulations that restrict

or ban the advertising of certain types of food during children’s television broadcasts.

Jimmy Ngo Page 5


Figure – The Triple Bottom Line (comprised of social, environmental and profit considerations).A popular way of thinking about good corporate citizenship is the Triple Bottom Line.

- For example, the use of the earth’s resources, in particular the natural environment, has emerged as a major consideration for businesses trying to meet corporate social responsibility requirements.

A key issue faced by any manager in the 21st century is potential for corporate greed.- When banks such as Commonwealth, NAB, Westpac or ANZ increase the interest rates on

home loans by more than any increase announced by the RBA, there is usually public outcry of corporate greed.

- Accusation is generally that banks are putting profits/shareholders ahead of customers.SUSTAINABILITY

Sustainability is currently being widely debated as a business philosophy that is needed to ensure our future.

Sustainable development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

- Achieving sustainable development includes strategies to reach economic (profit), social (people) and environmental (planet) goals.

- These include factors such as a reduction in consumption (purchasing less), changing purchasing (moving from finite energy resources to renewable energy resources), downsizing of the products consumed (e.g. purchasing smaller houses/cars), the reuse of materials (e.g. recycling shopping bags into furniture) and the marketing of green products.

- Until recently, sustainability was the primary focus of a company’s CSR department. But as the global community struggles with the issues of over-population, increasing energy demands, loss of bio-diversity and the wide-ranging impacts of climate change, the sustainability issue is now a priority across boundaries – political, cultural and professional.

- For many companies, operating in an ethically and environmentally responsible way is proving to be a cost-effective hit with customers.

Sustainable marketing is the ‘way and means’ for combining ecological and economic elements through innovative products and systems.

The concept of sustainable marketing refers to the marketing profession’s obligation to change marketing processes in which the exploitation of resources, the direction of investments, the orientation of technological development and institutional change are made consistent with future as well as present needs.

- In practice, sustainable marketing is simply about looking at your products, assessing how your products impact the environment, and then taking steps to minimise those impacts. E.g. Dell employs a variety of sustainable marketing practices, including the use of an

average of 50% recycled paper for its pushing needs in marketing materials, and up to 90% in some cases.

- There are many ways that marketers can implement sustainable practices – e.g. printing using only environmentally friendly inks and recycled paper, reducing the use of direct mail and increasing online communications, creating online catalogues instead of printed catalogues, using more virtual communications (e.g. Skype) and webinars where possible.

IMPLEMENTATION OF CSR AND SUSTAINABILITY Requires implementation of policies, processes and a culture guided by ethics +

consideration of all stakeholders. Business must also empower stakeholders to achieve the ideas in its policies and processes.- Careful though as marketers are often accused by consumer rights groups for greenwashing.- Greenwashing is the dissemination of questionable or potentially misleading information by

an organisation in relation to its products, in order for the organisation and its products to be perceived as environmentally friendly.

Jimmy Ngo Page 6


- The International Organisation for Standardisation (ISO) develops guidelines for marketers – describes a general evaluation and verification methodology for self-declared environmental claims, and specific evaluation + verification methods for selected claims in this standard.

THE MARKETING MIX The marketing mix is a set of variables that a marketer can exercise control over in creating

an offering for exchange.Various frameworks for the marketing mix have evolved over time:

- From the traditional 4Ps (product, price, promotion and place) to the 7Ps. - Introduction of people (5Ps), followed by process (6Ps) then physical evidence (7Ps).

To frame their thinking, marketers often choose to target certain types of customers.- Markets are heterogeneous – made of up of different people with differing needs/wants. A target market is a group of customers with similar needs and wants. Marketers cannot act with complete freedom in determining marketing mix – governed by

costs of implementing various marketing mix options, as well as the forces at play in the marketing environment. They are also governed by the people in their organisation.

PRODUCT A product is a good, service or idea offered to the market for exchange. A brand is a collection of symbols such as a name, logo, slogan and design intended to create

an image in the customer’s mind that differentiates a product from competitor’s products. Bundle of attributes are the features and functions of a product that benefit the customer.- In the marketing mix, the product variable is concerned with creating an offering that

anticipates and meets the needs and wants of customers. Needs are day-to-day survival requirement: food, shelter and clothing. Want is a desire, but not necessary for day-to-day survival. Demand is a want that a consumer has the ability (money) to satisfy. - Consumers choose among demands by finding the product that offers the most value in

exchange for their money. Good is a physical (tangible) offering capable of being delivered to a customer. Service is an intangible offering that does not involve ownership.

PRICE Price is the amount of money a business demands in exchange for its offerings. Pricing is a complex marketing decision that must take account of many factors, including:

Production, communication and distribution costs Required profitability Partners’ requirements Competitors’ prices Customers’ willingness to pay

Marketers need to understand the relationship the price and quality to understand value from a customer’s point of view.

WTP – They need to understand what customers would like to get and what they are prepared to give in return.

PROMOTION Promotion describes the marketing activities that make potential customers, partners and

society aware of and attracted to the business’s offerings. The product might be – already established, modified, new and information or education. Examples of promotion include – advertising, loyalty schemes, product trials, sales

promotions, public relations campaigns, personal selling efforts and online communications.PLACE (DISTRIBUTION)

Distribution (or place) refers to the means of making the offering available to the customer at the right time and place. It is largely a logistics function and marketers need to understand how logistics impact their ability to deliver a product at a time and place that suits customer needs or wants.

Jimmy Ngo Page 7


The marketer must ensure products are available to the TARGET MARKET in the right amount and at the right time while managing the costs of making the products available.Such costs include inventory, storage and transport.Many businesses sell their products directly to the public but distribution, especially for larger businesses, usually also involves partners such as wholesalers and retailers.

Logistics is the part of the marketing process concerned with supply and transport. Supply chain refers to the parties involved in providing all of the raw materials and services

that go into getting a product to the market. PEOPLE

People refer to any person coming into contact with customers who can affect value for customers.

PROCESSES Process refers to the systems used to create, communicate, deliver and exchange an

offering.PHYSICAL EVIDENCE

Physical evidence refers to the tangible cues, including the physical environment that customers use to evaluate products, particularly services prior to purchase. Includes architectural design, furniture, décor, shop fittings, colours, background music,

staff uniforms, brochures, service or delivery vehicles and stationery.HOW MARKETING IMPROVES BUSINESS PEFORMANCE

Firms with a market orientation perform better than firms without a market orientation. They have better profits, sales volumes, market share and return on investment when

compared to their competitors. Every employee is a stakeholder in the success of their organisation. Marketing drives economic growth; marketers play a role in stimulating consumer demand. Developing social change programs to influence the voluntary behaviour of target audiences

to improve the welfare of the society. Social marketing is a process that uses commercial marketing principles and techniques to

influence target audience behaviours that will benefit society, as well as the individual.

Chapter 2 – The Marketing Environment and Market AnalysisTHE MARKETING ENVIRONMENT

The marketing environment refers to all of the internal and external forces that affect a marketer’s ability to create, communicate, deliver and exchange offerings of value.

Environmental analysis is a process or analytical approach that involves breaking the marketing environment into smaller parts in order to gain a better understanding of it.

Jimmy Ngo Page 8


INTERNAL ENVIRONMENT The internal environment refers to the parts of the organisation, the people and the

processes used to create, communicate, deliver and exchange offerings that have value. The internal environment is directly controllable by the organisation.

- A thorough understanding of the internal environment ensures that marketers understand the organisation’s strengths and weaknesses.

- Strengths and weaknesses are internal factors that positively and negatively affect the organisation’s ability to compete in the marketplace.

The main parts of a typical organisation include: Senior management – responsible for making decisions about the overall objectives and

strategy of the organisation. Middle management – typically responsible for a department or a geographic region. Functional departments – their aim is to make sure the objectives for their department

(e.g. marketing, HR) are aligned with the broader organisational objectives and to manage their departments to ensure departmental objectives are achieved.

Employees – responsible for carrying out work required to meet departmental objectives External Vendors (outsourcing) – outsource functions + roles if they can be done more

efficiently by specialist external providers. This represents a shift of function from the internal environment to the micro environment and thus reduces the level of control.

INTERNAL MARKETING Internal marketing is a cultural framework and a process to achieve strategic alignment

between front-line employees and marketing.- More specifically, internal marketing is a collection of activities, processes, policies and

procedures that treat employees as members of an internal market who need to be informed, educated, developed and motivated in order to serve clients more effectively.

- Thus, these satisfied employees are more likely to deliver to a customer’s satisfaction. Internal marketing is practised in three main ways.- INTERNAL COMMUNICATIONS – First, the primary role of internal marketers is to manage

internal communications to ensure that employees’ actions are aligned with company goals.- INTERNAL MARKET RESEARCH – second, internal marketing managers use market research

to understand employees’ needs and demands.- Then, they provide the training needed by employees to reach the company’s goals.

EXTERNAL ENVIRONMENT

Jimmy Ngo Page 9


The external environment refers to the people and processes that are outside the organisation and cannot be directly controlled.

- Concerned with things that are outside of the organisation.- Marketers can only seek to influence the external environment.

The process of outsourcing (transferring an internal function to an external provider) has gone through waves of popularity over the past few decades.

- It represents a blurring of the line between the internal and external environment. Opportunities and threats are EXTERNAL factors that positively and negatively affect the organisation’s current and future ability to successfully serve the market.

External environment includes the MICRO and MACRO environments. MICRO ENVIRONMENT

The micro environment refers to the forces within an organisation’s industry that affect its ability to serve its customers and clients – target markets, partners and competitors.

- Unlike the internal environment, the micro environment is not directly controllable by firm.- The organisation can, however, exert some influence on the customers, clients, partners,

competitors and other parties that make up its industry.CUSTOMERS AND CLIENTS

Marketers must understand the current and future needs and wants of their target market. They must:

Understand what their customer(s) value now. Be able to identify any changes in customer preferences. Be willing and able to respond to changes. Anticipate how needs and wants might change in the future. Be able to influence customer preferences.

PARTNERS Marketers need to understand their partners, how each partner’s processes work and how

their partnerships benefit each party. Partners include the following: Logistics firms – logistics is the term used to describe all the processes involved in

distributing products; it includes storage and transport. Financiers – provide financial services such as banking, loans and insurance, and the

financial system’s infrastructure facilitates electronic payment transactions with partners and customers.

Advertising agencies – tend to be used by larger businesses since small firms tend to devise their own advertisements with the help of publication, radio station, etc.

Retailers – retailers are the businesses from which customers purchase products. Wholesalers – wholesalers are an intermediary acting between the producer and the

retailers to provide storage and distribution efficiencies to both. Suppliers – suppliers provide the resources that the organisation needs to make in

products. They are a crucial business partner + they must be monitored for the continuity of supply and price.

While the word ‘partner’ suggests a mutually beneficial relationship, there are also many risks involved in working with partners and often the balance of power can be skewed.

SUPPLIERS – marketers must identify, assess, monitor and manage risks to supplies and risks to the price of supplies. Marketers need to know their existing + potential suppliers’ costs, availability, time

frames and planned innovations to determine how they can best create value. Also need to know + manage risks involved in their dependency on their suppliers. Firms need to be aware of and pre-empt any problems (e.g. labour strikes or stock

shortages) with the supply of resources they need to ensure they can fulfil demand.COMPETITORS

Jimmy Ngo Page 10


To succeed, marketers must ensure their offerings provide their target market with greater value than their competitors’ offerings.

Marketers seek to understand their competitors’ marketing mix, sales volumes, sales trends, market share, staffing, sales per employee and employment trends.

Table – Types of CompetitionCompetitive Structure Description ExamplePure Competition Numerous competitors offer

undifferentiated products.No buyer/seller can exercise market power.

Agricultural goods market

Monopolistic Competition Numerous competitors offer similar products, prompting the competitors to strive to differentiate their product offering from others.

Laptop computers market – varied features like packaging, price, memory, processing speed, etc.

Oligopoly A small number of competitors offer similar, but somewhat differentiated, products. There are significant barriers to new competitors entering the market.

Australian airline industry (heavily dominated by Qantas and Virgin AU).

Monopoly There is only 1 supplier and there are substantial, potentially insurmountable, barriers to new entrants.

Many government services are essentially monopoly industries such as road + rails provision.

Monopsony The market situation where there is only 1 buyer.

Federal government is only buyer of submarines manufactured in SA.

Table – Levels of CompetitionLevel of competition Description ExampleTotal Budget Competition Consumers have limited financial

resources and therefore must make choices about which products to consume and which to forgo. In these sense, organisations are competing against all alternative ways the consumer can engage in an exchange of value.

Opportunity cost for university students.

Generic Competition Consumers often have alternative ways to meet their product needs. The same or need can be satisfied by quite different products. This is known as substitutability.

Bus, train and taxi rides are quite different but meet the same need.

Product Competition Some products are broadly similar, but have different benefits, features and prices that distinguish them from competing products.

Soft drinks, water, alcohol, coffee and juice = all beverages.

Brand Competition Some products are very similar, offering the same benefits, features and price to the same target market.

Westpac, ANZ, CB and NAB all offer savings accounts with similar interest rates, internet banking facilities, fees, etc. There is not a lot to intrinsically distinguish

Jimmy Ngo Page 11


these products from each other. This is in contrast to other options for investing savings, such as shares.

THE MACRO ENVIRONMENT The macro environment encompasses the factors outside of the industry that influence the

survival of the company; these factors are not directly controllable by the organisation.- In practice, the macro environment can be at any geographic level including local, state,

country or regional (e.g. Asia Pacific or the EU).- In some cases, it is possible for marketers to INFLUENCE macro-environmental factors.- However, these factors will always remain beyond a marketer’s CONTROL.- The macro environmental framework has been called the ‐ PESTEL framework.

POLITICAL FORCES Political forces describe the influence of politics on marketing decisions. Politics is directly relevant to the marketing organisation through:

Lobbying for favourable treatment at the hands of the government. Lobbying for a ‘light touch’ approach to regulation. The very large market that the government and its bureaucracy comprise. The ability of political issues to affect efforts at international marketing.

- Many organisations, particularly smaller ones, monitor political issues, but do not actively engage in politics. Larger organisations, or the bodies created to represent smaller ones, can engage directly in politics by seeking to influence lawmakers.

ECONOMIC FORCES Economic forces refer to all of those factors that affect how much people and organisations

can spend and how they choose to spend it. Components of this are income, prices, the level of savings, the level of debt and the

availability of credit. Currency fluctuations affect the prices of exports and imports. Interest rates have significant impact on consumer/business spending or investment.

SOCIOCULTURAL FORCES Sociocultural forces describe the social and cultural factors that affect people’s attitudes,

beliefs, behaviours, preferences, customs and lifestyles. Demographics describe statistics about a population – characterised by age, gender,

race, ethnicity, educational attainment, marital status, parental status and so on. One of the sociocultural themes to become a key issue for the marketing organisations over

the past couple of decades is the NATURAL ENVIRONMENT.TECHNOLOGICAL FORCES

Technological forces refer to a broad concept based on finding better ways to do things. Technological change can change the expectations and behaviour of customers + clients and

can have huge effects on how suppliers work.ENVIRONMENTAL FORCES

Environmental forces describe the environmental factors that affect individuals, companies and societies.

Ecological/environmental aspects such as natural disasters, weather and climate change. Growing ecological awareness and social changes influence how firms will operate. Environmental factors can have more influence in certain industries, and marketers need to

be mindful of the factors likely to influence their particular industry (e.g. tourism, farming).LEGAL FORCES

Legal forces refer to the influence of laws and regulations on businesses and organisations.Laws and regulations are intimately tied to politics. Regulations tend to deal with more minor or more specific issues than legislation.

Jimmy Ngo Page 12


Laws refer to legislation enacted by elected officials. Regulations refer to rules made under authority delegated by legislation.

Laws and regulations govern what marketing organisations can and cannot legally do. Laws and regulations fall into the following categories – privacy, fair trading, consumer

safety, prices, contract terms and intellectual propertyMACRO-ENVIRONMENT SUMMARY

POLITICAL – political arena has a huge influence upon businesses and the spending power of consumers. Marketers must consider:

1. The stability of the political environment.2. Influence of government policy, laws and regulation. 3. Government trade agreements such as ASEAN.4. Taxation and government rebate policies.

ECONOMIC – marketers need to understand the economy in the short and long terms. Marketers must consider:1. Interest rates, economic growth (GDP) and consumer confidence.2. Income levels, savings, credit and spending levels.3. Level of inflation, employment and unemployment.4. Exchange rates and balance of trade (i.e. BOGS).

SOCIOCULTURAL – Social and cultural influences have a large influence on businesses. Marketers must understand:

1. Religion, culture, subcultures, values, attitudes and beliefs.2. Population trends including age, household size and composition, marriage and

divorce trends, places lived, ethnicity and health. TECHNOLOGICAL – is vital for competitive advantage. Marketers must consider:

1. Whether offerings can be made more cheaply and to a better standard of quality using new technologies.

2. Whether technology can be used to innovate.3. Whether distribution or communication can be improved using technology.

ENVIRONMENTAL – marketers need to understand environmental influences including ecological and environmental aspects such as weather, climate and climate change. Emissions Trading Scheme (ETS) and carbon tax proposals are generally based on the

theory that the price of products that generate more carbon pollution will increase as a result of the scheme/proposal, reducing demand; whereas carbon-friendly products will fall to be relatively low in price, increasing demand.

LEGAL – marketers need to understand legal and regulatory influences such as:1. Laws including the Competition and Consumer Act, the Privacy Act, the Spam Act, The

Sale of Goods Act, and the Prices Surveillance Act.2. Regulations from industry bodies such as the Advertising Standards Bureau.

SITUATIONAL ANALYSIS AND MARKETING PLANNING Situation analysis is an analysis that involves identifying the key factors that will be used as a

basis for the development of marketing strategy. Situational analysis involves assessing the current situation in order to clearly state where

the company is now.- Situation analysis consists of company, market, environmental and competitive analysis.

Company analysis – goals, objectives, service quality, HR policies, financial status, etc. Market analysis –size, growth, customer segments/needs, buyer behaviour, etc. Environmental analysis – PESTEL. Competitive analysis – major competitors, competitive positioning, market share, etc.

- Together with organisational objectives, situation analysis is used as the platform for marketing planning, as illustrated below:

Jimmy Ngo Page 13


Marketing planning is an ongoing process that combines organisational objectives and situation analyses to formulate and maintain a marketing plan that moves the organisation from where it currently is to where it wants to be.

MARKETING PLAN Executive summary – brief overview, outline main features, communicate key issues. Introduction – brief details on the internal environment – e.g. history, employees, etc. Situation analysis – analysis on micro/macro environmental factors, SWOT analysis. Objectives – Specific, Measurable, Actionable, Reasonable, Timetabled = SMART. Target market – market segments, their characteristics and rationale for selecting. Marketing mix strategy – the 7 Ps. Budget – budgetary requirements, available resources. Implementation – control mechanisms, milestones, etc. Evaluation – outline specific metrics used to evaluate success. Conclusion/future recommendations – brief summary, recommendations, approval, etc.

MARKETING METRICS Marketing metrics are the measures that are used to assess marketing performance. The Australian Marketing Institute offers a framework to guide marketers’ choice of metrics.- The framework’s underlying principles are that metrics should be linked to strategy and

should include, as a minimum, four key elements: Return on marketing investment, customer satisfaction, market share in targeted

segments and brand equity.

Jimmy Ngo Page 14


- It is important to remember that there is no one best marketing metric. In practice, different strategies require different metrics and marketers need to select metrics accordingly.

- Marketers need to be able to articulate the return on investment for a host of reasons.1. Provide solid rationale for continued funding for successful marketing programs. 2. ROI metrics can help marketers allocate resources where they are most effective.3. They can build/share a database of returns on investment that should assist in

evaluating the relative effectiveness of various programs. SWOT ANALYSIS

SWOT analysis is an analysis that identifies the strengths and weaknesses and the opportunities and threats in relation to an organisation.

Strengths are those attributes of the organisation that help it achieve its objectives – competitive advantages and core competencies.

Weaknesses are those attributes of the organisation that hinder it in trying to achieve its objectives. Strengths and weaknesses are internal factors, directly controllable by the organisation.

Opportunities are factors that are potentially helpful to achieving the organisation’s objectives.

o Only beneficial if the organisation responds effectively to them. Threats are factors that are potentially harmful to the organisation’s efforts to achieve its

objectives. Threats and opportunities are beyond the organisation’s direct control.

A SWOT analysis helps marketers minimise the effect of weaknesses in their business, while maximising their strengths. Ideally, marketers will seek to match their strengths against market opportunities that result from competitor’ weaknesses or voids.

Example of a SWOT analysis for a retail shop

Jimmy Ngo Page 15


Lecture 2 – Market Research

Chapter 3 – Market Research THE ROLE OF MARKET RESEARCH IN MARKETING DECISIONS

Formally, market research is a process that ‘links the consumer, customer, clients, partners and public to the marketer through information – information used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process’.

Market research is a business activity that discovers information of use in making marketing decisions. Market research is an essential component of understanding the market. Market research is only of value if the information it provides can contribute to

improved performance.

Market research informs many different types of decisions, including the following:

Jimmy Ngo Page 16


Market segmentation, sales performance, product, distribution, promotion, pricing and attitudes and behaviours.

MARKETING INFORMATION SYSTEMS A marketing information system (MIS) is the structure put in place to manage information

gathered during the usual operations of the organisation.

In addition, to specific market research projects, organisations continuously collect data as part of everyday activities such as sales, purchases, enquiries and accounting.

Well-organised marketing organisations systematically collect and organise this information so that it can be used for future marketing decisions.

An MIS and market research can help support or invalidate marketing decisions that are based on intuition, insight and ‘gut feel’.

OVERVIEW OF THE MARKET RESEARCH PROCESS Market research involves five major components:1. defining the research problem2. designing the research methodology3. collecting data in accordance with the research design4. analysing data and drawing conclusions5. presenting the results and making recommendations Upon implementation of any market research recommendations, careful monitoring is

necessary to ensure the organisation’s marketing goals are being achieved. Market research is an ongoing process and is constantly evolving. In practice, a market research project does not always occur in a strict sequence. At every stage, the effectiveness of the market research process and how it is being

conducted should be monitored and assessed, not just at the end. WHEN MARKET RESEARCH IS APPROPRIATE

Before understanding a market research project, the following factors should be considered: RELEVANCE – market research must be able to address the problem at hand. TIMING – market research is only of use if the information it generates can be analysed

ahead of the time at which the market decision needs to be made. AVAILABILITY OF RESOURCES – depending on the type of information needed, the market

research process can consume considerable time and money. NEED FOR NEW INFORMATION – market research should not be conducted if the

information needed is already available or the decision to be made does not require or will not benefit from the type of information that market research can provide.

COST-BENEFIT ANALYSIS – the decision to invest in market research can only be justified if the potential outcomes are more valuable.

Jimmy Ngo Page 17


ETHICS IN MARKET RESEARCH Market researchers have an ethical responsibility to their clients or employers and those

who participate in the research (just as clients, employers and participants have an ethical responsibility to researchers).

- The market research industry attempts to self-regulate its activities in Australia through the Australian Market and Social Research Society (AMSRS). The AMSRS has a detailed code of practice in place to govern the activities of market

researchers. The main principles of the code are shown below. GENERAL RULES

Research must be objective, based on scientific methods, and conducted in compliance with the law. RESPONSIBILITIES TO RESPONDENTS

Respondents’ identities must not, without their consent, be revealed to anyone not directly involved in the market research project or used for any non-research purpose.

Nobody shall be adversely affected or harmed as a direct result of participating in a market research study.

Respondents must be able to check without difficulty the identity and good faith of researchers.

Respondents’ cooperation in a market research project is entirely voluntary at all stages; they must not be misled when being asked for their cooperation.

No child under 14 years shall be interviewed without responsible adults’ consent. RESEARCHERS PROFESSIONAL RESPONSIBILITIES

Researchers must not, whether knowingly or negligently, act in any way that could bring discredit on the market research profession or lead to a loss of public confidence.

Researchers must always strive to design research that is cost-efficient and of adequate quality, and then to carry this out.

Researchers must not undertake non-research activities (e.g. telemarketing or list building) and research activities simultaneously.

DEFINING A MARKET RESEARCH PROBLEM Before starting a market research project, it is crucial to know – and able to communicate –

precisely what the purpose of the research is. The research problem refers to the question that the market research is intended to answer.- A clearly specified research problem will ensure that the research will actually answer the

question asked of it.- A poorly defined research problem will lead to research that does not generate the

information required to enable the marketing organisation to make marketing decisions.- As the research proceeds, the original questions asked may be re-defined as further

information comes to light or new questions or issues arise.- Once the purpose for the research is known, it is necessary to write a market research brief

to specify the information needed.PREPARING A MARKET RESEARCH BRIEF

Market research brief is a set of instructions and requirements that generally states the research problem and the information required, and specifies the timeframe, budget and other conditions of the market research project.

- The market research brief will not necessarily propose a methodology or approach for the market research.

- Rather, it can communicate the marketer’s needs to the market researcher, leaving the researcher to bring their own expertise as to how to best obtain the information needed by the marketer. The more complex the research project, the more important this becomes.

- The more specific the problem, the more specific the answer will be. A typical market research brief will include the following:

Executive summary – provides an overview of the research brief. Outlines the research requirements + includes sufficient information to enable reader to have basic understanding

Jimmy Ngo Page 18


of proposed project. Important in obtaining approval for research project from management and for enabling potential researchers to determine whether the project is a suitable one for them. Introduction – explains why research needs to be conducted and who is proposing it.Background – details marketing problem that is currently faced, providing all known facts and referencing related research projects that are known to the organisation.Problem definition – effective research briefs clearly state the question that is to be addressed, including any objectives that have been set for the market research project. The information in the research brief is used by researchers to design the research project.Time and budget – the amount of money the marketer is able to spend, when the results are needed. For complex projects – various milestones specified and info on contingencies. Reporting schedule – specifies the precise dates on which preliminary, interim and final reports are required. May also include details about the format of the reports.Appendices – may be included to provide additional detailed background information to further assist the design stage for the market research project.

KEY RESEARCH DESIGN ISSUES The method to be used by a market researcher depends on the information required and

the information already contained within the organisation. Different problems require different methods. The research design is the detailed methodology created to guide the research project and

answer the research question. It must include a research question or hypothesis for testing + a description of the

type(s) of research to be used. - Decline in traditional surveys and interviews.- Challenges in using social media- Use the method that best does the job.

TYPES OF RESEARCH Exploratory research is research intended to gather more information about a loosely

defined problem. Descriptive research is research used to solve a particular and well-defined problem by

clarifying the characteristics of certain phenomena. Casual research is research that assumes that a particular variable causes a specific outcome

and then, by holding everything else constant, tests whether the variable does indeed affect that outcome.

- E.g. if Dominoes wants to determine the impact of different coupon offers (cause) on pizza sales (effect), it needs to conduct casual research.

The degree of knowledge about the research problem at hand affects the type and amount of research that is required.

- Exploratory research is required when management is UNCERTAIN about what actions should be taken and has little knowledge about the research problem. It is used in these situations to generate ideas to help management decide on an

appropriate form of action and to increase management’s knowledge.- When management is aware of the problem but lacks some important piece of knowledge,

descriptive research is undertaken.- Casual research is used for sharply-defined problems.

In casual research, a hypothesis is generated for testing. A hypothesis is a tentative explanation that can be tested.

The hypothesis is generated from existing knowledge and from expectations about what the research project will discover – for example, a marketer expects increasing expenditure to lead to greater brand awareness and conducts research to test this.

More complex research projects may combine approaches.

Jimmy Ngo Page 19


- E.g. a market research project might start with EXPLORATORY research to identify reasons for a fall in sales that has occurred for no apparent reason.

- After discovering possible reasons for the decline in sales, the market research project may continue by undertaking descriptive research to confirm which factors have contributed towards the decline in sales. An outcome may be that the packaging/advertising have contributed to the decrease in sales.

- Finally, casual research may be used to test whether consumers will buy more if the packaging is larger, and to determine which of two potential advertising campaigns will be more effective.

TYPES OF DATAInsights can be gained from information that is already available – secondary data. Where information is not already available or is not up to date, marketers will need primary data.

Secondary data refers to data originally gathered or recorded for some purpose other than to address the current market research problem. Info may be held by the organisation (e.g. sale records, customer profiles generated

from business documents) as part of its MIS, or by some external organisation (e.g. a market research company such as Nielsen Company or a stats organisation like the ABS).

Government agencies, international organisations, media, market research providers, MIS, databases and industry bodies are the most useful sources.

Primary data refers to data collected specifically for the current market research project. Data observed/collected directly from respondents as part of the current project.

- Because it already exists, secondary data is cheaper, more quickly available and readily accessible, and often all that is required.

- Primary data only comes about through a dedicated market research effort.- Thus, marketers should always assess whether their research question can use secondary

before embarking on primary data collection. - Electronic records + internet much contemporary market research now has the potential

to come from secondary sources. However, in drawing on a secondary source, the researcher must be able to assure themselves that the source is trustworthy.

- A technique known as data mining involves processing large data sets to identify patterns and trends that would not be obvious or even discernible upon observation.

- Conversely, primary data collection tends to be more time-consuming, expensive and difficult than using secondary data.

- Also, firms can contract specialist research organisations such as Roy Morgan or CoreData.QUANTITATIVE RESEARCH METHODS

According to a Greenbook research industry trends report, which surveyed over 1300 market research providers GLOBALLY, market research recently has shifted towards QUANTITATIVE methods.

Quantitative research refers to research that collects information that can be represented numerically. Data that can be analysed statistically. It often collects data by asking questions about

‘how much/many/often’ – usually via online, telephone, and mail or in-person surveys.- Generally, if you respond to the researcher by providing a number, ticking a box, or circling

an option in a list or scale, you are participating in quantitative research.- SURVEYS ARE THE MOST COMMON QUANTITATIVE RESEARCH TOOL.

Quantitative research is useful for: Assessing the market size Identifying market segments Predicting the success of proposed marketing campaigns Finding out about customer perceptions of existing products

- Quantitative approaches are usually used for descriptive or casual research .

Jimmy Ngo Page 20


Quantitative research methods – SURVEYSMethod Description Major Advantages Major DisadvantagesInterviewer-led surveyComputer-assisted personal interviews (CAPI)

In-person survey administered by an interviewer e.g. door-to-door, shopping centre

o Comparatively high response rate

o Interviewer can ask more questions based on responses given

o Props and visual aids can be used.

o May be the best option for long or detailed surveys

o Speed

o Lack of anonymity can distort responses e.g. respondents may be reluctant to honestly answer questions about sensitive topics.

o Potential for interviewer and respondent bias

o Comparatively expensive

Computer-assisted telephone interviews (CATI)

Administered by an interviewer over the telephone

Self-response surveyMail Surveys Survey form is mailed

to potential respondents along with instructions on how to complete and return the form.

o Comparatively cheapo May provide a lot of

informationo Suited to obtaining

closed responses e.g. yes/no.

o Potential anonymity can lead to less respondent bias.

o Wide geographic reach

o Convenient for respondents

o Speed of response (online + mobile).

o Poor response rate – easy for potential respondents to ignore

o Delay in receiving responses (mail)

o Email surveys may be intercepted by spam filters

o Poor response rate can lead to an unrepresentative sample.

o Mobile surveys have to be short.

Online Surveys Email or web-based surveys, completed and returned online.

Mobile Surveys Android, Blackberry or iPhone survey, completed and returned on a handheld device.

Other quantitative market research approaches are experimentation, observation (in person or automated response/people metrics) and biometrics.

Other Quantitative Research MethodsMethod Description Major advantages Major disadvantagesEXPERIMENTS Manipulation of variables

of interest while holding everything else constant in a bid to determine just what and how particular things affect behaviour.

The variable of interest is the independent variable & variable of influences is the dependent variable.

o Allows researchers to establish cause and effect

o Tracks actual behaviour (e.g. what people do) rather than relying on consumers’ self-reports.

o The artificial setting may not truly reflect real-life settings.

o Variables other than the one being studied could be influencing the outcome.

OBSERVATION Studying people’s behaviour and the circumstances

o Measures actual behaviour as

o Can be expensiveo Results can be

significantly

Jimmy Ngo Page 21


surrounding it. opposed to intended or reported behaviour.

affected by the subjectivity of the observer.

o May provide ‘shallow’ data (e.g. it may reveal a lot of descriptive information, but little about the motivation or cause of observed behaviours)

BIOMETRICS Determining a participant’s psychological response to certain stimuli. Examples include heart rate, respiration (breathing), muscle activity, brain activity (e.g. neuromarketing) and oculometric (e.g. eye tracking) activity.

o Measures actual response as opposed to intended or reported behaviour.

o Cannot explain ‘how’ a consumer thinks or what they remember.

o The science is still evolving.

o Very expensive.o Can be

uncomfortable for respondents.

QUALITATIVE RSEARCH METHODS Qualitative research is research intended to obtain rich, deep and detailed information

about the attitudes and emotions that underlie the behaviours that quantitative research identifies through techniques such as interviews and focus groups.

- Rather than identifying numerical patterns, qualitative research aims to get to the reasons behind behaviour.

- It provides the ‘why’ that can be missing from the ‘how much/many/often’ questions.Qualitative research is useful for: Understanding customer needs Evaluating potential new products Testing promotional campaigns Understanding customers

- Qualitative research approaches are usually used for exploratory research .- Because they involve in-depth discussion, a skilled researcher can elicit detailed responses

from participants.Qualitative research methodsMethod Description Major Advantages Major DisadvantagesDepth interview Researcher driven with

questions to guide the interview.

o Elicits rich, deep and detailed info

o Interviewer can explore responses with further questioning to ensure as much information is gained from the process as possible.

o Expensiveo Can be difficult to

obtain participantso Time-consumingo Difficult to use for

sensitive topicso Interviewer can bias

resultso Cannot necessarily

generalise results to the wider population

FOCUS GROUP A group of respondents o Provides multiple o Expensive

Jimmy Ngo Page 22


are brought together, introduced to an idea, concept or product, and their interactions observed.

perspectiveso Elicits rich, deep and

detailed informationo Focus groups often give

rise to responses or issues not foreseeable in survey design – the researcher/mediator can explore these issues by asking additional questions.

o Can be difficult to obtain participants

o Time-consumingo Group setting makes

it difficult to use for sensitive topics

o Researcher or moderator can bias results

o Cannot necessarily generalise results to the wider population

OBSERVATION Recorded notes describing actual events.

o Potentially higher insight into actual behaviour patterns

o Can be unobtrusive

o Expensiveo Time-consumingo Can be difficult to

implement ethically (e.g. privacy concerns)

In addition to deciding the appropriate method for a research project, the market researcher must decide on the participants – done through process of SAMPLING.

SAMPLING Population means all of the things (often people) of interest to the researcher in the

particular research project.- It is rarely possible to conduct market research directly on the entire population, so market

researchers try to study a smaller number of representative members of the population using a statistical principle known as SAMPLING.

Sampling is the process of choosing members of the total population. Sample is the group chosen for the study. Probability sampling is a sampling approach in which every member of the population has a

known chance of being selected in the sample that will be studied. Results obtained can be considered to represent the entire population.

Non‐probability sampling is a sampling approach that provides no way of knowing the chance of a particular member of the population being chosen as part of the sample that will be studied. Sample results obtained unlikely to be representative of the population.

Sampling error is a measure of the extent to which the results from the sample differ from the results that would be obtained from the entire population. Because sampling error is directly related to the extent to which findings from a sample

can be generalised to the population of interest, marketers must take steps to ensure that sampling error is minimised.

Sample MethodsSample Method Type Description ExampleRandom sampling Probability Each member of the

entire population to be studied has an equal opportunity of being selected for the sample.

If the population of interest is the members of your marketing course, then a random sample of every 10th student from an alphabetical list of all students enrolled in the course is needed.

Stratified sampling Probability The population is divided Consider morning and night

Jimmy Ngo Page 23


into different groups based on some characteristic (e.g. age, sex, home state) and then from each of those groups a random sample is chosen.Stratified sampling is used when you expect there to be variations in characteristics between groups within the population.

classes. Morning = people with no children and night = people with children. Divide into 2 groups and then choose a sample from each.

Quota Non-probability Divides the population into groups based on a number of characteristics and then arbitrarily chooses participants from each group. The findings cannot be generalised.

Study seeks 50 female and 50 male participants. People are approached to participate in the study until the quota is roached.

Convenience Non-probability Participants are selected on the basis of convenience. The simplicity of this approach makes it a tempting option, but the findings cannot be generalised.

Fans at a cricket game are surveyed on their beverage preference.

DATA COLLECTION, ANALYSIS AND REPORTING - LEARNING OBJECTIVE – ‘’Understand the key principles of data collection and analysis, and

the subsequent reporting of market research findings to inform marketing decisions’’.Data must be collected according to the methods specified in the research design.The whole market research process needs to be managed according to project management principles to ensure the market research is delivered in accordance with the research brief.The data collection process can be conducted in-house or it can be outsourced.

MANAGING DATA COLLECTIONTime and financial resources are limited, so budgeting and scheduling need to be planned and managed to ensure the most benefit is derived from the research investment. A number of tools exist to help project managers maintain control of projects.

1. Gantt charts are a visual representation of who is doing what and when.2. The critical path (analysis) method involves dividing the research process into parts,

estimating the time to complete each and arranging them so that a stage cannot proceed until all of the prerequisite parts are complete. Very useful for seeing the effect of a delay in one part of the project on the overall

progress of the project.DATA ANALYSIS

Once data has been collected, it needs to be FILTERED and ORGANISED. Depending on how the data was collected, it may be necessary to perform some quality

control techniques to eliminate invalid data (e.g. interviewer recorded response incorrectly or a nonsensical answer from respondent).

Once cleaned up, the results need to be analysed.

Jimmy Ngo Page 24


Quantitative Analysis- To be converted into knowledge that can be used to inform decision making, the

quantitative (numerical) data that has been collected must be analysed and understood.- Using software such as SPSS or Excel. Statistics based on one, two or more variables show

trends and patterns, to support or refute the hypothesis.Qualitative Analysis

- Qualitative data are usually in the form of interview transcripts, video recordings, observation record sheets and lengthy narrative responses to questions.

- Procedures such as reduction and coding are available to interpret and organise qualitative data to allow meaningful conclusions to be drawn. Researchers REDUCE qualitative data by categorising concepts and key variables in the

study according to their properties or dimensions. CODING involves developing a series of propositions about the relationships between

key concepts identified in the study. DRAWING CONCLUSIONS

After data analysis, conclusions must be drawn and recommendations made. Conclusions should state what the data has shown in terms of the original research question .- The set of conclusions from the data will suggest one or more courses of action.- The alternatives will usually be formulated by drawing on more information than just that

generated by the market research process.REPORTING THE FINDINGS

After data is analysed and conclusions draw, the findings must be presented in a format that will enable the marketing decision makers to use the information.

- A written research report should include the following sections: Cover page – title of study, date of preparation, marketing org and researcher name. Executive summary – research objectives, findings, conclusions and recommendations. Table of contents – enabling readers to easily find areas of interest in report. Methodology – summarising research plan, any variations from the plan in the

implementation and rationale for the approach taken. Findings – making clear how the research has been answered the research questions.

Supported by tables and graphics as required. Statement of limitations – research findings to be assessed in context of any limitations

that arose during the course of the research. Conclusions and recommendations – conclusion from findings and recommendation of

possible courses of action. Appendices – to present detailed, often technical information.

RESPONDING TO THE RESEARCH PROBLEM – THE VALUE OF MARKET RESEARCH Market research results in decisions that take the form of marketing plans and strategies. Market research begins with an issue, discovers information, results in informed decisions

about how to respond to the issue and ultimately results in outcomes that match the marketing goals.

ASSESSING THE EFFECTIVENESS OF THE MARKET RESEARCH The effectiveness of market research undertaken is evaluated in order to prove a return on

the investment. The ultimate test is whether the research answers the research problem and leads to

decisions that contribute towards achieving the organisation’s marketing goals.- This will be captured by marketing metrics such as brand awareness, customer satisfaction

and product sales. The market research process itself should also be measured for effectiveness.

Suitable measures include whether the project was completed within the specified budgets and timelines, the quality of information generated, the depth of the analysis, and whether management could make an informed decision with research findings.

Jimmy Ngo Page 25


Lecture 3 – Consumer Behaviour

Chapter 4 – Consumer Behaviour WHAT IS CONSUMER BEHAVIOUR?

To formulate a marketing mix that best serves our potential customers, we need to know the reasons and motivations behind the decisions consumers make.

Consumer behaviour describes the analysis of the behaviour of individuals and households who buy goods and services for personal consumption.

- An understanding of consumer behaviour informs every decision made about the marketing mix (the 4Ps or 7Ps).

- The range of possible consumer behaviours is almost limitless – however, we can identify a range of consumer decision-making behaviour along a continuum from simple habitual decision-making behaviours at one end to high complex extended decision-making behaviours at the other.

We know our target market, now we want to find out :- Why they behave in a certain way.- Why they have preference for particular brands. The central question is :- How do consumers respond to the various marketing stimuli the marketing organisation

might use? Question to ask about CB?

When consumers express interest in buying a product there are a number of questions we might ask.

- Why?- What is the person really seeking?- What needs is he or she trying to satisfy?

A person has many needs at any given time.INFLUENCES ON CONSUMER BEHAVIOUR

These influences may be: Specific to a situation in which the consumer finds themselves. Related to group (social or cultural) factors. Unique to the individual.

- Refer to the figure below for a summary of key influences.

SITUATIONAL INFLUENCES Situational influences are simply the circumstances a consumer finds themselves in when

they are making purchasing decisions and/or consuming the product.- The principal situational influences may be classified as:

Physical location – characteristics of location in which purchase decision is made. Social interaction – interactions with others at time which purchase decision is made.

Jimmy Ngo Page 26


Time available – for a purchase decision Motivational – the reasons for purchase Consumer mood – the mood of a person at the time of the purchase decision.

GROUP FACTORS Group influences comprise SOCIAL FACTORS and CULTURAL FACTORS.

CULTURAL FACTORS Cultural factors are those influences on behaviours that operate at the level of the whole

society or of major groups within society. The study of human behaviour at the cultural level has traditionally been the focus of

sociology + anthropology, and a no. of key concepts used by marketers and behavioural researchers were originally discovered and studied by sociologists/anthropologists.

CULTURE Culture is the system of knowledge, beliefs, values, rituals and artifacts by which a society or

other large group defines itself. Culture is multi-dimensional and includes both tangible and intangible elements. Tangible elements include housing, technology, clothing, food and artworks. Intangible elements include laws, beliefs, customs, education and institutions.

Hofstede, in his original landmark studies, found that national cultures could be distinguished by variations across four core dimensions that he described as follows:

Power distance is the degree of inequality among people that is acceptable within a culture. Western societies tend to score low on ‘power distance’, reflecting egalitarian culture,

while Asian societies score high, reflecting greater extent of social inequality. Uncertainty avoidance is the extent to which people in a culture feel threatened by

uncertainty and rely on mechanisms to reduce it. Individualism is the extent to which people focus on their own goals over those of the

group. Western societies are generally ‘individualistic’, Asian ones are more ‘collectivist’.

Masculinity is the extent to which traditionally masculine values (e.g. assertiveness, status and success) are valued over traditionally feminine values (e.g. solidarity, quality of life) within a culture in Hofstede’s cultural dimensions. AU, NZ and UK = more ‘masculine’ cultures, while Scandinavian + Thailand = feminine.

Follow-up research in Asia identified a fifth dimension – long-term orientation and more recently, Hofstede and Minkov have added a sixth dimension – indulgence versus restraint.

Long-term orientation is the extent to which a pragmatic, long-term orientation is valued over a short-term focus.

Indulgence is the extent to which a relatively free gratification of basic and natural human drives related to enjoying life and having fun is allowed.

Restraint is the extent to which gratification of needs is supressed and regulated by means of strict social norms.

SUBCULTURES Subculture refers to groups of individuals whose members share common attitudes, values

and behaviours that distinguish them from the broader culture in which they are immersed. Subcultures are usually identified based on differences in key demographic

characteristics such as age, ethnicity, geographic location or religious affiliation. Multiculturalism is the existence of diverse cultures within a society.- Subcultures are important to marketers when their shopping and purchasing behaviour are

significantly different from the remainder of the population, and they represent a distinct and commercially significant marketing opportunity.

SOCIAL CLASS Social class is a group comprising individuals of similar rank within the social hierarchy.

An individual’s social class is defined by values and lifestyles, and often by indicators such as income, occupation and education.

Jimmy Ngo Page 27


- In AU and NZ, some aspects of consumer behaviour can be attributed to social class, but often those behaviours are better attributed to more specific underlying indicators of social class. E.g. marketers would often be better served paying attention to the economic indicators

of purchasing power such as income and perhaps occupation or educational background.- For this reason, socioeconomic status can often be a useful concept for marketers studying

consumer behaviour, where the primary focus is on ‘purchasing power’. Conversely, social marketers often need to understand the behaviour of people at lower

levels of socioeconomic status as this has been identified as a reliable predictor of individuals or groups who engage in high risk behaviour such as crime or gambling.

SOCIAL FACTORS Is focused on understanding how the group influences the behaviour of its individual

members, typically through group pressures on the individual to conform with group norms. A reference group is any group to which an individual looks for guidance as to what are

appropriate values, attitudes or behaviours. The influence of reference groups is particularly strong when the individual lacks

previous experience as a guide for behaviour, and where that behaviour carries a level of social risk.

Social risk is the belief by a consumer that a particular choice of product may have potentially negative social consequences.

- Three major types of reference groups have been identified: Membership reference groups are the groups to which the individual belongs.

Individuals will commonly identify strongly with membership reference groups and take on the values, attitudes and behaviours that define members of the group.

For example, most individuals will seek to confirm to the expectations of their employer or professional group.

Aspirational reference groups are groups to which the individual would like to belong. In these circumstances, the individual is likely to mimic the values, attitudes and

behaviours of the aspirational group. Such groups can therefore become important role models and marketers may seek to

have their products adopted by members of aspirational groups, especially where the product is new and socially conspicuous, such as fashion or cars.

Dissociative reference groups are groups with which the individual does not wish to be associated or which the individual may wish to leave.

- A reference group can therefore help the individual in their purchase behaviour through suggesting information sources, the range of product alternatives and appropriate ways of evaluating and choosing between alternative products.

An opinion leader is a reference group member who provides relevant and influential advice about a specific topic of interest to group members. In a marketing context, opinion leaders often influence group members in relation to

appropriate purchases of products. Marketers will often attempt to identify opinion leaders and to influence them in their

product attitudes and purchase behaviour. - New products take time to develop popularity in the market. The way in which innovations

are adopted can be described by the theory of diffusion of innovations. ‘Innovators’ introduce innovations, ‘early adopters’ including opinion leaders then drive

adoption by the ‘early majority’, before it reaches the ‘late majority’ and the ‘laggards’. There may be ‘non adopters’.‐

- Diffusion of innovations process is primarily driven by social networks and communications.

Jimmy Ngo Page 28


Because the role of the opinion leader is so important, the model suggests the existence and logic of a two-step flow of communication – in which information can be directed to or focussed on the opinion leader who will communicate it to the broader population.

For most people, the social group with the most influence over their behaviour is FAMILY.- From a marketing perspective, the ‘nuclear’ family – parents and siblings – teach the

individual appropriate behaviours relating to purchasing and consuming products. The family life cycle is a series of characteristic stages through which most families pass.

Stage Description Example of marketing consequencesYoung Singles Single person living apart from

parents.Important target market for home furnishings, cars and entertainment products.

Young marrieds Young married couple without children

Target market for new house construction, functional furniture and whitegoods.

Parenthood A married couple with children at home.

Heavy consumers of household products such as detergents, food and pharmaceuticals.

Post-parenthood An old married couple with no children at home.

Important buyers of luxury goods, packaged tours, investment products and health care products.

Dissolution A single surviving spouse. Buyers with a focus on health, physical security and continuing financial independence.

While family roles are changing, family consumption decisions can still largely be categorised into four types:

- Autonomic decisions – most household products are typically purchased by either the husband OR wife.

- Wife-dominant decisions – although role of women has changed in recent decades, women still make the majority of household purchasing decisions related to food, health care, laundry and bathroom products, children’s clothing and kitchen products.

- Husband-dominant decisions – a small range of products are traditionally purchased by men, including hardware and garage products.

- Syncratic decisions – some products are purchased by husband AND wife acting jointly. Typically such decisions would be the major household purchasing decisions.

Phenomenon of pester power can be a powerful influence on family consumption decisions. Pester power is the influence of children on their parents’ purchasing decisions.

ROLES AND STATUS Each individual in a society plays a number of roles, each of which entails a complex set of

expectations – parent, child, neighbour, employee, employer, customer, friend, etc. The influence of individuals within the decision-making social group will frequently be based

on the perceived status of the individual, which reflects the position occupied by an individual in a notional hierarchy of group members. Such status can be based on a range of criteria, including formal role, age, length of

group membership, technical competence, access to resources or social popularity.INDIVIDUAL FACTORS

Individual factors refer to the personal and psychological factors that influence consumer behaviour independently of social circumstances.

PERSONAL CHARACTERISTICS Personal characteristics refer to the demographic, lifestyle and personality factors that

influence consumer behaviour.

Jimmy Ngo Page 29


These personal characteristics, in some ways, constitute an individual’s identity and, in this sense, are objective and relatively stable in the short term (although they will inevitably change as the individual ages and develops). This short-term stability is attractive to marketers in that these characteristics are

relatively easy to observe and measure.DEMOGRAPHICS

Demographic factors are the vital and social characteristics of populations, such as age, education and income. They describe the general make-up of the population in terms of existing objective,

measurable characteristics that are either assumed or demonstrated to be related to the purchase or consumption of the products. E.g. occupation

In a strict sense, demographic characteristics do not cause shopping or choice behaviour (since the individual will always have free will + choices), but rather they vary systemically and predictably with the observed behaviour.

LIFESTYLE Person’s lifestyle is defined by how they spend their time and how they interact with others.- There may be a significant difference between an individual’s actual lifestyle and their

preferred lifestyle. - Lifestyle is typically measured through a lengthy series of questions, the outcome of which is

frequently used in psychographic (or lifestyle-based) market segmentation. PERSONALITY

Personality refers to the set of unique psychological characteristics and behavioural tendencies that characterise an individual, formed through a complex combination of genetics and experiences. Perhaps the most distinctive characteristic that defines an individual’s behaviour, yet it is

notoriously difficult to measure reliably. Marketers are interested in understanding those aspects of personality that are linked to

an individual’s purchasing behaviour.PSYCHOLOGICAL CHARACTERISTICS

Psychological characteristics refer to the internal factors, independent of situational and social circumstances, which shape the thinking, aspirations, expectations and behaviours of the individual.

MOTIVATION Motivation is an individual’s internal drive to satisfy unfulfilled needs or achieve goals.

Motivation is often made up of individual motives. A motive is specific to a particular drive, such as hunger.

- While motivation is often specific to the individual and situation, some motives are consistent over time and across the population. E.g. most eat breakfast in the morning.

- Understanding motives presents an opportunity for marketers who wish to promote consumption of their products and brands, and also to social marketers, who are interested in discouraging consumption.

Maslow’s hierarchy of needs is a theory of motivation that suggests that people seek to satisfy needs according to a hierarchy that places lower order needs before higher order needs.

Jimmy Ngo Page 30


1. Lower order, physiological, needs are the most basic: food, water, shelter, clothing, sleep and sex.

2. The need for physical and emotional safety and security.3. Social needs such as the desire for love, affection and belonging.4. Ego or esteem needs which relate to self-esteem and the individual’s need to be recognised

and respected by others. E.g. owning a prestige car.5. Self-actualisation needs refer to an individual’s need for self-improvement, achievement,

fulfilment and success.PERCEPTION

Perception is the psychological process that filters, organises and attributes meaning to external stimuli.

- The first stage of the process of perception –filtering – enables the individual to deal with only those inputs that are relevant to their particular needs and circumstances.

- In this sense, perception is selective and can result in the following: Selective exposure – the tendency to actively seek out messages with which the

audience already agrees or those that are pleasant and to avoid messages that are threatening or disagreeable.

Selective attention – the process by which an individual chooses to take in only those messages which are relevant to their needs. E.g. particular brands, price, etc.

Selective distortion – an individual’s tendency to perceive messages that are inconsistent with existing beliefs or attitudes in such a way as to reduce the inconsistency.

Selective retention – the tendency to remember only that information which is consistent with other beliefs and which is relevant to an individual’s needs.

- The ultimate outcome of the perceptual process is the assigning of meaning. Individuals strive for cognitive consistency, so messages that are unexpected or with

which the individual disagrees are likely to be distorted or disregarded. Two people might act differently in the same situation .

This may be caused by differing perception of the situationBig Mac meal with carrots perceived as less calories than just Big Mac meal alone i.e. adding a healthy element to an unhealthy meal will make people perceive the meal as less calories. (SciAm, Dec 2010)

BELIEFS AND ATTITUDES Beliefs comprise descriptive or evaluative thoughts that an individual holds regarding their

knowledge or assessment of a person, idea, product and so on. Beliefs may be based on objective knowledge, opinions or faith. When they involve a judgemental or emotional component, they can form the basis of a

strong brand image.

Jimmy Ngo Page 31


An attitude describes an individual’s relatively stable and consistent thoughts, feelings and behavioural intentions towards an object or idea.

- Attitudes, along with beliefs, therefore form the background against which new products or ideas are evaluated.

- Attitudes clearly relate to reputation, brand image and brand equity and negative attitudes can destroy reputation, brand image and brand equity, especially through negative word-of-mouth .

Attitudes and beliefs also display inertia – they do change, but usually only gradually.- They also exist as, and within, a gestalt (i.e. as a sum total or configuration), and it is natural

for individuals to strive for consistency in the pattern of their attitudes and beliefs.- Brand Loyalty is a particular, and important, manifestation of this generalised psychological

tendency. Three components that make up an attitude are:1. The cognitive component, which comprises the person’s awareness of knowledge about the

object or issue.2. Affective component, which refers to feelings towards, or approval of, the object or issue.3. The behavioural component, which reflects the individual’s actions or intentions towards

the object or issue. Tracking studies ask the same set of questions regularly over an extended period, enabling

organisations to measure long-term changes in consumer attitudes and to ‘benchmark’ these attitudes against competitors.

LEARNING Learning is the process by which individuals acquire new knowledge and expertise that they

can apply to future problems, opportunities and behaviour. In the context of consumer behaviour, learning relates to acquiring knowledge about

new products, ideas or problems that have some potential application to fulfilling a need or want.

Behavioural learning theories stress the role of experience and repetition of behaviour. At the simplest level, ‘classical conditioning’, originally identified by Russian physiologist Ivan Pavlov, describes learning in which behaviour that results in a pleasant experience is likely to be repeated. Classical conditioning is most relevant in low-involvement purchases – that is, where the

product is relatively unimportant to the consumer and the cost of being wrong is equally minimal. In behaviour learning, consumers learn from experience, frequently with very little deliberate thought or reflection.

Cognitive learning theories describe learning that takes place through rational problem solving, and that emphasises the acquisition and processing of new information. The emphasis is on reasoning (rather than experience), and so decision making is likely

to be protracted, deliberate, rational and well-informed. Cognitive learning is generally more relevant in high-involvement purchasing decisions, which are typically for high-cost, important and infrequent purchases that involve significant levels of uncertainty and risk for the consumer in the event of making a wrong decision.

CONSUMER INVOLVEMENT AND THE DECISION-MAKING PROCESS The consumer decision-making process is the process of need/want recognition,

information search, evaluation of options, purchase and post-purchase evaluation that are common to most consumer buying decisions. Involvement is the level of engagement undertaken by a consumer when considering

perceived consequences of a purchase. Habitual decision making are low-involvement purchasing decisions, usually involving small,

routine, low-risk products. Consumer minimises search and shopping efforts for routine + habitual purchases.

Jimmy Ngo Page 32


Limited decision making are limited-involvement purchasing decisions, usually involving infrequently bought, but familiar, products.

Extended decision making are high-involvement purchasing decisions involving high-price, high-risk and/or infrequent, unfamiliar products. In such purchases, consumers will seek to gather comprehensive information concerning

the nature of their or want, the product category, the available brands, their relative merits and the specific details of the purchase.

Impulse purchases are made with very little involvement and, arguably, no planning or even forethought. In such instances, the purchase decision is taken before the buyer has even recognised a need.

Need/Want Recognition Need/want recognition typically occurs when a buyer becomes aware of a discrepancy

between a desired state and the actual state.- Often, an individual will become aware of an unsatisfactory state of affairs such as poor

physical or emotional wellbeing.Information Search

- After the recognition, the buyer searches for information about how to solve the problem. Typically, an information search will begin with the individual examining their knowledge

and memory for appropriate solutions. Once this first stage has been done, decision makers look externally for more information.

Evaluation of Options A successful information search will usually yield a range of alternative solutions for

consideration. From the range of evaluative criteria, the potential buyer rates and eventually ranks the

alternative solutions.Purchase

In the purchase stage, the particular product and specific brand are chosen. It is important to recognise that the purchasing decision may, in fact, be to not purchase.

Post-Purchase Evaluation After the purchase, the buyer continues to evaluate their purchase decision.

Jimmy Ngo Page 33


- In fact, once the purchase decision is made, the consumer is in a much better position to evaluate their choice and so they will continue to assess whether the product matched their expectations.

Cognitive dissonance refers to a purchaser’s second thoughts or doubts about the wisdom of a purchase they have made.

- For example, a computer purchased today was $500 then 2 days later, it was $350. Regrets?

Lecture 4 – Business Buying Behaviour

Chapter 5 – Business Buying BehaviourLearning Objectives:

Explain the characteristics of different types of business markets Understand the major issues involved in marketing to business customers Discuss the characteristics of demand in business markets Analyse business buyer behaviour and decision making.

BUSINESS MARKETS Business markets are made up of the individuals or organisations that purchase products for

resale, use in the production of other products, or for use in their daily business operations.- The overall business market comprises four major categories:1) Reseller markets2) Producer markets3) Government markets4) Institutional markets

Reseller Markets Reseller markets are the market of retailers, wholesalers and other intermediaries that buy

products in order to sell or lease them to another party for profit. Generally, the reseller does not make any substantial change to the products.

- The distribution of products usually involves various marketing intermediaries: Wholesalers purchase products from suppliers and producers for resale to other

intermediaries, including retailers (and sometimes directly to organisational buyers and consumers).

Industrial distributors purchase products from producers and sell them on to organisational buyers (retailers, producers, governments and institutions).

Retailers purchase products from suppliers, manufacturers or other intermediaries (including wholesalers and distributors) for resale to consumers.

Jimmy Ngo Page 34


- Resellers and producers share a common interest in developing successful partnership arrangements in which both parties’ sales and profit objectives can be met.

- Purchasing, or ‘procurement’, is a crucial role in resellers’ businesses. Procurement role is becoming increasingly specialised as resellers source more and more

supplies from offshore, leading to establishment of so-called e-procurement specialists.- On the demand side, resellers estimate the level of demand for a product in order to

determine whether to deal in it, the likely volume and the appropriate resale price.Producer Markers

Producer markets (also known as ‘industrial markets’) are the markets in which business organisations and professionals purchase products for use in the production of other products or in their daily business operations. The following are all examples of transactions that take place in the producer markets:

- Buying raw materials to make other products.- Buying component parts to include in other products.- Buying finished and semi-finished items to produce other products. - Buying professional services to aid the production of other products. - Buying office supplies to use in daily operations.

Government Markets Government markets refer to the market for selling products to national (Commonwealth),

state (provincial) and local (municipal) governments for use in providing services for citizens.- Because governments have such an enormous responsibility for the wellbeing of their

citizens, government markets are subject to extensive rules + regulations designed to ensure that government business is conducted legally and ethically.

- In particular, government purchases are closely monitored by government financial authorities, which are formally responsible for ensuring transparency and contestability so that the government achieves the best value for the taxpayer.

- Because of the time, cost and uncertainty involved in government tenders, many companies are reluctant to do business with government, regardless of the potential sales revenues.

Institutional Markets Institutional markets are the business markets in which non-public, non-for-profit

organisations buy and sell products. - They compete with other community service organisations for ‘market share’ and ‘share of

mind’ (just like any business).- However, not-for-profit organisations typically have different goals and fewer resources than

commercial organisations.- They often rely on volunteer members, public donations and bequests.- Many such organisations are increasingly used by government to deliver ‘frontline’ welfare

services, usually as a result of competitive tendering processes.MARKETING TO BUSINESS CUSTOMERS

High-value/High-volume Purchases Business purchasing decisions frequently involve very large sums of money (potentially

billions of dollars) for high-value products or high-volume purchases. High-value products are relatively common in the producer, government and institutional

business markets. High-volume purchases are common in the reseller market .

For example, because of the total value of their purchases, resellers such as supermarkets can negotiate significant volume discount on prices.

High-volume purchases are also relatively common in the producer market.Price Competition and Negotiation

Prices directly affect business costs and, ultimately, profitability. In the business market, price competition will be intense and sellers’ profit margins will be minimal.

Jimmy Ngo Page 35


Price is often much more open to negotiation than in consumer markets, particularly based on purchase volumes.

Beyond the initial purchase price, business purchasers consider other factors related to the lifetime cost of the purchase, including service costs, running costs, ‘consumables’ and depreciation.

Number of Buyers and Sellers There are far fewer buyers and sellers in business markets than in consumer markets. The smaller number of buyers + sellers makes long-term and stable relationships crucial. The smaller number of players can also give some organisations enormous market power.

Another consequence of the smaller number of buyers + sellers is that business markets tend to be concentrated in major centres such as Sydney, Melbourne and Auckland.

Formal Assessment of Purchase Alternatives Business customers often demand extensive and detailed information about product

features and specifications to ensure that the products fully meet the organisation’s needs. Firms use this information, along with price, distribution, and promotional factors to more

thoroughly and formally compare the relative strengths and weaknesses of alternatives. It is common in business markets for discussions and negotiations between buyers & sellers

to take place over an extended period of time and to involve considerable marketing effort.Ongoing Relationships

Organisational buyers and their suppliers often seek to develop very close and ongoing relationships. In some cases, this develops into a formal partnership or joint venture.

To ensure ongoing quality of products in long-standing purchasing arrangements, buyers and sellers often establish statements of minimum levels of performance, particularly in relation to high-volume and high-value purchases.

Long-term supply agreements are often best incorporated into ‘preferred supplier’ and ‘preferred customer’ arrangements that offer a degree of certainty to both parties.

- Business buyers place especially high importance on the ongoing service they receive from suppliers. As in consumer markets, service often involves a warranty.

- There are often numerous additional aspects of ‘after sales’ service in business markets: Transport, JIT delivery, returns, repairs, technical help desk support and dedicated

account and relationship managers. Demand Characteristics

Because any particular product a business purchases is usually just one of many, businesses tend not to adjust their consumption of it in relation to price changes.

Rather they pass the cost on to their customers, or, over time, seek to identify substitute products.

In business markets, demand is much more likely to be affected as a consequence of some change in demand of the buyer’s products.

CHARACTERISTICS OF BUSINESS DEMANDDERIVED DEMAND

Derived demand refers to the demand in business markets that is due to demand in consumer markets.

- Derived demand has a ‘knock-on’ (or even ‘snowball’) effect at all levels of the value chain.- E.g. micro-processor manufacturers = dependent on demand in computer consumer market.

Demand Fluctuations Business products are prone to fluctuating demand much more so than products in

consumer markets. Business customers usually make purchase decisions based on expectations of long-run

demand. When combined with the long economic life of products and the volatility of demand, this results in purchase decisions occurring infrequently, and also being subject to reversal or deferment.

Jimmy Ngo Page 36


Business customers make purchase decisions infrequently and based on expectations of long run demand, resulting in demand that fluctuates more so than in consumer markets.‐

JOINT DEMAND Joint demand refers to the interdependent demand for products that are used together in

the production of another product.- Business buyers usually make purchasing decisions based on the total purchasing and

running costs + benefits, rather than evaluating the individual items.PRICING AND DEMAND

Inelastic demand is the demand that is relatively independent of price, a common characteristic of demand within industries in business markets.

Inelastic demand is an economic concept that describes demand that is relatively insensitive to changes in price. A large change in price will result in only a small change in demand.

- Generally speaking, industry demand tends to be price inelastic in business markets, while company demand can be highly elastic.

BUSINESS BUYING BEHAVIOUR Business purchases usually take the form of a straight rebuy, a modified rebuy or a new task

purchase. The form depends on the business’s purpose for the purchase and reflects the level of

involvement the business has with the purchase decision. This level of involvement is also reflected in the buying approach the business takes, which

may involve some or all of negotiation, description, inspection or sampling. A straight rebuy is the low-engagement purchase of the same products as previously

purchased from established vendors under established terms. - Typical of the majority of business purchases (routine) – often through an automated or

semi-automated ordering system. Businesses generally want straight rebuys to be efficient and convenient. For suppliers, straight rebuys can offer a relatively reliable source of income, provided

they offer that convenience and efficiency. - Straight rebuys occur when a firm has found a satisfactory product + its needs are stable. Modified rebuy is the purchase of a product that is similar, but not identical, to one a

business has previously purchased, after evaluating a small range of alternatives. New task purchase is a first purchase in a product category in response to a new problem,

process or product. - The business will need to engage in an extended information search to develop an

understanding of technical alternatives, product specifications, possible vendors and likely price, including consumables and servicing arrangements.

Typically, business purchasing decisions involve one or more of the following:1. Negotiation – business purchases that involve large volumes of products, high-value

products, infrequently purchased products or custom-built products are often subject to extensive negotiation between the buyer and the seller.

2. Description – some products can be described by a set of technical specifications and, given a level of trust between the buyer and seller, this may be sufficient to form the basis of a business purchase.

3. Inspection – some products do not lend themselves to description or specification. 4. Sampling – for high-volume, standardised purchases a sample of the product may be

inspected or analysed. The sample is taken to be representative of the quality of the product. This method is most appropriate for bulk purchases of commodities.

The Organisational Buyer In most organisations, important business decisions are made by groups or must be

approved by a number of levels in the organisational hierarchy.

Jimmy Ngo Page 37


Buying centre refers to the groups and structures within an organisation that make business buying decisions.

- The various roles undertaken by members of the buying centre are as follows: Initiators are those who recognise the need for the purchase. Users are those for whom the product is being purchased. Influencers are those who develop the product specification and who are responsible for

formally evaluating alternatives. They are often technical experts. Deciders are those with the authority to make the final decision to purchase. Buyers are those in the organisation that ultimately make the purchase. They – in

collaboration with the other members of the buying centre – choose between suppliers, deal with the seller, and negotiate purchase terms and conditions.

Gatekeepers are those who control information relevant to a purchasing decision. - Each role may be undertaken by one person or several people, and some people may fulfil

multiple roles. - The crucial tasks for the potential supplying organisation are to identify:

Those individuals who play the key roles such as the decider and gatekeeper. The stages in the decision process. The criteria upon which the decision is likely to be made.

THE BUSINESS DECISION-MAKING PROCESS

1. Problem/Need Recognition - Business purchase decisions begin when a problem or unfulfilled need is recognised.- In the business buying centre model, the person who recognises the problem = initiator.2. Information Search and Specification Development - Second stage involves seeking information on the problem/need and possible solutions, and

formalising the product requirements. - This stage requires extensive input from the members of the buying centre, especially the

users and influencers, who are often best placed to describe how the product meets needs. 3. Evaluation of Options - Once the product specification has been developed, the buying centre searches for potential

suppliers and specific product solutions. - New task purchases are likely to involve extensive evaluation of potential suppliers and

solutions. This will often involve inviting ‘expressions of interest’ or more formal proposals from potential suppliers.

4. Purchase

Jimmy Ngo Page 38


- The detailed evaluation of suppliers + their offerings leads to a decision about whether to purchase, which product to purchase and which supplier to choose.

5. Post-Purchase Evaluation - Following purchase, the organisation – especially the users within the organisation buying

centre – can fully evaluate whether the product meets expectations.- If performance of product/supplier is below expectations, the business purchaser may

choose to seek corrective action or compensation from the supplier. Alternatively, they may choose to search for a new supplier, particularly for recurrent or service product purchases.

ENVIRONMENTAL INFLUENCES Business purchasing decisions are influenced by the organisation’s internal environment (the

nature of the organisation, and the power structures and individuals within it) and the external environment (the micro or industry environment and the macro environment). Refer to Chapter 2 (or lecture 1).

Internal Environmental Factors Internal environmental factors can explain why each organisation may make different

purchasing decisions in different ways. o The nature of the organisation – its size, location, industry, objectives and resources. These

characteristics are fundamental to the types of products the business will require.o The structure of the organisation and its buying centres – how responsibilities and

authorities are arranged within the organisation and, more specifically, the buying centres. The complexity of the buying centre, purchasing processes and organisational policy can influence an organisation’s willingness and ability to respond to purchasing demands or opportunities. For the marketer, it is important to understand status, roles and the relative influence of members of the buying centre (essentially, building relationships).

o The individuals within the organisation and its buying centre – those personal characteristics of members of the buying centre that may affect their decisions, including their personality and status within the organisation. For example, marketers, generally, might expect younger members to be more technologically informed and more open to innovative products, but to encounter resistance from older members who might be more risk averse. Individual factors are a power influence on business purchasing decisions. They make

developing trust and confidence between customers and suppliers – which is the key to success in long-term business-to-business relationships – extremely challenging.

External Environmental Factors External environmental factors are not directly controllable by the organisation – this means

that there is a greater level of risk involved in decisions made in relation to the external environment.

This can, in turn, lead to organisations deferring or avoiding business purchasing decisions, particularly in times of uncertainty.

Sometimes, decisions not to purchase can involve high penalty costs. Conversely, economic optimism, which follows after a period of sustained economic growth,

may encourage organisations to make ambitious long-term purchasing decisions. Technological breakthroughs or improvements can also stimulate purchase decisions. Competitors’ actions are also crucial influences on how firms make purchasing decisions.

Lecture 5 – Markets: Segmentation, Targeting and Positioning

Chapter 6 – Markets: segmentation, targeting and positioningLEARNING OBJECTIVES:

explain the broad concept of a ‘market’ understand the target marketing concept

Jimmy Ngo Page 39


identify market segmentation variables for consumer and business markets, and develop market segment profiles

select specific target markets based on evaluation of potential market segments Understand how to effectively position an offering to a target market in relation to

competitors, and develop an appropriate marketing mix.KNOWING THE MARKET

A market is a group of customers with heterogeneous needs and wants.- Consumers and businesses vary considerably in their needs, wants and demands, and it is

virtually impossible for an organisation to successfully appeal to every consumer or business. To overcome this problem, the marketer seeks to identify and understand those parts of

the total market to which it can offer the most value. The organisation then makes use of its knowledge of these market segments to develop

the most effective marketing mix, or offer, for each segment it chooses to target. This approach is known as the target marketing concept – identifying smaller, more

targetable market segments, and then tailoring marketing mix to best appeal to those segments.

TARGET MARKETING Markets can have a variety of characteristics and perspectives :1. Buyers have common wants, needs and demands.2. Buyers who have unique wants, needs and demands.3. The market contains subgroups – known as market segments – who share common or

similar needs in regards to certain characteristics. Market segments are the subgroups within the total market that are relatively similar in

regards to certain characteristics. The marketer can make an undifferentiated offer to the market as a whole (mass

marketing). The market can make a differentiated offer to each individual buyer (one-to-one or

customised marketing). The marketer can make an undifferentiated offer to groups of buyers with common

wants or needs, but differentiate the offerings it makes to different groups. Target marketing is an approach to marketing based on identifying, understanding and

developing an offering for those segments of the total market that the organisation can best serve.

- Target marketing is based on THREE PREMISES:1. Individual buyers or groups of buyers can be identified.2. Sellers understand the needs of buyers.3. Sellers will seek to shape their offer to meet the needs of target buyers.

MASS MARKETING A mass marketer sees buyers as having common wants, needs and demands. Creating, communicating and delivering a single product offering to meet the needs of most

people in the market. This represents an undifferentiated approach – ideally, offering can be produced in large

volumes + at a low cost per unit (taking advantage of ‘economies of scale’). Low cost makes it possible to sell at low price (expansion of market share).

In this way, organisations that practise mass marketing can capture very large markets at very low cost per unit, ensuring high levels of profitability. Strategy is characteristic of commodity products for example. The market for government service also displays a high level of homogeneity.

ONE-TO-ONE MARKETING The one-to-one marketer seeks to appeal to each customer by providing a unique,

customised offering that will meet their individual needs.

Jimmy Ngo Page 40


Seller builds close relationship with customer then, brand loyalty (i.e. repeat purchasing) and positive word-of-mouth follows.

This approach usually results in higher unit costs and a more restricted market. These conditions typically form the basis of a focus or niche strategy.Many small services businesses take a one to one marketing approach, for example, ‐ ‐hairdressers.Also common in industrial business markets, where the size of purchases often dictates customisation of the marketing mix for each potential customer.

TARGET MARKETING BASED ON SEGMENTS The third marketing option – market segmentation – is the logical and common choice for

many organisations that want to meet the needs of large numbers of customers more closely, but that lack the resources to address each customer as an individual. When choosing target markets, the organisation will generally consider three factors.

1. Its own resources – financial, marketing and other resources to cover entire market.2. Market demand – do all customers look for the same attributes + benefits in product?3. Competition – have competitors already segmented market or are they mass marketing? Differentiated targeting strategy is a marketing approach that involves developing a

different marketing mix for each target market segment.- Approach is favoured by most market leaders, which are able to serve almost all viable

market segments with a product and offer designed specially to meet their needs.- Entails higher costs, whereby achieving high profits through this strategy generally requires a

combination of higher retail prices, high volume sales, strong market share and strong customer loyalty.

PRODUCT AND MARKET SPECIALISATION Small organisations with limited financial resources frequently adopt one of the following

specialised approaches to target marketing. Product specialisation is a target marketing strategy in which all marketing efforts are

concentrated on offering a single product range to a number of market segments. Market specialisation is a target marketing strategy in which all marketing efforts are

focused on meeting a wide range of needs within a particular market segment. Product-market specialisation is target marketing strategy in which market efforts are

concentrated on offering a single product to a single market segment. Specialisation approaches usually only succeed if the following five conditions are met.

Jimmy Ngo Page 41


1. Market is characterised by a wide range of needs and product preferences.2. Clear market segments, or product categories, are identifiable, each with its own distinctive

preferences or characteristics.3. Market is clearly divisible into segments so that each can be evaluated and compared.4. Individual market segments, or product categories, are sufficiently large to represent

profitable sales volume.5. Organisation is able to reach individual market segments within a particular marketing offer

and mix. Organisations that pursue a specialisation strategy seek to establish a dominant position

in their chosen market niche. Such an approach enables an organisation to concentrate all its limited financial and

other resources while achieving a strong market reputation and a secure position among its loyal customers.

At the same time, such an approach limits a company’s grown potential in longer term.THE TARGET MARKETING PROCESS

MARKET SEGMENTATION The first stage of the target marketing process is market segmentation. There are two steps in the market segmentation phase: identifying variables that can be

used to define meaningful market segments; and profiling the market segments so they can be assessed in the second stage of the target marketing process.

IDENTIFY SEGMENTATION VARIABLES The target marketing process aims to identify groups of buyers (market segments) who have

wants or needs in common that are a good match with the organisation’s ability to deliver products of value.

Segmentation variables refer to the characteristics that buyers have in common and that might be closely related to their purchasing behaviour.

- The key to effective segmentation is to choose segmentation variables that are: Easy to measure and readily available (e.g. demographic data available from census) Linked closely to purchase of the product in question.

- Market research plays a crucial role in the process of understanding the link between segmentation variables and consumers’ purchasing behaviour.

SEGMENTING CONSUMER MARKETS- The range of possible variables for segmentation falls into four broad categories –

geographic, demographic, psychological and behavioural variables.

Jimmy Ngo Page 42


GEOGRAPHIC SEGMENTATION Geographic segmentation is market segmentation based on variables related to geography.

Useful geographic variables include: Climate, local population, region, topography, urban, suburban and rural location.

Geographic segmentation is particularly relevant to a country that is both large and diverse, such as Australia.

The number of buyers or potential buyers in any given geographical area is an important measure of market potential.

An emerging trend in segmentation is geo-demographics, which combines demographic variables and geographic variables to profile very small geographical areas (suburbs).

DEMOGRAPHIC SEGMENTATION Demographic segmentation is market segmentation based on demographic variables, which

are the vital and social characteristics of populations, such as age, education and income. Quantifiable social characteristics

- They are the most commonly used variables for market segmentation.- Age can be linked to the emergence of market segments such as generation X, Y, Z.

The Baby Boomer generation – Baby Boomers were born in the prosperous years after World War II (1946 – 64) and are now beginning to retire from the workforce. Overall, the BBs have been one of the most powerful generations: relatively wealthy, in positions of power in society, politics and the workplace – and willing and able to say active as prominent members of society in their older years.

Generation X – people born between 1965 and 1980. Their formative years in Australia were during a period of high unemployment, high inflation and high interest rates. The generation is characterised by a strong work ethic, loyalty and frustration with Baby Boomers.

Generation Y – Born from 1980 to 2001 and sometimes also known as ‘Nintendo Generation’ – is characterised by comfort with technology, strong, almost tribal, friendships and loyalties; and high expectations in all spheres of their lives.

Generation Z – Born after 2001, was born digital. The internet, video games, mobile phones, wireless networks, social media and ‘friends’ they’ve never met are all second nature.

- Ethnicity is a useful segmentation variable for marketers of some products.- Household composition is an umbrella variable that is influenced by a number of other

demographic variables, including age, income, marital status and the number of members in the household. Complicated by changes occurring in composition such as increasing divorce rates,

increasing no. of single-parent households, increasing non-children families, etc.- Income is a strong determinant of what people can buy.- Sex has obvious implications for marketers of clothing, beverages, pharmaceuticals and

magazines. PSYCHOGRAPHIC SEGMENTATION

Psychographic segmentation is market segmentation based on the psychographic variables of lifestyle, motives and personality attributes.

- Psychographic segmentation is based on the need to understand not who you are, but how you live your life. This is reflected in activities such as hobbies or choice of entertainment.

- Psychographics seeks to understand consumers by identifying their mind-sets and how they are expressed in their lifestyles.

- Psychographics combines insights of psychology with demographics to give a more precise description of consumer groups.

- People who share common demographics may lead very different lifestyles.- While some psychographic systems suffer because they are conceptual in nature, do not

reliably measure personality or do not effectively link relevant personality traits with

Jimmy Ngo Page 43


consumer behaviour, other psychographic systems are grounded in empirical research and do effectively measure and link personality to purchase decisions.

BEHAVIOURAL SEGMENTATION Behavioural segmentation is market segmentation based on actual purchase and/or

consumption behaviours. In contrast to geographic, demographic and psychographic – behavioural is not based on

consumer characteristics.- It is therefore likely to be a better indicator of market segments and their purchasing

behaviour than segmentation based on generalised consumer characteristics.- Behavioural variables include:

Benefit expectations, brand loyalty, occasion, price sensitivity and volume usage.Segmentation based on EXPECTED BENEFITS represents the most convincing basis for market segmentation, in that it is based upon the marketer’s concern with a deep understanding of purchase and consumption motivations. It is a means to better understand why consumers purchase particular products and

brands, and to base market segmentation around this understanding. Such approach is likely to prove rigorous, but time-consuming and expensive, as the

consumer benefits sought for any particular purchase are likely to be specific to that particular product or product category.

OCCASION is an important variable in products such as entertainment, wine, travel and high-fashion. The assumption behind occasion-based segmentation is that it is the occasion that dictates the decision to purchase and the final choice of product.Segmentation based on VOLUME USAGE seeks to identify heavy, medium and light users of a product category, helping an organisation identify and target, for example, the 20% of buyers who typically account for up to 80% of profits, volume purchase or value.

SEGMENTING BUSINESS MARKETS Business markets are often characterised by a small number of buyers, each of which might

display a very close relationship with the seller. Under such circumstances, traditional market segmentation variables may be less relevant,

and ‘customised’ or ‘one-to-one’ marketing may be the most logical approach. Business marketers often isolate business customers by using commercial industrial

directories that contain detailed information on companies.- Segmenting based on factors such as the size of the business customer is roughly equivalent

to the demographic segmentation approaches that were described for consumer markets.- Another ‘demographic’ type of approach in business markets relates to industry (sometimes

known as vertical markets or segments).- A final commonly used method of segmentation in business markets is based on geography.

EFFECTIVE SEGMENTATION CRITERIA To ensure that segmentation is effective, the segments should be evaluated against the

following criteria.- Measurability. Variables used to define the market segment must lend themselves to be

accurate and comprehensive measurement. Segments based on demographic variables are highly measureable and extensive data

are available through commercial databases and organisations such as the ABS. More abstract variables, such as personality, can be difficult to measure.

- Accessibility. Segments must be able to be clearly identified, reached and served through distribution and communication channels.

- Substantiality. Market segments must be of sufficient size and purchasing power to make them a profitable target market. Ideally, segments should be as large as possible, but still be homogeneous in their

purchase preferences and behaviour.

Jimmy Ngo Page 44


- Predictability. Segments are only of use if marketing programs can be formulated to identify, communicate with and service those chosen market segments. Segmentation based on personality or psychological variables, while theoretically sound,

might be incapable of easy or successful implementation, particularly if no relevant and recent data are available.

PROFILE MARKET SEGMENTS Market segment profile is a description of the typical potential customer in the market

segment; that is, a description of the common variables shared by members of market segments and how the variables differ between market segments. With all the range of possible segmentation variables that can be used, it is usual for

segments to be constructed in a multivariate and hierarchal fashion. To develop an intimate understanding of market segments will usually require

comprehensive qualitative and quantitative market research. Describes the typical potential customer in the segment and how the variables differ

from other segments. Market segments must be sufficiently different from others so a distinctive offer can be

created for each segment, without risk of overlapping or sending confusing messages. The number of possible segments multiplies with each extra variable.

MARKET TARGETING Market targeting refers to the selection of target markets resulting from an evaluation of

identified market segments. Second stage of the target marketing process.

Involves a systematic examination of the range of possible market segments, their potential sales volumes and revenues, and the relative ability of the organisation to satisfy the expectations of members of these market segments.

This step also requires a close understanding of competitors, and how their offerings are seen by potential target market segments.

- The choice of appropriate targeting strategy ultimately depends on: An understanding of the size and attractiveness of the market segments that have been

identified. An assessment of the organisation’s ability to service and compete for the chosen

market segments.

EVALUATE POTENTIAL SEGMENTSSALES POTENTIAL

Market potential is the total sales of a product category that all organisations in an industry are expected to sell in a specified period of time assuming a specific level of marketing activity.

Sales revenue is the total volume of sales multiplied by the average selling price. The total volume of sales is determined by the organisation’s MARKET SHARE.

Market share is the proportion of the total market held by the organisation.

Jimmy Ngo Page 45


Company sales potential is an estimate of the maximum sales revenue and market share that an organisation can expect to achieve for a specific product.

- Several factors influence the organisation’s ability to achieve its sale potential in a given market segment: Market potential (i.e. maximum possible sales in total market for product category) Organisation’s ‘served market’ (i.e. market segments for which organisation chooses to

compete) The level of industry marketing activity, which directly influences the market potential. The effectiveness of an organisation’s promotional spending, which depends on the

organisation’s ‘share of voice’ (i.e. organisation’s promotional spending relative to total industry promotional spending) and the use of effective ‘tactical’ promotional spending designed to maximise impact.

- One approach to estimating sales potential is to look at total market size, current market share, planned marketing activities and environmental factor.

- Another approach to estimating sales potential is to examine individual parts of the market, take into account the size or population of each territory and the organisation’s relative share of total marketing activity, and then sum each territory’s estimates to produce a sales figure for the total market.

COMPETITIVE SITUATION- The activities of competitors already in the marketplace and their relative market shares.- Without a competitive assessment, sales estimates can be misleadingly optimistic especially

where an organisation is entering an established competitive market.COST STRUCTURE

- The organisation needs to consider the costs involved in creating, communicating and delivering an offering to meet the needs of each potential market segment.

- The organisation’s cost structure includes production costs, administrative overheads and all associated promotion and distribution costs.

- When considering an organisation’s cost structure, it is important to distinguish between fixed and variable costs.

SELECT TARGET MARKETS- With a detailed evaluation of potential market segments based on sales potential, the

competitive situation and the organisation’s cost structures, the organisation can proceed to decide which market segments it will target. Having identified a range of potential target market segments, the organisation needs to

undertake a rigorous analysis to choose between the range of possible segments. Assuming that several segments offer sufficient revenue opportunities, the organisation

must decide which and how many of these segments to target. Estimating market potential in each segment is important in determining whether the

chosen target market strategy will lead to healthy sales volumes and sustainable profitability.

This step requires estimation of market potential for individual market segments and, in this process, it is important that the organisation develops sales forecasts based on systematic, objective and reliable methods, and that forecasts are sufficiently accurate.

POSITIONING- The organisation must determine how its offer is ‘positioned’ in the minds of each of its

target market segments and develop its marketing mix accordingly. Positioning describes the way in which the market perceives an organisation, its products

and its brands in relation to competing offerings. - The organisation can pursue positioning to manage:

How it, as a whole, is perceived relative to competitors in the minds of its stakeholder groups.

Jimmy Ngo Page 46


How their brands are seen, typically focusing on distinguishing product attributes. How the market distinguishes its offerings from those of closely competitive brands.

- Position is fundamentally important for organisations, because it describes how the organisation is perceived by the market, relative to its competitors on the attributes that customers regard as important in their decision making.

- Positioning involves two steps – firstly determining the position that the company wishes to occupy in the minds of buyers and secondly, developing a marketing mix to reflect the expectations of the target market segment and which reflects that positioning.

Company positioning is a positioning strategy designed to create a single market perception of the entire organisation in relation to competitors.

Brand positioning is a positioning strategy designed to create a market perception of a particular brand, usually based on product attributes.

DETERMINE POSITION FOR EACH SEGMENTo A common technique for determining positioning is called perceptual mapping, which

typically produces two-dimensional map showing how each of the competing brands relate to each other in terms of a range of product attributes. This assumes that consumers in the target segment are already familiar with the brand

and its competitions and are able to subjectively or objectively compare them on attributes that they believe to be important.

ANALYSING CURRENT POSITIONING- Process of establishing organisation’s current positioning is clearly of strategic importance

and, as such, should be undertaken based on rigorous analysis and market research.- First step in determining current positioning of brand is to identify those attributes that

consumers use to distinguish between competing products or brands (‘salient’ attributes). Qualitative research methods are commonly used to ascertain salient attributes.

- Then the organisation needs to assess how its own product or brand, and competitors’ products or brands are positioned in relation to those attributes. Typically done through quantitative survey research – using rating scales to establish

how each competing brand scores on each of the product attributes within each of the target market segments.

- The next step is to devise some concept of the ideal position of the organisation’s product or brand.

Jimmy Ngo Page 47


This may need to be adjusted on the grounds of practicability – the desired position may not be technically feasible or attainable given the resources available.

- Finally, the organisation needs to develop a plan to move to the desired position.COMPETITIVE POSITIONING AND REPOSITIONING

- A further attribute which is not represented in the perceptual map, but which is present in almost all consumers’ mental maps, is PRICE.

- Positioning is fundamentally important in the marketing of individual brands and in the organisation’s long-term competitive success.

- It should be apparent that, once established, a competitive position should be protected and nurtured for the long term.

BRAND POSITIONING and BRAND RE-POSITIONING

DETERMINE THE MARKETING MIX FOR EACH SEGMENTThe marketing mix for each segment should:

- Be consistent with the desired positioning.- Be internally consistent – each element of the marketing mix should be coordinated and

supportive of the other elements.- Be sustainable in the long term.

Lecture 6 – ProductLEARNING OBJECTIVES:

define ‘product’ and product attributes describe the product life cycle, new product development and the product adoption process outline how an organisation can differentiate its products to obtain a competitive advantage explain value of branding brand management describe the roles of packaging explain key aspects of product management and positioning through the product life cycle.

Chapter 7 – ProductPRODUCTS: GOODS, SERVICES AND IDEAS

A product is a good, service or idea offered to the market for exchange.Goods are physical, tangible offerings that are capable of being delivered to a customer. Purchase of goods usually involves transfer of ownership from marketer to consumer.As they are intangible, a service cannot be touched or tasted and does not involve ownership; instead, you experience a service.An idea can also be offered to the market in the form of a concept, issue or philosophy. Ideas are often the products of community organisations, charities and political parties.

TOTAL PRODUCT CONCEPT- To understand how a product’s value is perceived by potential customers, TPC is useful.

Jimmy Ngo Page 48


Total product concept is a view of the product that describes the core product, expected product, augmented product and potential product in order to analyse how the product creates value for the customer. It is crucial for marketers to understand that when customers choose a product, they do not purchase some ‘thing; rather, they buy a solution to a problem.TPC = way of viewing a product as a totality of value and benefits it provides to a customer.

- Analysing a mobile phone using the total product concept: Core – provision of communications Expected – e.g. conveniently sized phone, long-lasting battery, etc. Augmented – e.g. web connection (4G compatible), camera/video, GPS maps, etc. Potential – e.g. digital television, contactless payment capability

THE CORE PRODUCT- The core product comprises the fundamental benefit that responds to the customer’s

problem of an unsatisfied need or want.- Regardless of other changes made to a product; core product generally remains the same.

THE EXPECTED PRODUCT- The expected product describes those attributes that actually deliver the benefit that forms

the core product.- They are the attributes that fulfil the customer’s most basic expectations of the product.- Marketers generally try to differentiate their offering using fundamental characteristics such

as branding, packaging and quality standards at the expected product level.THE AUGMENTED PRODUCT

- At the augmented product level, the product delivers a bundle of benefits that the buyer may not require as part of the basic fulfilment of their needs.

- The augmented product level allows marketers to significantly differentiate their offerings from those of competitors.

- It is often the augmented product features that form the main reason for choosing a particular brand. This can include support services, such as guarantees.

THE POTENTIAL PRODUCT- Comprises all possibilities that could become part of the expected or augmented product.- This includes features that are being developed, planned or prototyped, as well as features

that have not yet been conceived. Over time, many potential product features become part of the augmented product or even the expected product.

PRODUCT RELATIONSHIPS Product item is a particular version of a product.

That can be differentiated from the organisation’s other product items by characteristics such as brand, ingredients, style or price.

Product line is a set of product items related by characteristics such as end use, target market, technology or raw materials.

Product mix is the set of all products that an organisation makes available to customers. PRODUCT CLASSIFICATION

Jimmy Ngo Page 49


Consumer products are those products purchased by households and individuals for their own private consumption.

Business-to-business products are those products purchased by individuals and organisations for use in the production of other products or for use in their daily business operations.

CONSUMER PRODUCTS- The main categories are SHOPPING, CONVENIENCE, SPECIALTY and UNSOUGHT products. Shopping products are consumer products that involve moderate to high engagement in the

decision-making process, in the purchase decision being based on consideration of features, quality and price. Shopping products exhibit characteristics such as – they are expected to last a long time,

purchased relatively infrequently, stocked by a small number of retail outlets, sell in low volumes and have reasonably large profit margins.

Examples include electrical appliances, furniture, cameras and clothing. Convenience products (fast-moving consumer goods) are inexpensive, frequently purchased

consumer products that are bought with little engagement with the decision-making process. Available from wide range of retailers, usually cheap, high volumes and are often self-

service products so packaging plays role in grabbing consumers’ attention.1. Staple products – e.g. milk, bread, rice and soap. 2. Impulse products – bought with little planning, often purchased only after seeing the item at

the retail store. Often positioned immediately next to the cash register in a store.3. Emergency products – bought when the product is needed in an ‘emergency’ e.g. umbrella. Specialty products are highly desired consumer products with unique characteristics that

consumers will make considerable effort to obtain. Purchaser is not interested in comparing brands or considering alternatives. Characteristics – pre-selected by consumer, no close substitutes/alternatives, available

in limited no. of outlets, purchased infrequently, sell in low volumes, high profit margins. Unsought products are goods or services that a consumer either knows about but doesn’t

normally consider purchasing, or doesn’t even know about. For category (a) – a sudden, unexpected need may arise for consumers.

BUSINESS-TO-BUSINESS PRODUCTS- Classified into three categories – parts and materials, equipment, and supplies and services. Parts and materials are business-to-business products that form part of the purchasing

business’s products. Raw materials – unprocessed natural materials that are used in the production process. Components – processed items that form part of a business’s product.

Equipment refers to capital equipment and accessory equipment used in the production of the business’s products. Capital equipment – installation such as buildings and machinery. Accessory equipment – items that support production but do not form part of product.

Services and supplies are business-to-business products that are essential to business operations, but do not directly form part of the production process. Business services – e.g. financial, legal, market research and office cleaning services. Maintenance, repair and operating (MRO) supplies – e.g. oil (for maintenance), rivets

(for repair) and paper (for operations). PRODUCT LIFE CYCLE

Jimmy Ngo Page 50


The product life cycle refers to the typical stages a product progresses through: new product development, introduction, growth, maturity and decline.

- The PLC has five stages:1. New product development – discussed later. 2. Introduction – first appearance of product in marketplace. Market knows little about

product and so the organisation must often make considerable investment in promotional activities to build awareness. Sales start at zero and must offset promotional costs associated with product launch and recoup the R&D costs occurred in the NPD stage.

3. Growth – increasing popularity, sales and profits. 4. Maturity – as competitors enter market with similar products, the novelty of the product

wears off, alternative products become available and the product’s sales + profitability peak and start to fall. There will be changes to the marketing mix, in expectation that this will allow product to enter the growth stage again.

5. Decline – sees sales and profits fall. The marketer must decide whether to reduce its investment in product, drop the product from its product mix or change the product.

NEW PRODUCT DEVELOPMENT New product development occurs when the organisation develops the idea, undertakes

research, prepares prototypes, pre-test the product and make modifications before the product launch. What may be classified as a new product includes:

1. New to the market – new technology that has never been seen before.2. New to the company – a product already in the marketplace but first time produced by a

certain company.3. New to the product line – extension of whatever the company currently produces.4. New to the product – modifications, enhancements and improvements to a specific product.

NEW PRODUCT DEVELOPMENT PROCESS1. Idea generation – is the phase in which ideas for new products are created. Most new

product ideas are the result of a planned approach to generating innovations.2. Screening – may involve analysing the organisation’s ability to produce the product, the

target markets’ potential interest, the market size, product cost, break-even point, etc.3. Concept evaluation – designed to determine whether product could satisfy a customer need

or want and to identify those attributes that provide most value to potential customers.4. Marketing strategy – includes describing the projected sales and profits, market positioning,

potential target market, marketing mix strategies and long-term goals.5. Business analysis – reviews how the new product will affect the organisation’s costs, sales

and profit projections.

Jimmy Ngo Page 51


6. Product development – if business analysis finds new product to be a good fit with overall objectives developing prototype and often additional R&D will result in optimum product.

7. Test marketing – activities that enable a ‘real world’ assessment of the entire marketing mix that supports the product.

8. Commercialisation – launching the new product into the market.PRODUCT ADOPTION PROCESS

Product adoption process is the sequential process of awareness, interest, evaluation, trial and adoption through which a consumer decides to purchase a new product.

THE DIFFUSION OF INNOVATION Diffusion of innovations is the theory that social groups influence the decisions made by

individuals in such a way that innovations are adopted by the market in a predictable pattern over time.

- Innovators – usually adventurous, interested in new tech/ideas and willing to take risks.- Early adopters – careful choosers of new products and are often opinion leaders.- Early majority – more deliberate in their choice of new product and try to avoid taking risks.

Jimmy Ngo Page 52


- Late majority – more cautious and sceptical but eventually adopt due to economic necessity or social pressure.

- Laggards – often wary of new products and ideas, generally prefer products that are familiar.PRODUCT DIFFERENTIATION

Product differentiation refers to the creation of products and product attributes that distinguish one product from another. Most of the differentiating features are part of the augmented product layer of the TPC. Some characteristics that customers may perceive to be differentiators include design,

brand, image, style, quality and features. Any of these can potentially give the organisation a competitive advantage. Warranties, installation, in-home training and free phone helplines are examples of ‘add-

on services’ that some organisations can use to differentiate their products.BRANDING

Brand is a collection of symbols such as a name, logo, slogan and design intended to create an image in the customer’s mind that differentiates a product from competitors’ products.

Brand image is the set of beliefs that a consumer has regarding a particular brand. Positive or negative image depends on things like past experience or word-of-mouth.

BRAND NAME A brand name is part of a brand that can be spoken and can include words, letters and

numbers. A brand mark is the part of a brand not made up of words – it often consists of symbols or

designs. A trade mark is a brand name or brand mark that has been legally registered so as to secure

exclusive use of the brand.BRAND EQUITY

- For marketers, the brand: Identifies the organisation’s products. Differentiates the organisation’s products from competing products. Attracts customers. Helps introduce new products. Facilitates the promotion of same-brand products.

Brand equity refers to the added value that a brand gives a product. All of the value in products arises from the choices that consumers make among those

brands offered to them for purchase; brand equity is thus a consumer-based concept.BRAND LOYALTY

Brand loyalty is a customer’s highly favourable attitude and purchasing behaviour towards a certain brand. Some firms encourage brand loyalty by having a loyalty program, whereby customers

are given an incentive to continue to make repeat purchases of a particular brand.BRAND METRICS

Brand equity metrics include – brand assets (e.g. trade-marks and patents), stock price analysis, replacement cost, brand attributes, brand loyalty, willingness-to-pay analysis.

BRAND STRATEGIES- Strategies are INDIVIDUAL BRANDING, FAMIILY BRANDING or BRAND EXTENSION. Individual branding is a branding approach in which each product is branded separately.

Giving each its own specific identity. Individual branding can – help position a product in the market place, help reach a

different market segment and avoid confusion with existing branded products. Family branding is a branding approach that uses the same brand on several of the

organisation’s products. Effective way to introduce new products when a brand has an established reputation.

Brand extension is giving an existing brand name to new product in a different category.

Jimmy Ngo Page 53


E.g. Virgin – music, air travel, mobile phones and credit cards.BRAND OWNERSHIP

Manufacturer brands are brands owned by producers and clearly identified with the product at the point of sale.

Private label brands are brands owned by resellers, such as wholesalers or retailers, and not identified with the manufacturer. E.g. Coles has its ‘Farmland’ and ‘Savings’ brands.

Generic brands are those products that only indicate the product category. Usually found in supermarkets.

LICENSING Licensing is an agreement in which a brand owner permits another party to use the brand on

its products.FRANCHISING

Franchising is basically an agreement to use an established model. Franchisor permits the franchisee to use its business model. Franchisee pays fees to the

franchisor, agrees to abide by the systems and rules set out in franchisee agreement and assumes the responsibility for the success of the individual franchise.

CO-BRANDING Co-branding is the use of two or more brand names on the same product.

The use of co-branding has grown recently as organisations try to – capitalise on the brand equity of multiple brands, improved the perceived value of a product, and maintain existing branding after another organisation’s brands are acquired.

Co-branding can be source of competitive advantage in assisting the product to increase distribution, reputation and differentiation.

PACKAGING Packaging is a bag, wrapper or container for the product.- There are three main types of packaging.1. The primary package holds the actual product. E.g. bottle2. The secondary package is the material used to hold or protect the product. It can be

removed and discarded after purchase. E.g. seal on the bottle to prevent leakage.3. The shipping package is the material used to carry the product out of the factory, and

through the channel of distribution (e.g. wholesalers and transporters) to the retailer. LABELLING

Labelling usually forms part of the package and provides identifying, promotional, legal and other information. Compulsory label information (legislation) may include:Brand name + logo, product name, size of packaging, quantity, origin of goods, nutritional information, ingredients list, use-by-date or date of packaging and bar code.

MANAGING PRODUCTSAPPROACHES TO MANAGEMENT

- Traditional approach to organisational structure allocates different business functions to different groups within the business. E.g. HR department, finance department.

- A business may choose to employ one or more managers to take responsibility for the management of particular products or product lines, or the management of a particular brand within the organisation’s portfolio of brands.

- Another alternative is to appoint a market manager who will be responsible for managing the marketing activities aimed a particular part of the target market.

PRODUCT/MARKET GROWTH STRATEGY MATRIX Igor Ansoff’s product/market growth strategy matrix is illustrated below.

Current Products New ProductsCurrent Markets Market penetration Product development

Jimmy Ngo Page 54


New Markets Market development DiversificationMarket penetration occurs when a business increases market share within the existing marketplace. Involves selling more of the current product/service to existing customers, or finding

new customers within the current markets. LEAST RISK option.Product development involves developing new products for the current market. This can mean the development of new capabilities, modifications or an entirely new

product. RISKY option.Market development is when a business finds new markets for its existing products. This strategy can involve market research and segmentation of potential markets to

identify new markets. RISKIER option.Diversification is when a business introduces new products into new markets. A lot of uncertainty (RISKIEST) but if successful, it can be very profitable.

MANAGING PRODUCTS THROUGH THE LIFE CYCLE- New product development (NPD) involves idea generation, screening, concept evaluation,

marketing strategy, business analysis, product development, test marketing and commercialisation.

- By understanding the PLC, the marketer can determine which stage their product is in and decide on appropriate decisions for the next stage, be they related to packaging, pricing, advertising, positioning or some other element of the marketing mix.

Line extension is a new product that is closely related to an existing product in a product line. The development of line extensions is a less risky and less expensive way to introduce a

product. Product modifications refer to the changes to the characteristics of a product to supersede

the original. The main types of product modification relate to: FUNCTIONALITY, QUALITY and AESTHETICS

Repositioning Product positioning is the way in which the market perceives a product in relation to

competing offerings. Creation and maintenance of a certain perception of a product in customers’ minds. One purpose of repositioning is to move product into a NEW growth phase. Positioning comes in 2 forms – AGAINST competitors and AWAY from competitors.

Product obsolescence- Obsolescence may be either PLANNED or UNPLANNED.- E.g. planned is when Apple introduces new iPhones. Unplanned obsolescence occurs when

a product becomes superseded by another, often through technological or social change. Product deletion is the process of removing a product from the product mix.

THE ROLE OF LAW To define acceptable versus unacceptable behaviour

Marketing law includes any regulations that attempt to ‘draw the line’ between acceptable competitive business conduct and unacceptable business practices.

MARKETING LAWS- Designed to protect :

Consumers Traders The competitive system that underpins the ‘free market’ Australian economy.Consider the application of the Competition and Consumer Act 2010 and the Australian Consumer Law.

PRODUCT LAWS1. Intellectual property:

Jimmy Ngo Page 55


o Patents for new inventionso Registering a trade marko Registering a designo Copyright2. Packaging and labelling:

Designed to standardise information and protect against misleading or deceptive information, e.g.: Weight Content of goods Food ingredients

3. Product liability:Minimum acceptable product safety and quality standards, such as: Food hygiene regulations Manufacturer liability for defective or negligent products

PRODUCT PACKAGING AND LABELLING- Common law protection- Statutory protection:

Australian Consumer Law Misleading and deceptive conduct Unfair trade practices Product safety and information standards

Trade measurement legislation National Measurements Act 1960 (Cwlth)

Lecture 7 – Price

Chapter 8 – Price LEARNING OBJECTIVES:

Understand the objectives that guide pricing strategies Analyse demand to inform the development of an appropriate pricing strategy Describe the principles of pricing based on costs Explain the role of competitive analysis in determining pricing Appreciate the issues involved in pricing for business markets Understand how to manage prices as part of the marketing mix.

FUNCTIONS OF PRICE- Management of price is called PRICING and is based on organisational objectives. Price is a measure of value for buyers and sellers.

Sellers need prices to cover their costs (short and long term) and to provide sufficient returns to justify the risk of business and invested capital.

Buyers need prices that reflect what they think the product is worth and what they can pay.

Price is directly related to profitability – Profit = (Price x Sales Volume) – Total CostsPRICING OBJECTIVES

Pricing benefits are essentially two-way.For the BUYER, the benefit is the satisfaction derived from the consumption or ownership of the product.For the SELLER, the benefit is primarily the revenue derived from purchases. In normal circumstances, a seller will only engage in an exchange if that benefit is in excess of the cost of creating and delivering the product.

Jimmy Ngo Page 56


Price serves as a visible expression of the value of the product to be exchanged and enables buyers and sellers to negotiate and agree on that value.

DETERMINING PRICING OBJECTIVES More specific pricing objectives tend to focus on various combinations of the following:

Profitability, long-term prosperity, market share, positioning and what the customer is prepared to pay.

Pricing objectives should be SMART – specific, measurable, actionable, reasonable and timetabled.

PROFITABILITY Profits are generated when total revenues exceed total costs.

Prices must exceed costs. Return on investment (ROI) is the profit required to justify investment in a particular

product or project.LONG-TERM PROSPERITY

Ongoing survival is a fundamental goal of all businesses and brings a long-term perspective to the setting of pricing objectives.

MARKET SHARE Many firms use aggressive pricing in an effort to increase or defend market share. Higher sales volumes and market leadership generate a number of benefits for a business,

including high levels of customer awareness and preference and economies of scale.POSITIONING

Pricing is a fundamental tool of positioning, whereby CUSTOMERS INTERPRET PRICE DIFFERENTLY: Some = motivated by higher prices – believing these reflect higher quality (price seeking) Others seek lower prices for greater value (price aversion)Prestige pricing involves setting prices high to convey an image of prestige, quality and exclusivity. Low prices may generate high sales volume, but may also conflict with a high-quality, differentiated positioning approach.

Product-line pricing is setting a range of prices in a product line based on differences in manufactured costs, customer perceptions of product features and competitors’ prices.

NOT-FOR-PROFIT PRICING While not for profit organisations do not measure success by profits, they do generally seek ‐ ‐

a return on their activities and many of them charge for their products. Not for profit pricing objectives include:‐ ‐

Generating enough funds to sustain activities Making products/activities appealing to a target market Encouraging a change in attitude or behaviour among a target market.

THE LEGAL ENVIRONMENT – PRICING AND THE LAW- The areas subject to legal restrictions include essential services, misleading and deceptive

conduct, price collusion, comparability of prices, clarity in pricing and price discrimination.- At various times, governments have chosen to intervene directly in markets to control prices

for such products as pharmaceuticals and services such as public transport or medical care.- In other instances, government approval is necessary when setting prices (e.g. water).

The Competition and Consumer Act (formerly the Trade Practices Act) in Australia and Fair Trading Act in New Zealand prohibit misleading and deceptive advertising. Comparison discounting is the practice of explicitly quoting a discounted price and the

regular higher price together. Bait and switch pricing occurs when the seller has no intention of selling the lower-

priced item and merely uses the ‘bait’ price as a pretext to lure shoppers into the store, after which to ‘switch’ them to the more normally priced items.

Jimmy Ngo Page 57


Captive pricing involves offering a low entry price for a basic product, then charging more for desirable additional parts or functions (technically, not illegal).

Price discrimination can occur when price differentials between business customers give one business customer an unfair advantage over another, thus reducing competition.

Secondary-market pricing involves setting different prices for different target markets. PRICE LAWS

Protect against practices such as:- Price fixing- Price discrimination:

Different prices to different customers- Predatory pricing:

Selling below cost for an extended period- Resale price maintenance:

Recommended Retail PricePRICE SURVEILLANCE

- The ACCC: Undertakes price surveillance Holds inquiries into the supply of specified goods or services Monitors the prices, cost and profits of any industry or business.

SELECTING THE PRICING METHOD – PRICING DECISIONSo Pricing decisions should be based on an understanding of the customer and should reflect

the value of the product to the customer.o Pricing decisions need to consider internal organisational factors and external environmental

factors.o Prices generally need to appeal to target customers, yield acceptable profit margins and

provide a competitive market offer. Theoretically impossible to set optimal prices across the 3 pricing dimensions (demand,

costs and competition), in practice – it is crucial to seek price which yields a satisfactory outcome (or compromise) across all 3.

DEMAND CONSIDERATIONS Demand is the relationship between the price of a particular product and the quantity of the

product that consumers are willing to buy. Demand-based pricing refers to the influence of demand on pricing decisions.

Demand-based pricing sets prices according to the level of aggregate or individual customer demand in the market.

- The success of demand-based pricing fundamentally depends on the organisation’s ability to accurately forecast fluctuations in demand and to accurately predict consumers’ price sensitivity.

THE DEMAND SCHEDULE AND DEMAND CURVE Demand schedule is a table showing actual or estimated quantity demanded for a particular

good at particular prices. Demand curve is a graph showing the relationship between price and volume sold. - For the vast majority of products, there is an inverse relationship between price and

quantity sold; that is, as price rises, the quantity sold falls, and VICE VERSA. Hence, the demand curve has a downward slope. Prestige products = exception.

- Ceteris paribus – relationship is based on the assumption of all else remaining constant.- A change in demand due to a change in price alone is known as a movement along the

demand curve.- A shift in the demand curve to the right means greater quantities will be demanded at all

prices than was previously the case. Example – increase in the price of substitute goods would increase demand.

Jimmy Ngo Page 58


PRICE ELASTICITY OF DEMAND

Price elasticity of demand refers to the sensitivity of quantity demanded to changes in price.

Price elasticity of demand (ed )=Percentage change∈quantity demanded

Percentagechange∈the price Price elastic is the demand for which price elasticity is greater than 1 (i.e. the percentage

change in quantity demanded exceeds the percentage change in price). I.e. price reduction leads to an increase in revenue.

Price inelastic is the demand for which price elasticity is less than 1 (i.e. the percentage change in quantity demanded is less than the percentage change in price). I.e. price increase leads to a revenue increase.

Jimmy Ngo Page 59


When ed = 1 – it is uniform elasticity.COST AND REVENUE ANALYSIS

o To effectively manage pricing based on costs, organisations must understand the composition of their total costs (COST MIX). Fixed costs – do not vary with changes in output. Variable costs – vary with changes in output. Marginal costs – VCs expressed in terms of the cost per extra unit of production. Shared costs – shared across different products e.g. advertising, distribution, etc.

Price floor is a minimum price that must be charged to cover costs. While a business may sell at a loss for a short time, it cannot sustain this approach. Low prices may generate high sales volume, but may conflict with high-quality,

differentiated positioning.- There are two pricing approaches used to establish MARKET SHARE. Price leader is a high-volume product priced near cost to attract customers into the store,

where it is expected they will buy other, normally priced, products. Loss leader is a high-volume product priced below cost to attract customers into the store,

where it is expected they will buy other, normally priced, products. Such pricing is typically designed to attracted customers (generate ‘store traffic’) and

make firm’s pricing more competitive.COST CONSIDERATIONS

- Evaluating cost structure requires a detailed understanding of relationships between price, demand and costs, and the link to profits.

BREAK-EVEN ANALYSIS A break-even analysis is an analysis designed to estimate the volume of unit sales required

to cover total costs. Determines the volume of unit sales at which total costs = total revenues. Important to test price and volume sensitivity.

Total revenue is the product of :- TOTAL SALES VOLUME – the number of units sold.- UNIT PRICE – the price charged per unit.

Break even point (volume )= ¿ costsPricePer Unit−VariableCosts Per Unit

= ¿CostsContributionMargin

Contribution margin is the difference between the price and the variable cost per unit.

MARGINAL ANALYSIS Marginal analysis is an analysis designed to determine the effect on costs and revenue when

an organisation produces and sells one more unit of product.

Jimmy Ngo Page 60


Marginal analysis is useful in pricing individual units of output or to individual buyers.- Costs must be examined in terms of the following:

Average cost – the total cost divided by volume of production.Marginal cost – represents the cost to produce and sell one more unit of output.

- Revenues must be examined in terms of the following:Average revenue – the total revenue divided by unit sales volume.Marginal revenue – the revenue obtained by selling one more unit of the product.

Profit is maximised by selling the quantity at which marginal cost = marginal revenue Marginal cost < marginal revenue, firm can increase profits by selling more units. When marginal cost > marginal revenue, business starts to incur a loss.

PRICING BASED ON COSTS Cost-based pricing is an approach to pricing in which a percentage or dollar amount is added

to the cost of the product in order to determine its selling price. Usually either COST-PLUS pricing or MARKUP pricing.

o Cost-plus pricing is often used when it is difficult or impossible to determine the costs of the product until it has been made of completed.

o Mark-up pricing is used by wholesalers and retailers and involves adding a percentage of their purchase cost to determine the resale price.

COMPETITION CONSIDERATIONS Competition-based pricing is an approach to pricing based on the prices charged by

competitors or on the likely response of competitors to the organisation’s prices. Undesirable unless seller has a cost advantage arising through:

Economies of scale in purchasing – as the amount of unit produced increases, the cost to produce each unit decreases.

Low-cost production – often based on the country of origin.- Price competition can result in price volatility, (e.g. petrol retailing)- ‘Price wars’ can break out as competitors try to match the low prices. This can ultimately

force weaker competitors from the market.- In developed economies, long term price competition can create oligopolies.‐

UNDERSTANDING COMPETITORS’ PRICING The likely response of competitors to the organisation’s pricing will be in part be determined

by the competitive structure of the industry. Within the Australian marketplace, there is a growing tendency towards greater levels of

economic concentration – industry sectors are dominated by fewer, but larger players.Oligopoly is a market dominated by a small number of large suppliers.Monopoly is one supplier who can determine price without regard for competition, i.e. electricity and gas markets.Perfect competition is a large number of buyers and sellers for undifferentiated (commodity) products.Monopolistic competition refers to when there are numerous competitors whose product offerings are differentiated by design, quality, brand image and product features.

ALTERNATIVES TO COMPETING ON PRICE The strategy of non-price competition is an approach to competition based on factors other

than price; that is, based on differentiation of product, promotion and distribution.Organisations differentiate by product attributes (e.g. product quality, innovation, brand image, customer service).Non price competition can build ‐ loyalty among customers, which can insulate organisation from competitors’ price offers.

- Pricing for STABILITY places a greater emphasis on non-price competition among industry participants in the marketplace.

BUSINESS-TO-BUSINESS PRICING

Jimmy Ngo Page 61


BUSINESS MARKETS- Buyers purchase products for use in the production of other products, for resale, or for use

in daily business.- Business to business marketing relationships between suppliers and organisational buyers ‐ ‐

tend to be close, long term and formal in nature.‐- Pricing is more complex in business markets (compared to consumer markets).

PRICING FOR INTERMEDIARIES (DISCOUNTS) Discounts are a reduction in price in return for some other benefit.- To ensure the profitable operation of the various partners involved in getting products from

the producer to the consumer or organisational buyer, various discounts apply to transactions in business markets.Functional (trade) discounts – are a percentage reduction off the list price and are provided by suppliers to marketing intermediaries or business customers in return for the various functions they perform such as retailing, transport and providing credit. Forms the basis of the intermediary’s profit margin. Quantity discounts – are provided to business customers that purchase large volumes.Seasonal discounts – are provided to buyers who purchase products outside the peak selling period the year. Cash discounts – offered to customers who pay promptly and who thus save the supplier time and money in managing and collecting account receivable.

PRICING FOR DISTRIBUTION Geographic pricing is a pricing strategy that includes price differentials based on those costs

that vary with distance between the buyer and seller. - A seller may charge:

A ‘’freight on board destination’’ (FOB destination) price which means the seller has built the transport costs in to the price.

A ‘’freight on board origin’’ (FOB origin) which means the price excludes the delivery costs, which must then be met by the buyer.

PRICE MANAGEMENTTHE PSYCHOLOGY OF PRICING

- Consumer purchasing behaviour is USUALLY based on a rational evaluation of value.- While all customers will ultimately be concerned with value, what customers regard as value

is personal and, at times, idiosyncratic. - The relative importance of price varies between individual customers, market segments and

product categories.- Perceptions of price also vary with time, especially over economic cycles between booms

and recession.CUSTOMER VALUE PERCEPTIONS (PRICE MANAGEMENT)

- All customers will have a notional price range or specific price in mind when contemplating a purchase.

Customers often use reference prices to help them form an impression of value and price. Internal reference price is the price expected by consumers, largely based upon their actual

experience with the product. External reference price is a price comparison provided by the manufacturer or retailer. - Buyers sensitivity to price fall into three categories;

value conscious, price conscious, prestige sensitive‐ ‐ ‐ . As previously mentioned, product line pricing‐ is an approach to pricing that sets prices for

groups of products in a product line rather than for individual products.

Jimmy Ngo Page 62


PRICING THROUGHOUT THE PRODUCT LIFE CYCLEPricing New Products

- Two broad pricing strategies for new products are SKIMMING and PENETRATION. Penetration pricing is a pricing tactic based on setting a low price in order to gain rapid

market share and turnover for a new product. Encourages consumers to at least TRIAL the product.

Price skimming involves charging the highest price that customers who most desire the product are willing to pay, and then later lowering the price to bring in larger numbers of buyers. Used to quickly offset product development and launch costs. However, there is the risk of customer backlash (damaging customer relationships).

Pricing Established Products Differential pricing is the practice of charging different buyers different prices for the same

(or equivalent) product.- For differential pricing to be effective, the organisation must be able to:

Identify market segments that have different price sensitivities, administer it in such a way as to avoid confusing or antagonising customers and prevent the development of a ‘secondary market’ (low-paying customers resell to those charged with higher price).

- Common approach to differential pricing is to use discounts to vary the price over time. E.g. an organisation may offer periodic discounts by temporarily reducing prices.

Promotional pricing is the combination of a pricing approach with a promotional campaign.- Approaches include – price/loss leader, comparison discounting and special-event pricing. Comparison discounting – quoting discounted price and regular higher price together. Special-event pricing – links discounted prices with some special or seasonal event. Everyday low prices – setting a low and relatively fixed price for products.

SETTING AND MANAGING THE FINAL PRICE [TABLE 8.3 in textbook – pricing tactics SUMMARY]

Jimmy Ngo Page 63


Lecture 8 – Promotion

Chapter 9 – Promotion LEARNING OBJECTIVES:

Explain promotion and its role in the marketing mix Understand the IMC approach to marketing promotion and the major elements of the

promotion mix Describe different types of advertising and the steps in creating an advertising campaign Outline the role of public relations in promotion Explain how sales promotion activities can be used Understand the nature of personal selling Discuss a range of marketing communication options additional to the traditional promotion

mix.WHAT IS PROMOTION?

Promotion is the marketing activities that make potential customers, partners and society aware of and attracted to the business’s offerings. Promotion is the creation and maintenance of communication with target markets.

Marketing communication is a term for promotion that refers to communicating a message to the marketplace.

- Further, when carefully combined and coordinated to achieve a consistent and effective message, the promotional approach is known as integrated marketing communications.

- The idea behind IMC is that the planning of each part of the promotion mix – advertising, public relations, sales promotion and personal selling – should not be done in isolation; rather, strategies should be planned so that they work together to achieve greater clarity and consistency, and a better overall result.

COMMUNICATION PROCESS – A MODEL OF COMMUNICATION

- A message is encoded and sent by a sender or source, via a message channel or medium, to a receiver or target audience, who decodes the message and responds by some form of feedback.

Jimmy Ngo Page 64


- Anything that interferes with the effectiveness of the communication process is referred to as ‘noise’. Noise is any factor that creates a barrier to communication.

- The communication process is also influenced by the ‘fields of experience’ – that is, what the participants in the communication process know about each other and how that influences the way they encode and decode messages.

In the case of promotion, the message is about the organisation’s market offering.OBJECTIVES OF PROMOTION

Main objective of promotion is to support the organisation’s overall marketing objectives. Promotional activities do this by influencing the consumer + business decision-making

processes (consumer behaviour and business buying behaviour). This involves influencing the target market’s awareness, attitudes and behaviours

towards the organisation’s offerings. Aims to demonstrate that the features and benefits of the organisation’s products offer

more value than competing offerings. To persuade potential customers to trial its product (and thus creating demand) through

persuasive information or perhaps by providing a sample of the product. Marketing communications aimed at existing customers reinforce the product or brand and

encourage repeat purchases or the purchase of other products offered by the organisation. Loyalty programs are a common approach to retaining existing customers. For a genuinely new product that is unfamiliar to the market, the marketer will first need

to create demand for the product itself, rather than its brand specifically. Marketing communications can be designed to increase general awareness about and

goodwill towards an organisation. Builds a relationship between the customer and the brand.

Cause-related marketing are philanthropic activities tied to the purchase of a product. Sponsorship is another way that a firm can build awareness and positive associations.

Effective promotional efforts can increase the level of support offered by retailers.INTEGRATED MARKETING COMMUNICATIONS

Integrated marketing communications (IMC) is the coordination of promotional efforts to maximise the communication effect. The goal of IMC is to consistently send the most effective possible message to the target

market. The best return on promotional efforts is achieved when there is a high degree of consistency, and hence synergy, across the four areas of promotion.

THE PROMOTION MIX The promotion mix refers to the combinations of promotional methods are used to promote

a specific product. Four elements – advertising, public relations, sales promotion and personal selling.

Advertising Advertising is the transmission of paid messages about an organisation, brand or product to

a mass audience. - Advertising = worth over $13 billion a year in Australia.

The main benefit of advertising is the ability it offers to reach a lot of people at a relatively low cost per person. While advertising is expensive, its ability to reach a lot of people makes it cost effective

based on price per exposure. It is also possible to aim advertising at particular target markets by choosing appropriate media.

The main limitations of advertising are the difficulties in measuring its effectiveness. Because of its mass market approach, there is very limited presentation and

personalisation of the market message carried by advertising.Public relations

Public relations refer to communications aimed at creating and maintaining relationships between the marketing organisation and its stakeholders.

Jimmy Ngo Page 65


- Effective PR messages are timely, engaging, accurate and in the public interest.The main benefits of PR promotions are credibility, the resulting word-of-mouth communications, their low or no cost nature, and their effectiveness in combating negative perceptions of events. PR strategies have some limitations, however, including that many efforts are seen by

the news media as attempts to obtain free advertising and are thus rejected. This can result in poor exposure of the organisation’s PR message. Another limitation is that a marketing-savvy public is increasingly cynical about the

motivations of businesses when they involve themselves in activities other than the direct marketing of their products.

Sales promotion Sales promotions offer extra value to resellers, salespeople and consumers in a bid to

increase sales.- They are often used on an irregular basis to smooth demand.

The main benefits of sales promotions are to smooth out sales in periods of low demand and to facilitate retailer support. While sales promotions targeted at consumers are familiar and obvious, many sales

promotions are aimed at the resellers and salespeople, rewarding them for selling the company’s products or particular volumes of products.

The main limitations of sales promotions are that they can lose effectiveness if overused, they are easily copied and the public is becoming increasingly cynical about whether they offer any real value or whether they just highlight that the usual price and conditions under which a product is purchased has a great deal of extra margin built in.

Personal selling Personal selling refers to personal communication efforts that seek to persuade consumers

to buy products.- Certain industries/types of products tend to favour personal selling as a promotional activity,

such as expensive, high-involvement or industrial products.Personal selling benefits include that the message can be very specifically and personally tailored to the individual customer – thus having greater influence than other 3 strategies. Personal selling also enables the marketing message to be adjusted based on feedback

given by the target of the selling effort.Personal selling also has limitations, including that it is expensive and has a limited reach. During personal selling, the potential customer consumes all of the salesperson’s time

and effort. Personal selling is labour intensive and time consuming. Additionally, as consumers become more educated and informed, efforts at personal

selling are viewed with increasing cynicism. At its worst, consumer can know more about product than does the salesperson.

INTEGRATING PROMOTION MIX ELEMENTS All marketing organisations have different promotional needs and finite financial + other

resources, and so must choose from competing options in the promotion mix. Organisations with very LARGE promotion BUDGETS will usually use MULTIPLE promotional

strategies while those with SMALLER BUDGETS will rely on FEWER and SIMPLER strategies. The appropriate promotion mix is likely to CHANGE OVER TIME as the effectiveness or

otherwise of the current promotional mix is evaluated.Pull policies and push policies

A pull policy is an approach in which a product is promoted to consumers to create demand upward through the marketing distribution channel. Usually through advertising and sales promotion. This approach often reflects the business-to-consumer (B2C) relationship.

Jimmy Ngo Page 66


A push policy is an approach in which a product is promoted to the next organisation down the marketing distribution channel. This approach emphasises a business-to-business (B2B) relationship.

Often the guide to which strategy to use is based on discovering where the consumer decides on obtaining more information or buying the product.

ADVERTISING Advertising is the paid promotion of a business, product or brand to a mass audience. - Advertising can be designed to promote either a product or an organisation.- Organisational or institutional advertising is aimed at promoting ideas and images. Competitive advertising is using advertising to promote the features and benefits of a

product relative to competing products. Comparative advertising is using advertising to directly compare a product against a

competing product.CREATING AN ADVERTISING CAMPAIGN

- Within the IMC strategy, the overall advertising plan is known as the advertising campaign.- The key steps in creating an advertising campaign are:1. Understand the market environment2. Know the target market (audience)3. Set specific objectives4. Create the message strategy5. Allocate resources6. Select media7. Produce the advertisement8. Place the advertisement (in the media)9. Evaluate the campaign

UNDERSTAND THE MARKET ENVIRONMENT- Marketing organisations should not view advertising in isolation, so before major decisions

are made on the advertising campaign it is important to review the marketing environment.- Emerging issues in the marketing environment may affect the advertising campaign.

Refer chapter 2 – MARKETING ENVIRONMENT + MARKET ANALYSISKNOW THE TARGET MARKET (AUDIENCE)

- A solid knowledge of the target market underpins all of the decisions to be made in formulating an advertising campaign.

- Simply, if you are sending a message, it is important to know about who you are sending the message to.

SET SPECIFIC OBJECTIVES- A marketing organisation contemplating an advertising campaign will probably know the

overall aim of the campaign – often simply to increase sales – but a successful advertising

Jimmy Ngo Page 67


campaign needs to be based on narrower specific communication objectives that will help contribute to the broader overall goal.

CREATE THE MESSAGE STRATEGY- The creation of the main message or issue to be presented in the advertising campaign is

intimately linked to knowledge of the target market and to the specific objectives of the advertising campaign.

- To check that the message strategy is on target and likely to be effective, many organisations pre-test their campaigns using focus groups before committing any further resources.

ALLOCATE RESOURCES- Marketing organisation will determine a budget for its advertising campaign based on its

financial and other resources, the objectives of the campaign and what it expects on the return on the investment to be (which should be achievement of objectives).

- Firm also needs to allocate human resources and time to the advertising campaign.SELECT MEDIA

- Options include – television, radio, interne, email, newspaper, magazine, direct mail and outdoor media (e.g. billboards).

- Two of the most important considerations in choosing media are reach and frequency. Reach measures the proportion of the target audience exposed to the advertisement at

least once. Frequency measures the number of times each target market member is exposed to the

advertisement. There can be a trade-off between reach and frequency as both cost money to increase.

PRODUCE THE ADVERTISEMENT- In creating and producing an advertisement, the marketing organisation must create content

(based on the message strategy) and then work out how best to present that content. AIDA model is a simple model that represents the response a customer can take when

engaging with an advertisement: Attention > Interest > Desire > ActionPLACE THE ADVERTISEMENT

- The implementation of the advertising campaign involves the buying and placement of media space and time, dedicating people and other resources to ensuring the campaign proceeds and monitoring the effectiveness of the campaign so that it can be improved based on initial feedback.

EVALUATE THE CAMPAIGN- Advertising campaigns can be evaluated before (pre-tests), during and after (post-tests) the

campaign is run.LEGAL ISSUES IN ADVERTISING

The main regulatory issues relate to the need to be truthful and honest in all forms of advertising and promotion, and come under the jurisdiction of the key provisions of the Competition and Consumer Act (2010) in Australia.

- While some promotions undoubtedly stretch the truth or add ‘puffery’ (exaggeration), outright lying is not only illegal, but damaging to customer relationships.

- Some industry bodies have guidelines for their members, such as for the alcohol, health and financial sectors. Recently, there has been growing pressure for greater regulation of advertising. E.g. in recent years – growing calls for junk food advertisements to be banned/strictly

limited during children’s programming.- Subliminal advertising on television is banned by the Australian Communications and Media

Authority’s Commercial Television Industry Code of Practice.PUBLIC RELATIONS

Public relations describe promotional efforts designed to build and sustain good relations between an organisation and its stakeholders.

Jimmy Ngo Page 68


APPROACHES AND METHODS Publicity is the unpaid exposure in the media.

More specifically, publicity is the exposure a marketing organisation receives when it obtains free coverage in the media.

Organisations can generate publicity by promoting something newsworthy to news media – this is often done with a media release, which is a short article written in news format and sent to news organisations.

A related approach is to call a press conference, which is essentially the same strategy on a grander scale, where media reporters are invited to attend a presentation involving a speech, written materials, demonstrations and the opportunity for questions + photos.

- Besides publicity, marketing organisations can generate good public relations through written communications directly with stakeholders.

- Briefly, sponsorship is a paid association with an event or person. - A further PR tool is the involvement of the company in charitable donations or acts. - Another major role of PR, apart from proactively presenting good news stories, is to be

reactive, countering negative publicity or managing a crisis. - In an economic downturn, many organisations become more subject to negative media

coverage.SALES PROMOTION

Sales promotions refer to short-term incentives to encourage purchase of a product by either resellers or consumers.

- They offer some extra benefit or incentive above and beyond the intrinsic value of the product (e.g. bonuses with purchase, discount on the price and opportunity to trial).

- Sales promotions are often used in combination with advertising.CONSUMER SALES PROMOTIONS

- Free samples- Discounts- Premium offers- Refunds- Loyalty programs- Rebates- Contests- Point of purchase promotions- Coupons- Event sponsorship

FREE SAMPLES Free sample is a sample of a product provided for free to consumers so they can experience

the benefits and features of the product without having to commit to a purchase. Free samples remove any monetary disincentive to trial a product.

PREMIUM OFFERS Premium offers are bonus products given for free or sold at a heavily discounted price when

another product is purchased. LOYALTY PROGRAMS

Loyalty programs refer to schemes that reward customers based on the amount they spend. The rewards can be discounts, vouchers, free gifts and so on.

CONTESTS- Contests are effective in promoting product benefits and allow organisations to build a

database of members of their target market.COUPONS

- Coupons are vouchers that offer consumers a discount price on a product or service. E.g. ‘Shop-A-Docket’.

Jimmy Ngo Page 69


DISCOUNTS Discount offers provide a certain amount off the regular price.

REBATES Rebates are the return of some of the purchase price to consumers upon presentation of

proof of purchase. - To the consumer they result in a similar price to a discount, but they offer several

advantages to the marketer over discounts: Any regret or second thoughts the consumer might experience after purchase is

softened by the receipt of cash. The consumer needs to apply for the refund ad usually has to give up some personal

information when making the application. Some consumers will not bother to claim the refund (whereas no consumers turn down

a discount and ask to pay full price).POINT OF PURCHASE PROMOTIONS

Point of purchase (POP) promotions includes signage and displays in stores and free product trials or demonstrations in stores.

EVENT SPONSORSHIPS- E.g. Exclusive merchandise deal, where sponsor has sole right to sell products at venue.

TRADE SALES PROMOTIONS- Trade sales promotions present products to business customers and stimulate the products’

movement through the marketing channel.- Examples include:

Conventions and trade shows Sales contests offer rewards to marketing intermediaries that sell at a certain level or sell

the most of a particular product in a particular timeframe. Trade allowances – aim to encourage marketing intermediaries to stock and push the

marketer’s products. They essentially give marketing intermediaries price discounts, refunds or contributions towards promotional efforts in return for stocking and promoting a producer’s products.

Gifts and premium money – free merchandise or monetary rewards given to resellers once they purchase and/or sell a particular volume of product.

Cooperative advertising – cooperative advertising shares the media costs between manufacturers and retailers for advertising the manufacturer’s products.

Dealer listings – these involve the manufacturer promoting the retailers that carry their products, thus influencing retailers to stock the products, building traffic at the retail level, and encouraging consumers to shop at participating dealers.

PERSONAL SELLING Personal selling is the use of personal communication with consumers to persuade them to

buy products. Most expensive form of promotion but has strong advantages over impersonal strategies

A MODEL OF PERSONAL SELLING- INPLCF – information, needs, product, leverage, commitment or close, follow-up.

Information- Gathering information includes developing a list of potential customers, a process known as

prospecting. Needs

- In finding out the needs of the customer, the salesperson should begin to build a relationship with the customer.

Product- Once salesperson knows what customer’s needs are, they should present the product in

such a way as to highlight how the product features match those needs.

Jimmy Ngo Page 70


Leverage- The salesperson should highlight comparative and competitive advantages for product.

Commitment or Close- The stage in the selling process when the salesperson asks the prospect to buy the product.

Follow-up- Customer loyalty can be encouraged by following up with customers.- Follow-up should determine if the delivery + setup of the order was completed to the

customer’s satisfaction.- Follow-up also helps reduce post-purchase dissonance.

MANAGING A SALES FORCE Salespeople are the public face of a business. The following are the key tasks that a sales manager will likely need to undertake:

Establish sales force objectives and targets Determine the appropriate size + location of the sales force Recruit and train sales people Assist sales people to effectively manage their time Monitor and motivate performance Compensate salespeople

ADDITIONAL FORMS OF PROMOTIONAMBUSH MARKETING

Ambush marketing is the presentation of marketing messages at an event that is sponsored by an unrelated business or a competitor. The aim is to grab attention away from the official sponsor, and be newsworthy. Marketers considering sponsoring events need to defend themselves against ambush

marketing, including assessing risk and sponsorship value. Major events will take steps to reduce impact and protect sponsors.

- Although similar in that they are trying to get attention, there is a difference between ‘ambush marketing’ and ‘guerilla marketing’. Ambush marketing is usually related to an event and official sponsors, while guerilla

marketing is more about getting the attention of customers.GUERILLA MARKETING

Guerilla marketing is the use of an aggressive and unconventional marketing approach to grab attention. Its aim is simply to grab the attention of consumers when they are unaware, and create

some goodwill and publicity in both traditional and social media.

Jimmy Ngo Page 71


Its effectiveness relies on its ability to take it target unawares – they don’t expect it, so they don’t filter it out.

The use of ‘flash mobs’ has been a successful guerilla tactic. PRODUCT PLACEMENT

Product placement is the paid inclusion of products in movies, television shows, video games, songs and books. The product is portrayed or mentioned in context as part of the story line of the show,

usually in a positive or at least neutral way. Product placement of one product/brand often also involves the exclusion of

competitors’ products and brands.

- Somewhat related to a product placement is a plug. A plug is when the media overtly promotes a product within a program rather than as a

separate advertisement. E.g. Better Homes & Gardens recommends a type of paint to use for a DIY project.

VIRAL MARKETING Viral marketing is the use of electronic social networks to spread a marketing message. - Spreading can occur via word-of-mouth, the sharing of links, and so on.- The flipside of viral marketing is that it can go very wrong (i.e. backfire).

Viral marketing campaigns can also be hijacked.- Commercial benefits are difficult to measure.

PERMISSION MARKETING Permission marketing is the marketing that aims to build an ongoing relationship with

customers. Term given to the activities that are centred around/on obtaining customer consent to

receive information and marketing material from a company. With permission-based marketing, marketers actually ask and gain permission to contact

the customer. This reduces waste and may encourage genuine customers who want to ‘opt-in’ and be informed about new stock or sales.

SPONSORSHIP Sponsorship is the paid association of a brand with an event or person. - Australasian Sponsorship Marketing Association member Jann Kohlmann has warned

potential sponsors to be aware of four emerging issues with sponsorship:1. Media fragmentation2. Consumer cynicism3. Social consciousness4. Environmental awareness

STATUTORY REGULATION OF ADVERTISING – AUSTRALIAN CONSUMER LAW ACL Section 18: prohibition on misleading and deceptive conduct or conduct likely to

mislead and deceive by persons engaged in trade or commerce Relevant examples may include:

Jimmy Ngo Page 72


Comparative advertising Use of celebrities in advertising Similar or identical brands or business names.

Matters to consider: What is the relevant target audience of the advertisement? What message is being conveyed to the target audience? Is the message true or false?

THE COMMON LAW AND ADVERTISINGLaw of contract: Breach of contract (where purchaser can show he or she entered a contract based on a

false statement)Law of torts: Tort of deceit Negligence Tort of injurious falsehood Passing off DefamationRight of privacyRight of publicity

Lecture 9 – Distribution (Place)

Chapter 10 – Distribution (Place)LEARNING OBJECTIVES:

Understand the concept of place and how distribution channels connect producers and buyers

Describe the major activities involved in the distribution of goods Describe the major activities involved in the distribution of services Understand the major aspects of retailing Explain the role of agents and brokers in the distribution channel Explain the role of wholesalers in marketing distribution.

MARKETING CHANNELS- Many manufacturers and service businesses deal directly with the consumers of their

products. This approach to marketing is known as DIRECT distribution and it is particularly

common for service products, as services are directly tied to the service provider.- Conversely, many producers, especially makers of physical products, rely on other

organisations and individuals to help them get their product to end users. This approach is known as INDIRECT distribution and the main organisations and

individuals who act in the distribution chain between the producer and end user are known as marketing intermediaries.

Marketing intermediaries refer to the individuals or organisations that act in the distribution chain between the producer and end user. The key marketing intermediaries are – industrial buyers, wholesalers, agents and

brokers, and retailers.- The path from the manufacturer or service provider to the end user is known as the

distribution channel or marketing channel. Distribution channel refers to a group of individuals and organisations directing products

from producers to end users.INTERMEDIARIES

Jimmy Ngo Page 73


- When they are well managed, effective intermediaries operating in distribution channels achieve the following benefits.

1. Time utility – make products available to the consumer at the time that the consumer wants to purchase them.

2. Place utility – make products available in the locations that the consumer wants to purchase them.

3. Form utility – customise products to the consumer’s particular needs.4. Exchange efficiencies – make transactions as efficient, simple and cheap as possible for

consumers, producers and other intermediaries by establishing and managing efficient exchange processes.

- Conversely, when poorly managed, or inappropriately chosen, marketing intermediaries can add to costs, reduce efficiency, create delays and cause frustration. Consumers are often wary of intermediaries, believing they are ‘middlemen’ who add no

value but increase the price they must pay for products. Some producers blame intermediaries for every problem they face and, like consumers,

can feel they add little value to the marketing process.

Figure – the benefits of using distribution channel intermediariesDISTRIBUTION

In choosing a distribution channel, the producer needs to first consider the way in which its product can best be marketed, so that the supply chain from producer to consumer effectively becomes a VALUE chain.

Market coverage decision takes into account nature of the product and its target market. Intensive distribution is an approach to market coverage that distributes products through

every suitable intermediary. Exclusive distribution is an approach to market coverage that distributes products through a

single intermediary in any given geographic region. Selective distribution is an approach to market coverage that distributes products through

intermediaries chosen for some specific reason.INTENSIVE distribution is an obvious strategy for everyday purchases such as milk.EXCLUSIVE distribution is generally used for products that are only purchased after a great deal of deliberation by the consumer of where exclusivity adds to the appeal of the product.SELECTIVE distribution falls somewhere between intensive and exclusive distribution. It is most appropriate for goods that require some degree of deliberation by the

consumer and where the consumer might visit multiple stores to compare prices and

Jimmy Ngo Page 74


products. SELECTIVE distribution is often chosen when the intermediary can provide some specific value-adding function to the producer’s offering.

PLACE LAWS- Prevent suppliers from imposing unreasonable restraints on distributors, e.g.

Exclusive dealing—restricting products that a distributor may sell Territorial restraints—restricting the area in which a distributor may operate Customer restraints—restricting the customers with which a distributor may deal

CONSUMER PRODUCT DISTRIBUTION CHANNELS

o In distribution channel 1, the producer deals directly with the consumer. E.g. Domino’s Pizza. This model has increased in use in recent years and is expected to continue to grow as

more consumers use the web to research and ultimately purchase products.o In distribution channel 2, producers provide their products directly to retailers for sale to

consumers. Both Dell and Apple use this strategy as well as the strategy in channel 1. Many small boutique producers use this strategy.

o In distribution channel 3, producers sell to wholesalers who then sell on to the retailers. This is a common choice for goods that are sold in high volumes through numerous

retailers.o Distribution channel 4 is a common choice for exports, where the complexities of dealing

with different legal, regulatory and cultural factors suggest an experienced and skilled agent will be able to more effectively deal with intermediaries in the foreign market. It is also used for mass marketed products where the producer believes an agent can

more effectively sell the products to wholesalers.o Distribution channel 5 is commonly used in the financial services industry.

BUSINESS-TO-BUSINESS PRODUCT DISTRIBUTION CHANNELS

Jimmy Ngo Page 75


o Strategy in distribution channel 1 accounts for the majority of B2B product transactions. Business buyers often want to deal directly with the producer so they can be sure of

direct access to information and assistance. Also, for customised products.o Distribution channel 2 features an industrial distributor.

Industrial distributors play roughly the same role in the B2B product channel as retailers do in the consumer product distribution channel.

o Distribution channel 3 features an agent. An agent in the B2B products market is an intermediary who plays matchmaker between

producers and organisational buyers and is paid a commission on the sales they bring to the producer.

o Distribution channel 4 combines channels 2 and 3. The agent takes a commission on sales it secures with industrial distributors. The industrial distributor then sells to organisational buyers.

SUPPLY CHAIN MANAGEMENT Supply chain management is an approach to managing marketing channels based on

ongoing partnerships among distribution channel members that create efficiencies and deliver value to customers. Reduce costs, eliminate redundant processes, and develop new ways to deliver value to

customers.- Formally, the supply chain consists of the producer and marketing intermediaries as well as

all of the other parties that play direct or indirect roles in getting products to consumers, wholesalers and retailers.

DISTRIBUTION CHANNEL PARTNERSHIPS Distribution channels work most effectively when the different parties agree on goals and

processes and then cooperate to implement them. When one member of the distribution channel can exert power over the ability of other

members of the channel to achieve their goals, that powerful member is known as the channel captain and is said to have channel power. A distribution channel is only effectively when all channel members benefit from their

involvement.- Disagreements, misunderstandings and miscommunication all have the potential to create

conflict within a marketing channel. The more parties that are involved in a marketing channel, the greater the potential for

conflict. E-commerce – benefits and detractions…

The emergence and rise of online selling, in particular, has unsettled many formerly stable marketing channels.

Jimmy Ngo Page 76


The web provides a relatively easy way for producers to sell directly to consumers.CHANNEL INTEGRATION

Within any existing channel, it is possible to redistribute particular responsibilities and obligations between different channel members. This is known as channel integration.

Horizontal channel integration is bringing organisations at the same level of operation under a single management structure. E.g. horizontal channel integration occurs when a retailer buys out a competitor.

Vertical channel integration is bringing different stages of the distribution channel under a single management structure. E.g. vertical channel integration occurs when a wholesaler buys a retailer or a transport

business. Vertical marketing system is a distribution channel in which all stages occur under a single

management structure. Australia Post is an example of a VMS.

FRANCHISING Franchising is an approach to business in which one party (a franchisor) licenses its business

model to another party (a franchisee).- In franchising, the franchisor:

Licenses the right to use its business model or to sell its product. Provides services such as advertising, business know-how and supplier networks. Stipulates standards and rules by which the franchise business must operate. Sometimes promises exclusive rights to a particular geographic area.

- And the franchisee: Pays the franchisor a fee and/or percentage of sales receipts. Supplies labour and capital. Operates the business in accordance with the conditions of the franchise agreement.

DISTRIBUTION OF GOODS Physical products need to be moved from producers to consumers via a number of activities

that are collectively known as physical distribution. Physical distribution involves – ORDER PROCESSING, INVENTORY MANAGEMENT,

WAREHOUSING and TRANSPORTATION.

Jimmy Ngo Page 77


ORDER PROCESSING Order processing is the term used to describe all of the activities involved in managing the

information required to receive, handle and fill a sales order. Efficient order processing is important to minimise costs and ensure customer

satisfaction. Order processing is usually most efficient when computerised systems are involved, but

paper-based order systems are still common and their relative simplicity and low cost are significant advantages for smaller businesses.

Order processing begins when a customer or salesperson (on behalf of a customer) places an order. The next step is order handling, which involves checking that the terms of the purchase

are acceptable and that the product is in stock. When order details and product availability are verified, the order will be assembled and

shipped, and the company records will be updated to reflect completion of purchase.INVENTORY MANAGEMENT

Inventory management involves managing stocks of products to ensure availability to customers while minimising holding costs.

- Most businesses manage inventory by developing a trigger to reorder (the reorder point). This is based on: Order lead time – the usual time between placing an order and receiving the stock. Usage rate – how much stock is sold during a particular period of time. Safety stock – a quantity of stock held to cover unexpectedly high sales and/or

unexpectedly long order lead times. Just-in-time (JIT) is an approach to inventory management that involves holding only that

stock that is about to be used or sold. This requires a high level of supply chain visibility, which refers to the availability of

comprehensive and up-to-date information about all aspects of the supply chain.WAREHOUSING

Warehousing is the use of facilities (generally a building) to store and move goods. Effective warehouse operations enable businesses to hold surplus stock until customers

require it and to hold a level of safety stock to ensure unexpected demands can be met. Appropriate type of warehousing facilities is determined by the nature of the products,

the location of suppliers and customers, and the types of transportation to be used.- The increasing incidence of DIRECT links between producers & consumers (due to internet),

increasing DEMAND for CUSTOMISED products and the increasing speed for innovation that quickly renders products obsolete are all factors working against the use of company-owned warehouses.

Distribution centre is a warehouse focused on moving rather than storing products. Cross-docking is the practice of expediting the movement of goods from receipt to shipping. Materials handling is the physical handling of goods.

At its best, CROSS-DOCKING eliminates the storage component of warehousing. As such, it is most suited to fast-moving consumer goods – do not require safety stock.

- Cross-docking is facilitated by : Products designed with cross-docking in mind Protective packaging that reduces or eliminates the need to check the state of the

products on receipt Packaging that is suitable for sale, eliminating the need for repacking. Labelling that can be computer-read and is suitable for retail use Close cooperation, communication and coordination between the suppliers, distribution

centre and customer.

Jimmy Ngo Page 78


Material handling strategies include efficient unloading, storing, packing, labelling & loading.- Issues to be considered in materials handling include:

The use of standard pallets to enable machinery to efficiently move products Use of standard containers to hold many small items to enable their efficient transport Special demands due to the nature of the product such as safety measures.

TRANSPORTATION Transportation is the process of moving products from their place of manufacture to their

place of consumption. The key modes of transportation are:

ROAD transports, RAIL transports, SEA freight, AIR freight and PIPELINES.- Most distribution channels coordinate multiple modes – this is intermodal transportation

which relies on the use of standard shipping containers and container handling equipment. Freight forwarders refer to specialist transportation businesses that combine cargo from

different businesses in order to achieve efficient load sizes.TECHNOLOGY IN PHYSICAL DISTRIBUTION

E-distribution is often used to describe the full implementation of advanced telecommunications technologies in the physical distribution process. Offers efficiencies internally and externally.

Radio frequency identification (RFID) technology involves attaching small electronic tags to items or containers, enabling their movements within a goods handling facility to be tracked down to a matter of centimetres.

DISTRIBUTION OF SERVICES There are some key differences and similarities between ‘service distribution’ and ‘physical

distribution’: Physical distribution is required for the physical inputs used in producing and delivering

the service product. Some services are delivered using infrastructure. Service businesses must ensure that the labour is available at the right time and in the

right quantities to ensure customers can be served.PHYSICAL INPUTS

o Creation & delivery of most service products requires physical inputs. The service business must ensure that the various physical inputs it needs to deliver the service are available.

DELIVERY INFRASTRUCTUREo Some services are distributed via a physical infrastructure.

For example, the electricity supply to your home is delivered via an extensive network of above-ground, underground and under-sea cables.

SCHEDULINGo Scheduling in service businesses is designed to smooth demand.

Service businesses must manage their capacity to ensure customers can be served but that there is not excess labour.

RETAILING Retailing refers to any exchange in which the buyer is the ultimate consumer of the product.

Retailing excludes transactions in which the buyer intends to resell the product or use it in the making of another product.

RETAILING STRATEGY There are two aspects to retailing strategy :1. The marketing organisation must decide what retailing approach (or approaches) is suitable

for its products.2. The retailer must decide on location and positioning.

LOCATION For traditional stores, location is critical as it determines the following:

Jimmy Ngo Page 79


The natural geographic area from which customers will be drawn – retailers should locate their store close to their target customers.Proximity to competitors – retailers might try to choose to be removed from competitors or to be close to them.Proximity to complementary retailers – groups of stores, if they are the appropriate mix, can draw more customers overall than any of the stores could manage by themselves.Customer access to public transport and public parking – convenient for the customer.

- Options tend to be: The CBD – offers a high density of people and a degree of prestige, but also very high

tenancy costs and parking problems. Free-standing structures . Neighbourhood shopping centres – in residential areas and comprise a small cluster of

convenience and specialty stores. Community centres – designed to serve few suburbs, includes department + specialty stores. Regional centres – in major metropolitan or regional areas but targets people from afar.

RETAIL POSITIONING Retail positioning refers to the practice of identifying a gap in the market and targeting it by

creating some distinguishing feature in the mind of customers. A store’s image is an important factor in attracting customers and positioning the

store against competitors.BENEFITS OF RETAILERS

- Marketing intermediaries are useful when they add value to the distribution chain. Retailers add value for customers and producers by creating or providing the following:time utility (e.g. 24 hour supermarket)‐place utility (e.g. corner shop)form utility (e.g. hi fi store)‐ some retailers can customise products to the consumer’s particular needs + preferencesadvice and personal service (e.g. Harvey Norman) retailers are geared to deal with customers 1-on-1, providing advice and personal serviceexchange efficiencies (e.g. David Jones) Retailers reduce the number of the parties that producers + wholesalers must deal with

and reduce the number of sellers that consumers must deal with. Retailers can offer consumers a wide range of products from numerous producers all in 1

place. Can be a mixture of time, place, form, advice/personal service.

TYPES OF RETAILERS Specialty retailers usually carry just one or a small number of different types of products,

but within that product line, they carry a great deal of variety. The main specialty retailers are – specialty stores, category killers, off-price retailers and

pop-up shops. General-merchandise stores offer a variety of products.

The main general-merchandise retail stores are – convenience stores, showrooms, department stores, discount stores, supermarkets, superstores and hypermarkets.

THE WHEEL OF RETAILING THEORY The wheel of retailing is the theory that retailers enter the market with low costs, low

margins and low prices, but move to high costs and high prices as they seek to compete with copiers, only to then have to compete with new low-price entrants.

- According to the wheel of retailing theory: Retailers enter the market using some innovation to achieve low costs and use that to

charge low prices.

Jimmy Ngo Page 80


Other new + existing retailers copy the low-cost innovation and compete directly with the new entrants.

To distinguish itself, the retailer adds extra services, improves its location and store image, and so on, which results in higher costs + prices.

New retailers enter the market using some new innovation to achieve low costs and then compete with the original, now high-priced, retailer.

ONLINE RETAILING Online retailing (or e-tailing) involves selling to customers via the internet.

There are generally 2 types of online retailers – those that exist only online or online in combination with other direct marketing avenues; and those that operate an online ‘store’ as a complement to their physical store.

Mobile e-commerce refers to the use of a mobile phone to make purchases. OTHER FORMS OF RETAILING – DIRECT MARKETING

Direct marketing is a type of non-store retailing that promotes and sells products via mail, telephone or the web. Mobile e commerce is an example of direct marketing.‐ The main types of direct marketing are online retailing, telemarketing, catalogue

marketing, television shopping and direct response marketing.TELEMARKETING

Telemarketing is the performance of marketing-related activities over the telephone.CATALOGUE MARKETING

In catalogue marketing, the marketing organisation provides a catalogue to customers who then place their orders by mail, telephone or the internet. Catalogue marketing offers customers all the convenience of online shopping.

DIRECT-RESPONSE MARKETING Like catalogue marketing, direct-response marketing requires customers to use the mail,

internet or telephone to make a purchase. The difference is that instead of catalogues, direct-response marketing uses advertising,

such as a brochure in a mailbox, spam or a television advertisement.ONE-TO-ONE OR NONE-TO-ONE?

DOOR-TO-DOOR SELLING Door-to-door selling, sometimes known as direct selling, is an approach taking its name

from the old practice of a salesperson walking door to door to promote products to people at home. Today a modified version, whereby potential customers are more strategically selected,

is more common. Usually, customers are identified through some other means and then an appointment is

made for a visit by a salesperson.AUTOMATIC VENDING

Automatic vending refers to the use of machines to dispense a product; used for small, routinely purchased products. The main benefits of automatic vending are that the product can be bought by the

consumer without any immediate interaction with staff of the marketing organisation. However, vending machines are expensive, require regular maintenance and restocking.

They are subject to vandalism and they are impersonal – no sense of loyalty is involved.AGENTS AND BROKERSAGENTS

Agents refer to the marketing intermediaries engaged by buyers or sellers on an ongoing basis to represent them in negotiations with other parties in the marketing channel.

The main types of agents are:Manufacturers’ agents – act in a similar way to a salesperson for multiple producers, selling specified, non-competing products in a particular region under standard terms + conditions.

Jimmy Ngo Page 81


Selling agents – commonly used by small producers that cannot afford a salesforce or marketing department. They usually work for multiple producers, but do not take on competing products. Buying agents – make specialist purchases and handle goods for long-term partners, such as retailers.Commission merchants – receive goods on consignment and negotiate the best possible price in centralised markets.

BROKERS Brokers are the marketing intermediaries engaged by buyers or sellers on a short-term or

one-off basis to represent them in negotiations with other parties in the marketing channel. They have a more limited role than agents, but their value is in their specialist

knowledge and well-established contacts in the industries in which they work.- Well known examples of brokers are – real estate salespeople, insurance brokers, mortgage

brokers and stockbrokers.- Business of many brokers has changed over past decade due to emergence of e-commerce.

WHOLESALING Wholesaling comprises the exchanges in which products are bought for resale, for use as

inputs in other products, or for some other use in a business.MAJOR WHOLESALING FUNCTIONS

Wholesaling tasks include (for the producer, retailers): Act as a salesforce, promoting and selling its products to retailers. Hold and manage inventory, relieving the producer’s warehousing and transport burden Assume the risk when retailers are given products on credit Provide cash flow by paying for and taking possession of inventory shortly after it is

produced Communicate producer and market issues to retailers

- For the retailer, wholesalers: Manage distribution Help choose and source appropriate inventory Have bulk buying power and the ability to negotiate good deals with producers Provide access to a wide range of goods through one business partnership Can provide sophisticated technology solutions to manage ordering Can provide credit Communicate market and retail issues to producers

TYPES OF WHOLESALERSMERCHANT WHOLESALERS

Merchant wholesalers are independently owned wholesaling businesses that take title to products. They take ownership of the product from producers and sell it on to retailers. Merchant wholesalers are either full-service wholesalers or limited-service wholesalers.

FULL-SERVICE WHOLESALERS Full-service wholesalers perform the full gamut of wholesaling activities, and retailers and

producers rely heavily on them for numerous services. They are one of the following: General-merchandise wholesalers – wholesalers that carry a wide variety of product

lines, but relatively little depth within those product lines. Limited-line wholesalers – wholesalers that carry only a few different product lines, but

have considerable depth in each line. Specialty-line wholesalers – wholesalers that carry a single product line and only a few

items within that line.LIMITED-SERVICE WHOLESALERS

Jimmy Ngo Page 82


Limited-service wholesalers specialise in a narrow range of wholesaling services, leaving it to producers and retailers to perform for themselves any of the functions provided by full-service wholesalers. For example: Cash and carry wholesalers – wholesalers that supply a limited number of lines of high-

turnover products to small businesses, which pay in cash and transport the products themselves.

Drop shippers – wholesalers that purchase from producers and sell to retailers, but organise shipment directly between these two parties rather than take possession of the products.

Mail-order wholesalers – wholesalers that use catalogues and mail or courier-services rather than salespeople and their own transport to promote, sell and deliver goods to retailers.

MANUFACTURERS’ WHOLESALERS Manufacturers’ wholesalers are wholesalers owned by the producer.- Also known as manufacturers’ sales branches or sales offices.- Owned by the producer itself and thus, represent a form of VERTICAL INTEGRATION.

Lecture 10 – Services Marketing

Chapter 11 – Services MarketingLEARNING OBJECTIVES:

Explain the importance of the service sector to the Australian and New Zealand economies. Describe how to develop and manage an effective marketing mix based on the unique

characteristics of services. Appreciate the major challenges in the marketing of services.

SERVICE-DOMINANT ECONOMIES- Service industries generate about 70% of the national incomes of Australia and NZ.

Accordingly employ the majority of the workforces of both countries.‘SERVICES’ AND ‘SERVICE’

Services are the activities, performances or benefits that are offered for sale, but which involve neither an exchange of tangible goods nor a transfer of title.

Service is the act of delivering a product (whether it is a good or services product) involving human, intellectual or mechanical activity that adds value to the product.

Service-dominant logic- All products should be seen as means to an end – that of providing value to the consumer.- The value derives from the use of the product – that is, the service the product provides –

the value in use. - The value is co-created in the interaction between customers, service providers, suppliers,

distributions and other participants in the service interactions.SERVICE PRODUCT CLASSIFICATIONCONSUMER SERVICES

Consumer services refer to those services purchased by individual consumers or households for their own private consumption. E.g. airlines, banking, finance, hairdressing, hotel accommodation and restaurants.

- During periods of economic growth, demand for services tends to increase.- During tougher economic times, demand for many services drops away.

Some services, however, are counter cyclical – e.g. during periods of higher UE, the demand for higher education and training services tends to increase.

- Lifestyle changes over the years have also created demand for new services. E.g. emergence of dual income families has created demand for child care services.

Jimmy Ngo Page 83


- Technological change = opportunity for service providers (e.g. eBay)BUSINESS-TO-BUSINESS SERVICES

Business-to-business services refer to those services purchased by individuals and organisations for use in the production of other products or for use in their daily business operations. They include services provided by lawyers, accountant, advertising agencies, engineers

and management consultants. - For many organisations, an important question in the delivery of their core service products

is whether or not to rely on their permanent full-time workforce.- Alternatively, they can use specialist outside service providers as contractors. Outsourcing

tends to go hand in hand with ‘downsizing’. UNIQUE CHARACTERISTICS OF SERVICES

4 characteristics – intangibility, inseparability, heterogeneity and perishability.INTANGIBILITY

Intangibility refers to the characteristic of lacking physical form. Services cannot be easily perceived by the five physical senses. Most products contain elements of both goods AND services – therefore, products are

better described as sitting on a continuum with purely tangible goods at one end and purely intangible services at the other.

- The inability of a customer to examine a service before they purchase it – increases their feelings of uncertainty and risk about the purchase.

There are several strategies that marketers can employ to reduce the uncertainty that potential customers feel.

1. Marketers can use tangible clues (such as logos, staff uniforms, architecture and décor) to communicate the desired image of the intangible service. This tangible evidence will serve as both a promise and a reminder of the otherwise intangible service.

2. Reduce the level of risk perceived by customers through techniques such as service guarantees, testimonials and positive word-of-mouth. A service guarantee offers the potential customers the knowledge that they can obtain

some course of redress should the service not live up to expectations. Testimonials provide potential customers with the confidence that other individuals or

organisations have been happy with the service provided.3. Take the time to engage with clients.

The intangible nature of services, in many cases, makes them more difficult for customers or clients to imagine and understand.

INSEPARABILITY (OR SIMULTANEITY) Inseparability refers to the characteristic of being produced and consumed simultaneously.

Buyers and sellers are frequently ‘co-producers’. Service has to be provided when and where the client needs it. Services are specific and cannot be mass produced.‐ Providers need to be concerned with their technical skill and customer service delivery;

may need to promote via personal selling. Delivering services face to face promotes trust.‐ ‐

- Because the service cannot be separated from the person who provides it, this implies that many service organisations depend on their people for their existence.

- The inseparability of services means that, usually, the service provider and consumer have close interpersonal interaction.

- An implication of the simultaneous production and consumption is that many services, particularly professional services, are provided INDIVIDUALLY.

HETEROGENEITY

Jimmy Ngo Page 84


Heterogeneity refers to the inevitable, but minimisable, variations in quality in the delivery of a service product. Impossible to guarantee PERFECTION every time. Quality perception depends on the relationship.

Key strategies to overcome heterogeneity include:To develop service delivery systems. E.g. MacDonald’sTo manage the expectations of customersTo invest heavily in staff trainingTo select customers carefully

For service marketers, the challenge is to provide a product with a reasonably consistent level of quality that matches customers’ expectations.

PERISHABILITY Perishability refers to the ability to store services for use at a later date.

The challenge that perishability presents to marketers is to balance supply and demand over time in such a way as to maximise profitability.

Strategies that allow marketers to balance supply and demand include: Managing demand over time (levelling demand ) – because services can’t be stored to match

the expected fluctuations in demand over time, it is appropriate for the organisation to seek to ‘level out’ the fluctuations in demand over hours in the day (e.g. energy consumption), days in the week (e.g. parking in city) or months in the year (e.g. holiday travel). This may be best achieved by persuading customers to change the time at which they

use the service. Stimulate demand – it is appropriate to stimulate demand when the organisation has excess

capacity to deliver services. Restrict demand – the objective is not so much to reduce demand but rather to manage

when it occurs. Increase or decrease supply capacity – particularly suitable approach if the periods of high

and low demand are reasonably predictable. In circumstances where demand would otherwise fluctuate over time, FLEXIBLE PRICING can

be employed to ensure that demand and supply are balanced as far as possible.THE EXTENDED SERVICES MARKETING MIXPEOPLE

People are those coming into contact with customers who can affect value for customers – the organisation’s staff; the customer or client being served; and other customers or clients either directly or indirectly involved in the service experience.

Most controllable factor in service delivery is the organisation’s STAFF. - It is essential that the organisation chooses staff who are:

Technically competent Able to deliver high standards of customer service Able to promote products through personal selling.

PROCESS Process refers to the systems used to create, communicate, deliver and exchange an

offering.- The key concern is that the process delivers the service in a way that at least matches the

customer’s expectations – ideally, performance should exceed the customer’s expectation.- As a generalisation, customers usually have two kinds of expectations:

Functional expectations – expectations of technical delivery of the service transaction. Customer service expectations – expectations that relate to the service experience and

the social interaction between the customer and service provider.PHYSICAL EVIDENCE

Jimmy Ngo Page 85


Physical evidence refers to the tangible cues that can be used as a means to evaluate service quality prior to purchase. Physical environment includes architectural design, floor layout, furniture, décor, shop

or office fittings, colours, background music and even smell. SERVICES MARKETING CHALLENGES

There are three key issues which, arguably, make the marketing of intangible services more challenging than the marketing of tangible goods.

1. Achieving a sustainable differential advantage in marketing services.2. Managing profitable customer relationships.3. Delivering consistently high levels of customer service.

MANAGING DIFFERENTIATION Innovations can be immediately replicated by competitors. Services cannot be protected by legal patents.

Thus, it is difficult to achieve lasting product differentiation in service industries.THE POWER OF RELATIONSHIPS

- Developing and maintaining profitable relationships with target customers of customer segments is the key to long term survival for organisations. ‐ Professional service providers manage their customers closely as individuals. Consumer service providers (i.e. restaurants) typically provide a consistent and

standardised service offering. Churn refers to high customer turnover.

For many service providers, the problems of CHURN together with low average transaction volumes and values mean that many customers may never be profitable.

Contracts reduce customer churn by locking consumers in.- Acquisition Costs

Cell Phone $150 $300, credit card $50 $100‐ ‐DELIVERING CONSISTENT CUSTOMER SERVICE QUALITY

Search qualities can be evaluated prior to purchase, such as colour, size and smell. Experience qualities are evaluated during and after the service delivery – include a theatre

performance, hairstyling or restaurant service. In delivering high levels of customer service, organisations need to consider 4 key issues:1. Understand customers’ expectations2. Establish service quality standards3. Manage customers’ service expectations4. Measure employee performance.

UNDERSTAND CUSTOMERS’ EXPECTATIONS (EVALUATING QUALITY – 5 DIMENSIONS)

Jimmy Ngo Page 86


CREDENCE QUALITIES- Based on evaluation of the service provider’s trustworthiness, integrity and professionalism.

In some circumstances, consumers cannot even assess the quality of the service after they have consumed it.

Examples – medical surgery, legal advice, investment advice. The below figure illustrates the use of search, experience and credence qualities in the

evaluation of products.

MANAGING EXPECTATIONSESTABLISH SERVICE QUALITY STANDARDS

- Based on what factors the customers hold most important (fast versus perfect?).MANAGE CUSTOMERS’ SERVICE EXPECTATIONS

- Because services are typically intangible and frequently variable in quality, it is important that service marketers actively manage customers’ expectations – so that customer service delivery will consistently fall within customers’ zone of tolerance.

Jimmy Ngo Page 87


- In instances of poor service, management needs to ensure ‘service recovery’. Ideally, ensuring that, as far as reasonably possible, no customer leaves a service provider’s premises dissatisfied and in a mood to tell their friends.

MEASURE EMPLOYEE PERFORMANCE- Having established expectations, management needs to ensure customer service staff

members can meet these expectations consistently.

Lecture 11 – Digital, Social and Non-profit Marketing

Chapter 12 – Digital MarketingLEARNING OBJECTIVES:

identify digital marketing activities explain the unique characteristics of digital marketing‐ explain specific digital marketing methods‐ appreciate ethical and legal issues relating to digital marketing‐ discuss the role of digital marketing in an overall marketing strategy‐

DIGITAL MARKETING Digital marketing refers to the activities involved in planning and implementing marketing in

the electronic environment. - Examples of digital marketing include:

Sale of products via an e-commerce website The texting of potential customers about a new offer or sale Email sent to an existing customer asking them to click a link to participate in a survey

for the opportunity to win a prize. Provision of info, examples and testimonials via social networks Use of magazine advertising to encourage consumers to subscribe to an SMS horoscope

service. Inclusion of discount vouchers on takeaway food websites that encourage people to visit

the website, knowing they will be able to access a lower price as a result (e.g. Dominoes)DIGITAL MARKETING – CONSUMERS

- Main advantage to consumers is convenience – e.g. 24/7 internet access.- Disadvantages for the consumer are the inability to physically examine the product before

making the purchase, risk of credit card fraud and lack of personal service.DIGITAL MARKETING – ORGANISATIONS

- Advantages for organisations: Access to global market Reduced costs.

- Disadvantages for organisations: Potentially much greater competition. Some specific target markets (e.g. remote areas) have low rates of internet access. Consumers concerned about security and the possibility of online fraud or deception.

CHARACTERISTICS OF DIGITAL MARKETINGPROFILING

Profiling refers to the process of getting to know about potential customers before they make a purchase and to find out more about existing customers.

- Marketing organisations can gather information about their customers in the digital environment through the following methods: Requiring registration – to access a website. The use of cookies on websites – small pieces of software written to a user’s computer

when they visit a website. They send info back to the website operator.

Jimmy Ngo Page 88


Competitions – these usually require personal information. Information is usually stored in a database or data warehouse.

INTERACTION (AND COMMUNITY) Interaction refers to the ongoing exchange of information between marketer and customer

(or potential customer).- Interactivity can occur in many ways, including the following:

Virtual customer service officer – responds to customers’ enquiries and comments with tailored answers.

Real customer service officer – responds to the website visitor in real time. Email newsletters and RSS feeds – helps maintain brand awareness in customer’s mind. Survey participation – surveys help marketers find more about their target market. Online communities – virtual meeting place for customers and potential customers.

CONTROL Control is the ability of the customer to determine how they interact with the marketing

message and to influence the presentation and content of the marketing message. Push advertising refers to advertising sent from the marketer to the customer.

For example, banner advertisements on websites. Pull advertising refers to advertising that the customer actively seeks out.

For example, subscription SMS services (more sophisticated digital marketing).ACCESSIBILITY AND COMPARABILITY

Customers can easily research different product options, and read independent product reviews, online, and are more informed than ever before. Some online services actually prepare detailed comparisons for customers.

Online environment offers the choice of completing transaction online or in store, which in ‐turn gives the consumer the choice of many more retailers.

DIGITALISATION Digitalisation refers to the ability to deliver a product as information or to present

information about a product digitally. - Some products can be completely digitalised – for example, music.- For those that can’t, the service can be digitalised – e.g. grocery stores offering online

shopping and delivery.DIGITAL MARKETING METHODSBANNER AND POP-UP ADVERTISEMENTS

Two popular forms of online advertising are as follows.1. Banners advertisements – appear on websites, much like newspaper advertisements.

They are relatively cheap on most websites but popular websites can charge significant sums for advertising space.

2. Pop-up advertisements – are advertisements that open in a new web browser window.BROCHURE SITES

Brochure sites are websites that are essentially an online advertisement for the organisation. They usually present product and contact details, but offer little other functionality.

SOCIAL MEDIA Social media are the various websites using technologies and experiences that involve

online communities where members contribute to and build the community and the content, and where users can substantially control their own online experience through customisation and interactivity.

- For example – social networking, podcasting and video/photo sharing sites, as well as those which facilitate blogs, wikis and question-answer databases.

- Businesses can use social media to build communities around their products and cement loyalty.

- Lack of control of social media is a challenge for businesses.

Jimmy Ngo Page 89


VIRAL MARKETING Viral marketing is the use of social networks to spread a marketing message. - Online, relies on forwarding of emails, links to websites, or word of mouth in discussion

groups and communities.- Viral marketing is controlled by the online community.- Not reliable for businesses – as they have little control.- Businesses can pay a heavy price (negative consequences) for trying to manipulate online

word of mouth, or use social networking sites for commercial purposes.‐ ‐PORTALS

A portal is a website that is designed to act as a gateway to other related sites. The portal itself either carries advertising or is intended to serve as an advertising tool

for the portal business itself.SEARCH ENGINE OPTIMISATION

Search engine optimisation (SEO) means tailoring features of a website to try to achieve the best possible ranking in search results returned by a search engine. The theory behind this approach is that consumers will be most likely to click through to

the first sites listed among the search results.SEARCH ENGINE MARKETING

Search engine marketing refers to paid advertising that appears similar to a search result on a search engine page.

MOBILE MARKETINGEMAIL, SMS AND MMS MARKETING

While spam is an unwelcome and illegal approach to marketing, legitimate email and SMS marketing can be an effective way to build customer relationships.

The capabilities of contemporary smartphones also provide additional opportunities for marketers via multimedia message services (MMS).

APPS- Applications enable brands to be displayed and information accessed readily on user’s

mobile phones.QR (QUICK-RESPONSE) CODES

- Quick response codes are 2D barcodes that can encode text, URLs or data so it can be quickly read by a QR code scanner. A ‘bar code’ on adverts and posters read by smartphones to provide further ‐

information.E-COMMERCE

Marketing exchange via the internet, mobile phone or other telecommunications technology. Attractive to small, niche businesses.

SPECIFIC CONTRACT ISSUES IN THE ONLINE ENVIRONMENT E commerce and agency‐ Consumer protection

ACL (Australian Consumer Law) applies within Australian jurisdiction Misleading and deceptive conduct Non excludable guarantees‐

Legal enforcement The borderless nature of the online world makes it difficult to determine which laws or

apply.SPECIFIC INTELLECTUAL PROPERTY ISSUES IN THE ONLINE ENVIRONMENT

Copyright Trademarks Patent Domain names:

Jimmy Ngo Page 90


Registration does not give proprietary rights Party holds a licence to use the domain name, for a specified period of time and subject

to certain conditions Once registered, the domain name cannot be registered by any other person in Australia

or elsewhere. Internet Corporation for Assigned Names and Numbers (ICANN) .auDomainAdministrationLimited (auDA) Uniform Domain Name Dispute Resolution Policy (UDNRP)‐ ‐

SPECIFIC ISSUES IN THE ONLINE ENVIRONMENT Cyberstuffing—the embedding of meta-tags in a website Deep hyperlinking—the practice of linking directly to the contents of another website. SPAM—unsolicited commercial electronic messages

SPAM ACT 2003 (Cwlth) Australian Communications and Media Authority (ACMA) = responsible for enforcing the

provisions of the SPAM Act.ETHICAL AND LEGAL ISSUESPRIVACY

- With the exception of spam laws and the PRIVACY ACT 1988, there are few laws aimed directly at regulating privacy protection online.

MISLEADING OR DECEPTIVE CONDUCT- The COMPETITION AND CONSUMER ACT, the FAIR TRADING ACT and the COMMERCE ACT

prohibit – anti-competitive behaviours (e.g. collusion), unconscionable conduct, unsafe products and practices, some aspects of trade mark infringement, making false or misleading statements and misrepresentation of product characteristics.

SPAM Spam refers to unsolicited commercial electronic messages.- In Australia, the relevant legislation is the SPAM ACT 2003.

INTELLECTUAL PROPERTY- Broader relevance to business – potential theft of intellectual property assets such as

trademarks or the misuse of trade marks.- Online, it is quite simple to copy logos, designs and other corporate branding materials and

essentially recreate an online facsimile of a real business.CONSUMER PROTECTION

- Methods consumers can take to protect themselves online include: Anti-virus, firewalls, email filters to delete spam, never give personal details to strangers.

DIGITAL DOWNSIDESTECHNOLOGY BURNOUT

- An interesting counter-trend has emerged in the aftermath of the technological evolution in recent times – professionals seeking to literally ‘switch off’ or ‘unplug’.

- People are working far beyond the traditional 9 to 5 because they are constantly connected to work.

LEGAL ENFORCEMENT- The borderless nature of the online world makes it difficult to determine which laws or

apply. IP protection may be difficult.DIGITAL MARKETING AND MARKETING STRATEGYTARGET MARKETS

The online community is extremely diverse. Online users can be divided into segments or niches based on particular characteristics in the same way they can offline.

The pull nature of online marketing means some of the target market will actively seek out the marketing organisation, but this is not a sufficient plan in itself. Organisation should generate awareness of its existence and its offerings.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Jimmy Ngo Page 91


Customer relationship management (CRM) refer to the processes and practices put in place to identify, track and use customer information and preferences to provide superior customer service and sustain long-term relationships. Online environment provides the opportunity to address customer needs at the

individual level, which is the concept at the heart of CRM.THE DIGITAL MARKETING MIX

Products that can be completely digitalised are particularly suited to online purchase, followed by products that can be partly digitalised.

The online environment enables consumers to easily compare price. Online marketers must find ways to offer more value than their competitors.

The internet and other telecommunications technologies, such as mobile phones, can act as a distribution platform.

The internet provides opportunities for promotion, but those opportunities are also available to all competitors. The challenge for marketers is to offer a better value proposition than competitors.

EVALUATING DIGITAL MARKETING EFFECTIVENESS Some online marketing efforts are much easier to evaluate. Online advertising is one area that offers further potential for marketers to assess

effectiveness. Deciding on a particular metric that quantifies as aspect of marketing performance can be

invaluable info for the online marketer to know how successful a marketing activity is. The interactive nature of the online environment also offers opportunities for detailed

qualitative information from consumers.

ELECTRONIC BUSINESSSUPPLY CHAIN MANAGEMENT

Electronic data interchange (EDI) refers to the comprehensive, secure and real time data ‐exchange between partners – such as for supply chain management. Technology plays a crucial role in managing the supply chain. Because the web provides EDI, organisations can remain connected with partners,

ensuring stock is managed in real time.INTRANETS AND EXTRANETS

Jimmy Ngo Page 92


Intranet is an internal website for the use of staff. Extranet is a private website for sharing information securely between different

organisations.THE VIRTUAL ORGANISATION

- Virtual organisation can come together easily and cheaply.- Telecommunications technologies + internet for organisations it has become cheaper and

more efficient to bring together specialist teams or individuals to maintain different functional areas within one organisation.

Chapter 14 – Social Marketing and Not-For-Profit MarketingLEARNING OBJECTIVES:

discuss how social marketing aims to change behaviour for social good understand the social marketing benchmark criteria understand the three streams of social marketing distinguish between social marketing and other forms of marketing Understand the nature of not for profit marketing.‐ ‐

SOCIAL MARKETING VERSUS COMMERCIAL MARKETING Commercial marketing is concerned with profit. Commercial marketing is about immediate rewards Social marketing is about changing or maintaining behaviours to achieve social good. The behavioural change is the bottom line. May be no apparent rewards for the individual from this change.

WHAT IS SOCIAL MARKETING? Social marketing is a process that uses commercial marketing principles and techniques to

influence target audience behaviours that will benefit society, as well as the individual. Translating complex educational messages and behavioural change techniques into concepts and products that will be acted upon by a large population.A means to change voluntarily behaviour in individuals and to influence policy.Used to influence behaviour that benefits individuals and communities for greater social good.Integrates marketing concepts with other approaches.A rapidly evolving field.

BENCHMARK CRITERIA FOR SOCIAL MARKETING Alan Andreasen’s 2002 paper – six social marketing criteria.

Behaviour change reminds social marketers that their goal is to change behaviour, not just educate or inform.

Audience research and segmentation require clear thoughts about who the efforts are aimed towards, while formative research helps ensure an understanding of the consumer and orientation of the social marketing intervention towards target market.

Next, creating an exchange requires consideration of what has to be given up by the target audience in order to undertake the ’desired behaviour’, while the marketing mix pushes social marketers to present holistic solutions (valuable and attractive), assisting to induce both trial and repeat behaviour.

Consideration of the competition provides social marketers with the awareness that they must consider the competing pressures faced by consumers.

SOCIAL MARKETING FRAMEWORKS

Jimmy Ngo Page 93


Let’s consider each of Alan Andreasen’s six benchmark social marketing criteria.BEHAVIOUR CHANGE

Behaviour change refers to the modification of behaviour targeted by a social marketing intervention.

- In many cases, social marketers want people to increase a desired behaviour or to decrease an undesirable behaviour.

- Often aiming to change attitudes, awareness and behavioural intentions rather than focusing on the actual behaviour itself.

- Best practice evaluation of social marketing involves the inclusion of baseline measurement and a control group to effectively evaluate change in the desired behaviour. Use of a control group permits confounding factors to be examined, ensuring that a

comprehensive understanding of what caused the behaviour change is gained. AUDIENCE RESEARCH

- According to Andreasen, audience research is essential to any social marketing intervention. Audience research refers to the use of market research to understand target stakeholders at

the outset of interventions (e.g. formative research), routinely pre-test intervention elements before they are implemented, and monitor interventions as they are rolled out.

SEGMENTATION- Andreasen’s third benchmarking criterion states that careful segmentation of target

audiences is necessary in order to ensure maximum efficiency and effectiveness in the use of scarce resources. Recall the definition of segmentation.

Segmentation is the process of dividing a total market (population) into groups with relatively similar needs to design a social marketing intervention that addresses the needs of each group identified.

EXCHANGE- Exchange has been debated widely by social marketing researchers, because it is not always

present in social marketing campaigns.SOCIAL MARKETING MIX

Jimmy Ngo Page 94


Marketing mix is a set of variables that a marketer can exercise control over in creating an offering for exchange.

- The 4Ps framework does not always apply but is always more than 1P communications for social marketing efforts.

- Social marketers need to adopt a FULL marketing mix of techniques that include pricing, sensory appeal, product bundling, promotions, packaging and retail displays to influence behaviour change.

Similar to commercial marketing, PRODUCT refers to the bundle of benefits received by the target audience following exchange.

The use of dollar pricing in social marketing interventions is rare. Some social marketers explain that PRICE is viewed in terms of the cost or sacrifice exchanged for the benefit (product) that the target market will incur.

PROMOTION is the most widely adopted aspect of the marketing mix in social marketing. PLACE refers to where and when the target audience enters into an exchange.

COMPETITION (IN THE CONTEXT OF SOCIAL MARKETING) Competition refers to direct and indirect competing behaviours as well as other factors (e.g.

resources, perceptions and attitudes) affecting the targeted behaviour. THREE SOCIAL MARKETING STREAMSDOWNSTREAM SOCIAL MARKETING

Downstream social marketing is focused on individual behaviour change and is the predominant stream in social marketing literature. The majority of downstream marketing considers behaviour change as voluntary, and

seeks to provide offerings of greater value than continuation of the risky behaviour by the individual being targeted.

It may fail if ENVIRONMENTAL ISSUES in relation to target market are not accounted for.MIDSTREAM SOCIAL MARKETING

Midstream social marketing targets behavioural change at the community level. Measuring target behaviour change at the COLLECTIVE level. Considered preferable over downstream because it has the potential to affect a larger

number of people. UPSTREAM SOCIAL MARKETING

Upstream social marketing involves marketing to policy makers to enact change at the policy level, in addition to influencing the way people think.

Essentially, ‘changing contexts’ by influencing the environments within which people act can change behaviour. Aims to change the counteracting environment.

- Upstream is concerned with influencing: Public policy, budget allocation and prioritisation

- It is concerned with the casual agents and determinants of social problems, and focuses on creating change within policy or regulations to make environments more conducive to the desired behaviour.

Notion that ‘successful programmes use ALL THREE STREAMS’.TEXTBOOK DEFINITIONS

Integrated social marketing communication involves communication of the brand promise consistently across the different elements of the communication marketing mix (e.g. advertising, public relations, sales promotion and social media), integrated with the other ‘3 Ps’ of product, price and promotion.

Public health refers to understanding health needs and intervening to improve the health of the population.

NOT-FOR-PROFIT MARKETING Not-for-profit marketing refers to the marketing activities of individuals and organisations

designed to generate funds or awareness for charitable causes.

Jimmy Ngo Page 95


o Two broad categories: Activities of not for profits organisations like The Smith Family.‐ ‐ ‘Social marketing’, such as anti smoking campaigns.‐

While trying not to generate profits (core objective is not related to financial objectives), not-for-profit organisations do need to remain financially viable and do compete with other organisations (including for-profit organisations) for fund, members and clients.

Many, though not all, not-for-profit organisations enjoy strong community support, but this is coupled with strong community expectations about how they conduct their activities, including their MARKETING efforts.

Lecture 12 – International Marketing

Chapter 13 – International MarketingLEARNING OBJECTIVES:

understand the concept of ‘globalisation’ and its consequences for organisations seeking to engage in international marketing

discuss the political, economic, socio cultural, technological and legal forces at play in ‐international markets

understand why and how organisations internationalise Explain how marketers create, communicate and deliver a product in an international

market.GLOBALISATION

Globalisation is the process through which individuals, organisations and governments become increasingly interconnected and similar, with consequences for national identity, national sovereignty, economic activities, laws and culture.

Barriers have diminished, facilitating greater interconnections between different countries and their people. This has resulted in a close interdependence in terms of trade, finance, living standards and security.

STANDARDISATION versus CUSTOMISATION Standardisation refers to applying a uniform marketing mix across international markets,

with only minor modifications to meet local conditions. Customisation refers to carefully tailoring the marketing mix to the specific characteristics

and wants of each market.Standardisation CustomisationSimilarities between different countries/convergence

Social, cultural, economic, political and legal differences between countries

Economies in research + development Creation of competitive advantageUniformity and ease of control of marketing approach

Competition from local marketers in the foreign market

Economies in marketing Facilitation of innovation in the foreign marketEconomies of scale in production

Comparison between standardisation and customisationGLOBAL TRADE

A large proportion of total production and consumption is sent overseas or sourced from overseas.

Many governments run export promotion programs to help domestic organisations succeed in international markets: Australian Trade Commission (Austrade) New Zealand Trade and Enterprise Agency

THE INTERNATIONAL MARKETING ENVIRONMENT

Jimmy Ngo Page 96


POLITICAL FORCES Political forces may be broadly categorised as:

Political alliances and agreements between countries Political factors within a target market country.

- Some alliances favour trade between countries, enhancing the chances of success, while others can work against international marketing goals.

International trade agreements are formal agreements between countries to encourage and facilitate trade between them.

- They aim to: Streamline paperwork. Reduce or eliminate trade barriers (e.g. tariffs) Create preferred zones of trade among their member countries (often, incidentally, to

the detriment of non-members) Bilateral trade arrangements involve two countries, whereas multilateral arrangements

involve more than two countries, often located in a region.COUNTRY/MARKET-SPECIFIC POLITICAL FACTORS

Democratic systems see regular changes of government, which result in policy changes. Multiparty systems often suffer an inability to implement policy. Dictatorships see infrequent changes, but when change does happen, it often fundamentally

alters the state of the country.ECONOMIC FORCES

International marketers’ understanding of the economic forces in the international marketplace must encompass: The global economy The economies of the specific countries of interest to them.

Exchange rate is the value of a country’s currency relative to others.- Market-specific economic factors include levels of income and wealth, exchange rates, the

availability of credit and the quality of national infrastructure.SOCIOCULTURAL FORCES

- Each international market is likely to have sociocultural variations within it.- Marketers need to be aware of the different cultural meanings of symbols – such as colour –

in different countries.

TECHNOLOGICAL FORCES Technology has been an enabling force in international marketing for the past 20 years:

Jimmy Ngo Page 97


Cheap communication technologies enable easy transfer of information between countries

Technology has created, revolutionised and destroyed entire industries. Marketers cannot assume potential target markets will have the same technological

infrastructure as the home market.ENVIRONMENTAL FORCES

- Overfishing, poor resource management, climate-induced acidification, coral bleaching – these are problems for the GLOBAL ECONOMY.

LEGAL FORCES- Some countries restrict trade practices through laws and regulations. It is important for

international marketers to be aware of trade barriers such as: Tariffs are the duties charged on imports that effectively increase the price of imports

relative to domestically made products. Quotas are the annual limits on the amount of particular types of goods that can be

imported. Embargoes are the bans or restrictions on imports from a particular country. Limits or bans on foreign ownership – for example, AU imposes limits on the amount of

Australian assets that can be foreign owned.WHY AND HOW ORGANISATIONS GO INTERNATIONAL

In many ways, the imperative for international marketing is straightforward: World holds many more potential customers than does the home market. Communication + transport technologies make international marketing a realistic option Increasingly free trading environment makes international marketing easier and at the

same time, increases competition within the domestic market. Faced with increasing competition at home, a marketer may be able to find a market

that does not currently have access to its product. Greater economies of scale achieved by increasing the scale of overall operations.

SELECTING OVERSEAS MARKETS- A two-step process for researching international markets – screening then in-depth research

Screen markets using secondary data to generate a short list of countries to consider. More detailed primary research to permit a thorough examination of short-listed

markets prior to selecting the preferred country or countries to enter.METHODS OF MARKET ENTRY

EXPORTING Exporting is the sale of products into foreign markets from a home market base. Direct exporting is an approach to exporting in which the marketing organisation deals

directly with the international market. Indirect exporting is an approach to exporting that relies on the use of specialist marketing

intermediaries. The main types of export intermediaries are:

Export agents – which bring together buyers and sellers from different countries and charge a commission on the sale.

Trading companies, export houses and export merchants – which purchase products from businesses and then sell them into international markets.

CONTRACTUAL AGREEMENTS Licensing is an agreement in which a brand owner permits another party to use the brand on

its product. A business (the licensee) in a foreign country manufactures and sells the products of a

home country business (the licensor) and pays a commission on the sales it makes. Franchising is an approach to business in which one party (a franchisor) licenses its business

model to another party (a franchisee).

Jimmy Ngo Page 98


A business (the franchisee) pays a fee in return for the right to use the marketing and business plan of another business (the franchisor).

CONTRACTUAL MANUFACTURING Contract manufacturing is an approach to international marketing in which a business pays

a foreign business to manufacture its product and market it in the foreign country under the domestic business’s name.

STRATEGIC ALLIANCES AND JOINT VENTURES International strategic alliance is a cooperative arrangement between a business and

another business in a foreign market. Only make sense and can only succeed when each partner brings value to the alliance

and each partner stands to benefit. International joint venture is an approach to international marketing in which a marketing

organisation forms a new business with an existing business in the target foreign market. DIRECT INVESTMENT

Foreign direct investment is the outright ownership of a foreign operation. Greenfields operation – a new business established in a foreign market from the ground up. Multinational corporations – businesses that develop extensive directly owned assets in

numerous foreign countries.Directly owned subsidiaries may operate with little/considerable autonomy, depending on the foreign market and the business’ products.

‘’BORN GLOBAL’’ Born global is a business that views the whole world as its market from the outset.

This model is not suitable for all industries or products. Businesses that can successfully pursue global markets from Day One offer:

Intellectual property or data services (where transport is irrelevant) Very high end products where price is of little consequence‐ A unique or desirable product (e.g. a new pharmaceutical).

- The emergence of e-commerce has been important facilitator of born global business and most global born marketing organisations are internet-based.

THE INTERNATIONAL MARKETING MIXPRODUCT

The product mix must respond to customer preferences. Different levels of disposable income/wealth across the world may require changes in

quality, size and packaging. Branding or global branding is important – many try to develop a consistent, global brand,

but this can create difficulties. Sociocultural differences may require changes to the way service is delivered.

PROMOTION Marketers may confront issues including language barriers, advertising regulations, different

media infrastructure, and differences in market maturity. These differences may require changes to promotional efforts.

PLACE Range of distribution challenges:

Need to transport products over larger distances Exchange rate fluctuations that substantially and quickly affect costs Appropriate use of marketing intermediaries facilitating distribution into foreign markets

– essentially, international marketer can choose to sell directly to international customers using its local sales force or via e-commerce, or it can use independent intermediaries within the foreign market.

PRICING Pricing must be sensitive to local market conditions and reflect the costs involved in the

marketing effort.

Jimmy Ngo Page 99


Influenced by exchange rates, trade barriers, government regulations, level of competition, and specific marketing goals for each market.

International marketers with little or no experience must rely on market research to understand the target market.

Jimmy Ngo Page 100


Lecture 13 – REVISIONThe Pareto principle was covered in the mid-semester exam.

FINAL EXAM STRUCTURE Chapters 1 14 will be examined with a higher percentage (≈ 60%) coming from material ‐

covered since the mid semester‐EXAMINATION LAYOUT

PART A – 20 multiple choice questionsPART B – 10 short definitionsPART C – 1 short essay question relating to a case study that is provided in the examPART D – 1 course overview essay question relating material covered in lecture, tutorials and the textbook

PART C was a case study extract on VB.PART D should be on the 7Ps for a seafood restaurant.

Jimmy Ngo Page 101

Documents

24108 Marketing Foundations