EXCELLENCE TRAINING INSTITUTE

UNIT: MARKETING PRINCIPLES.Introduction.

The aim of the Marketing Principles unit is To provide students with a foundation for the analysis of marketing within organizations including decision making processes, segmentation, the role of information and the marketing information system, the marketing mix, internal and external influences affecting strategy, competitor analysis and positioning.

At the end of this Unit, students will be able to:1. Understand the marketing environment and the scope of tasks undertaken in marketing in the context of different organizational situations in which marketing is applied. 2. Understand the decision making processes within consumer and organizational buying situations explain the ways in which market segments are defined and recognise the importance of information in decisions concerning customers and markets. 3. Assess the role of the marketing mix within the context of marketing decision making. 4. Examine various marketing strategies used within different organizations and competitive situations.

Main Topics of Study:1 Concept & Process of MarketingThe Marketing Concept: Evolution of Marketing Business Orientations Societal Issues & Emergent Philosophies Customer & Competitor Orientation Efficiency & Effectiveness Limitations of the Marketing ConceptMarketing process overview: Marketing Audit Integrated marketing Environmental Analysis SWOT Analysis Marketing Objectives Constraints Options Marketing planningCosts and benefits: Benefits of Building Customer Satisfaction Service and Customer Care Relationship Marketing Customer Retention Customer Profitability Total Quality Marketing

2 Segmentation, Targeting & PositioningMacro-environment: Environment Scanning Political, Legal, Economic Socio-cultural, Ecological & Technological FactorsMicro-environment: Stakeholders (Organisations Own Employees, Suppliers, Customers, Intermediaries, Owners Financiers, Local Residents, Pressure Groups & Competitors) Direct & Indirect Competitors Porters Competitive Forces3 Buyer Behaviour: Dimensions of Buyer Behaviour Environmental Influences Personal Variables Demographic, Sociological, Psychological-motivation, Perception & Learning Social Factors Psychological Stimuli Attitudes Other Lifestyle & Life Cycle Variables Consumer & Organisational BuyingSegmentation: Process of Market Selection Macro & Micro Segmentation Bases for Segmenting Markets: Geographical, Demographic, Psychographic & Behavioural Multivariable Segmentation & Typologies Benefits of Segmentation Evaluation of Segments & Targeting Strategies Positioning Segmenting Industrial Markets Size Value Standards Industrial Classification

4 Marketing mixProducts: Products & Brands Features, Advantages & Benefits The Total Product Concept Product Mix Product Life-cycle & Its Effect on Other Elements of the Marketing Mix Product Strategy New Product Development Adoption ProcessPlace: Customer Convenience & Availability Definition of Channels Types & Functions of Intermediaries Channel Selection Integration & Distribution Systems Franchising Physical Distribution Management & Logistics Ethical IssuesPrice: Perceived Value Pricing Context & Process Pricing Strategies Demand Elasticity Competition Costs Psychological Discriminatory Ethical IssuesPromotion: Awareness & Image Effective Communication Integrated Communication Process Promotional Mix Elements Push & Pull Strategies Advertising Above & Below the Line Packaging Public Relations & Sponsorship Sales Promotion Direct Marketing & Personal Selling Branding On-line Marketing

5 Different Marketing Segments & ContextsConsumer Markets: Fast-moving Consumer Goods Consumer Durables Co-ordinated Marketing Mix to Achieve ObjectivesOrganisational Markets: Differences From Consumer Markets Adding Value Through Service Industrial Non-profit Making Government Re-sellerServices: Nature & Characteristics of Service Products Intangibility, Ownership, Inseparability, Perishability, Variability Heterogeneity the 7Ps Strategies Service Quality Elements of Physical Product Marketing Tangible & Intangible BenefitsInternational Markets: Globalisation Standardisation Versus Adaptation The EU / Benefits & Risks Market Attractiveness International Marketing Mix Strategies

SECTION 1

Concept and Process of Marketing.

The Marketing Concept

This section will help you to develop an understanding of the concept of marketing. This includes how marketing has evolved and how it fits into todays businesses.

Evolution of Marketing

To understand how marketing has evolved it is also necessary to understand a little about the history of markets. This chart gives a very brief overview and students would benefit from conducting research to learn about this in more detail.

People lived in family and tribal units. They were mainly self sufficient and only limited trading took place

Early human history

People started to specialise and trade their skills. For example, a toolmaker may have traded tools for food.

System of bartering

The invention of money meant that people no longer needed to barter directly for what they needed

Development of markets and early advertising

Agricultual and industrial revolutions led to the development of technology and techniques that in turn led to mass production

Advertising through billboards, newspapers, television, etc

Marketing techniques devoloped as competition and consumer choice increased

Developing products that met the needs of consumers

New technologies and the use of social media have led to developments in marketing techniques

Use of the Internet to engage with consumers

Marketing as we know it is a relatively new discipline and emerged around the 1960s. This coincided with increases in the range of products available, increased competition, greater consumer choice and more disposable income.

No longer could businesses manufacture their products hoping that they would sell. This led to a change in approach where businesses tried to identify the requirements of customers and to manufacture products and services to meet those requirements see the definition below.

Marketing is the management process which identifies, anticipates and supplies customer requirements profitably.

Chartered Institute of Marketing

Business Orientations

There are two main types of business orientation to consider.

Product OrientationMarket Orientation

The business focuses on its products.The business focuses on the needs and

This means paying attention to thewants of its customers. Its products,

skills, knowledge and systems neededservices and activities are aimed at

to produce products.meeting these needs.

The risk is that by not focusing on theMarket research is carried out to ensure

needs of the customer the businessthat products and services meet the

produces products that do not meetneeds and wants of customers.

customer needs.

However, this approach is important for

ensuring the quality and safety of the

products sold.

In reality, many businesses successfully combine both orientations (e.g. Coca Cola, Gillette, etc).

Sales Orientation

There are still a number of successful businesses that adopt a sales orientation. Unlike a marketing orientation products are not tailored to the needs of consumers. Aggressive sales and advertising techniques may be used leading to a bad reputation for the industry concerned (e.g. energy companies, companies selling double glazing, etc).

Selling focuses on the needs of the seller; marketing on the needs of the buyer. Theodore Levitt

Customer and Competitor Orientation

Marketing is customer orientated. In theory this means that there is less need for expensive selling because the needs of customers are being identified and met.

The marketing concept meansCustomer orientation is a part

putting the customer first.of the culture of the business.

The aim is to satisfy customerProductsandservices are

requirements at a profit.producedtomeet customer

requirments.

Competitor Orientation

The philosophy behind a true competitor orientation is to beat your competitors. The danger with this is that it can be at the exclusion of everything else including profits. However, without going to these extremes, it is sensible to keep an eye on competitors and to take account of them in any marketing campaign.

What choices are available toWhat supply and demand

customers?exists?

What is the size and strengthHow many competitors exist

of competitors?in the market?

What substitute products andAre there any changes in

services exist?competitor attitudes?

It is also important to consider how competitors are likely to react to any marketing campaigns you are proposing to conduct.

Societal Issues and Emergent Philosophies

Critics of the marketing concept say that it encourages people to want things they dont need. It is also possible that it may create a desire for products that are bad for customers or society as a whole. Examples may include:

Cigarettes and alcohol which have the potential to cause health problems

Instant win scratch cards which can appeal to poorer members of society who cant really afford to buy them

Motor vehicles with high fuel consumption can have a bad effect on the environment

Many firms now understand the importance of corporate social responsibility and have a marketing orientation to support this. This makes sense because many potential customers are influenced by the way in which a business behaves. A good example is the environment. Many consumers want to buy environmentally friendly products and businesses that meet these requirements can be very successful. There are many examples of this. Here are just a few that have been influenced by consumers.

Reduction in packaging used for food products in supermarkets

Use of sustainable materials in manufacturing processes

Use of recycled materials in manufacturing

Fuel efficient vehicles developed by car manufacturers

Responsible disposal of waste

Many modern consumers are also concerned with the ethics of the business. For example, they may not be willing to buy from firms who exploit low paid workers in third world countries.

Efficiency and Effectiveness

An effective marketing strategy must be linked to all of the functions of the business. In fact, they must be interdependent. A key reason for this is so that all marketing efforts and activities across the organisation align with its goals.

It is worth noting that efficient and effectiveness are not the same things. For example sending letters to a thousand customers to tell them about a new product may be efficient but it is not effective if the wrong customers are targeted and it does not result in any sales.

One way of achieving effectiveness is to pay attention to the marketing mix. Originally, there were four elements to the marketing mix. These are commonly known as the 4 Ps.

Product

What are the features and appearance of your product and how does it benefit potential customers?

Promotion

How are customers informed about your product?

The 4 Ps

PlacePrice

Where will you sell your product andHow much will customers pay for yor

how will you get it to your customers?product and service and will it be

profitable at this price?

The Service Sector

In recent years times there has been a huge growth in the service sector which offers no tangible products. This has led to three more elements being added to the marketing mix for service products, giving 7 Ps in total:

Process: Are the systems for buying and selling the service efficient, effective and user-friendly?

Physical Evidence: As services are intangible products there needs to be some way of creating and maintaining the desire of customers to buy the service. How will you do this? For example, could you use regular newsletters, customer testimonials, etc?

People: Your staff provide the service to your customers? Are they well motivated and trained to do this well?

Limitations of the Marketing Concept

Although there are many reasons to adopt the marketing concept it also has a number of disadvantages that need to be considered. These include:

Identifying the needs/wants of customers and this requires extensive market research.

There can be delays bringing products to market because the marketing approach can be expensive and time consuming.

To avoid carrying out their own research and development competitors may copy your products and undercut your costs.

Consumer behaviour is not always consistent. This means that market research is not always right by the time a product comes to market. This is a particular problem in markets where trends and fashions are changeable.

There is a danger of market research leading to a narrow focus and missed opportunities as a result.

Marketing Process Overview

This section considers marketing strategy and how this links to overall corporate strategy. It also covers strategic planning and how strategies are formed.

Integrated Marketing

What is integrated marketing?

Does this mean that advertising, sales promotion and public relations should all be aligned with each other?

A management concept designed to make all aspects of communication work together.

Thats right. Everything needs to be interlinked to increase the effectiveness of your marketing campaigns.

The changes brought about by advances in Information Technology mean that a lot more information is readily available to customers than ever before. This means that an integrated marketing communications plan is essential if an organisation wants some control over the messages received by customers and potential customers.

Marketing Objectives

It is vital that marketing objectives are aligned with the corporate and functional objectives of the business.

Corporate ObjectivesFunctional Objectives

These set out the overall goals for theFunctionalmarketing objectives must

organisation and will usually be stated insupport the corporate objectives of the

terms of profit, returns on investment,organisation. They must also be aligned to

growth, earnings, etcthe objectives of all the other areas of the

Examples of strategic objectives:business. Examples of functional objectives:

We aim for a 15% return on investment We aimto build our database of

customers across the UK to at least

We aim to achieve an operating profit200,000 within the next 12 months

of 5 million on sales of at least 50

million We aim to achieve a market share of at

least 12.5% within the next 12 months

It is important to set meaningful objectives and one approach to this is to set them using

S

M

A

R

T

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement so that it is possible to determine whether it has been achieved

Achievable - the objective should be realistic . This includes taking account of the circumstances in which the business is operating and the resources available to the business.

Relevant - objectives should be relevant to the buisness and to the people given responsibility for achieving them.

Time Bound - objectives should have a time-frame. These are effecively deadlines so thay also need to be achievable.

what are known as SMART criteria.

Marketing Audit

A marketing audit is a systematic analysis and evaluation of an organisations marketing position and performance. A full audit will focus on all marketing activities but there are three areas of particular importance.

Marketing Capabilities

To identify which aspects of the company's marketing are strengths and weaknesses.

Performance EvaluationCompetitve Effectiveness

To establish the actualAnalysis of the company's

achievements of the

competitive advantages.

company's marketing

and their sources.

activities.

Environmental Analysis

All businesses are affected by external forces. This means that they need to understand the ever changing environment in which they operate. This includes the technological, social, economic and political environment, as we will see later in this guide.

Environmental analysis involves gathering information (intelligence) and then evaluating it.

Fortunately, there are many different sources of intelligence available to a business.

Sources of Intelligence Examples

Market IntelligenceCompetitor Intelligence

Business and Financial Newspapers andFinancial statements

MagazinesCustomers and suppliers

Trade Journals Former employees of competitors

Academic Journals Analysis of competitor products

Conferences, Exhibitions and Trade Competitors product and job

Fairsadvertisements

Feedback from the sales force and

other employees

Networking (online and offline)

Monitoring competitors

Trade Associations

Primary and secondary research

The Internet

All of this information needs to be compiled and catalogued so that it can be found easily. It is also usual for it to be presented in the form of monthly reports.

SWOT Analysis

SWOT analysis is a technique for analysing an organisation and its environment. It stands for Strengths, Weaknesses, Opportunities and Threats.

Strengths and Weaknesses are factors that are internal to the business.

Opportunities and Threats are external factors.

A SWOT analysis helps with strategic planning. One approach is to formulate plans aimed at using the strengths of the business to take advantage of the opportunities that exist.

Another alternative is to recognise weaknesses and to formulate plans to overcome them and ideally to turn them into strengths.

StrengthsWeaknesses

These are characteristics that give aThese are characteristics that places a

business advantages over its competitorsbusiness at a disadvantage in relation to its

and/or will help it to meet its objectives.competitors and/or will make it more

For example, well trained and experienceddifficult for it to meet its objectives. For

staff may be a strength.example, out of date machinery and

equipment may be a weakness.

OpportunitiesThreats

These are factors in the externalThese are factors in the external

environment that may be advantageous toenvironment that may be to the

the business. For example, a competitordisadvantage of the business. For example,

may go out of business.an increase in the cost of raw materials.

Options

Any marketing campaign needs to have a clear focus and this is one reason why clear objectives are so important. It is also important for the organisation to make the right choices when setting its competitive strategy.

Will the business compete across the entire market or only in certain segments? An example might be an insurance company selling motor insurance which may decide on a marketing strategy focusing on mature drivers with good driving records.

Another option is to compete on price or to differentiate on the product range. The cruise holiday market is a good example of this. A cruise line could opt to sell holidays at the luxury end of the market or offer a standard quality to large numbers of passengers at a lower price.

Possible Choices

Cost Leadership

This approach involves trying to control the market on price by being a low cost producer.

Differentiation

This approach is all about differentiating on the product itself or by providing a better service than competitors.

Focus/Niching

With this approach the focus is on a particular part of the market (e.g. wealthy people).

Market Penetration

The business aims to sell more of its existing products in its existing markets.

Market Development

The aim is for the business to sell more of its products in new markets, perhaps by selling abroad.

Possible GrowthStrategies

Product DevelopmentDiversification

The business continues to operate in its existing markets by developing and selling modified versions of existing products.

This can be a risky straegy and involves developing new products in new markets.

Constraints

There are constraints on any business and these must be taken into account.

Internal constraints will include the budget available to the marketing department and may affect what it can or cannot do. The quality and skills of management and employees will also need to be taken into account.

There are also a number of external factors that may place constraints upon a business and how it markets itself. For example, the business may be subject to regulatory controls as well as those that arise because of the nature of the market in which it operates.

Size of the market

You cannot make sales unless there are customers out there.

Demand of the Market

It is important to understand the requiremets of your customers by conducting market research.

External Constraints

Strength of the Competition

What is the strength of the competition and can your business postion itself to limit the effect of that competition?

Availabiity of Supply

If your businss depends on supplies, is there enough supply out there to satisfy your needs if your business increases?

Marketing Planning

Marketing plans follow a logical approach

Company Mission Statement

Statement of Objectives

Situational Analysis

Strategy Development

Specific Plans

Implementation

Control

Costs and Benefits

Weve seen in an earlier section that most successful businesses focus on marketing rather than selling. This is a shift in attitude that has been taking place from the late 20th Century.

This means that the focus is on meeting the requirements of the customer. The aim is to meet customer requirements by providing the right product at the right place and time and in the right way.

Benefits of Building Customer Satisfaction

Why is it soBuilding customer

important tosatisfaction is the

focus on theonly way to achieve

customer?a sustainable

advantage over our

competitors.

Well, the big risk is thatThat sounds like ayou will lose

lot of jargon to me.dissatisfied customers

What does itto your competitors.

actually mean?

However, there are

also many positive

benefits to having

satisfied customers.

What satisfied customers will do

Buy from you again

Buy different

and possiblyRecommend

moreyou to friends

expensiveand family

items from you

Remember that it is more expensive to find new customers than to keep the people who already buy from you. Costs involved in generating new customers may include advertising, sales staff time, cost of credit checks, agents commission, initial discounts, etc.

Service and Customer Care

Every time a business has contact with customers it has an opportunity to build its reputation with them. This is important because it leads to loyal customers and this increases the prospects of making further sales to them and to the people they recommend you to.

This means that it makes good business sense for companies to pay attention to the service and the care it offers to its customers.

The reputation of a business does not depend solely on how well its products meet the needs of its customers. Many other factors also come into play

Relationship Marketing

Relationship marketing is about building a learning relationship with the customer. The aim is to build a long term relationship with the customer and to build a clear understanding of the preferences of that customer.

Howards Favourite Beer

Howard is a regular customer in a local hostelry. He visits it every evening and likes to relax with his favourite beer after work.

Over time the bartender realised that Howard always ordered the same beer. From his position behind the bar he could see Howard crossing the road on his way for his early evening drink.

Knowing that Howard always ordered the same drink the bartender started pouring it as soon as he caught sight of Howard. This meant that Howard did not even have to order his drink and it was waiting for him, freshly poured, as soon as he arrived.

Howard considered this to be excellent service and carried on using the hostelry for many years and also recommended it to many friends who also became regular customers.

The bartender had learned Howards preferences and had adapted his service to meet them. And, of course, the bartender would not have taken this approach if he had learned that Howard was unhappy to have his drink poured in this way.

Although this may be quite a crude example of relationship marketing it does illustrate what large organisations aim to do on a much larger scale.

Many organisations use customer relationship software to help manage customer relationships

All customer

contacts with areMeeting customer

used as anpreferences

opportunity toincreases customer

collect informationsatisfaction and

and to understandminimises problems

their preferences

Customer Retention

The problem with having profitable customers is that your competitors want them. This means that organisations will try to identify their most profitable customers and adopt strategies to retain them. An approach that incorporates relationship marketing and works towards delivering quality from the perspective of the customer helps here.

Relationship marketing is seen as the key to customer retention. There are two basic types of relationship with the customer.

Individual TransactionRelationship Approach

The customer pays for a product or serviceThe sale is seen as the start of the

which is provided by the organisation. Norelationship with the customer. In its

attempt is made to build a relationship withsimplest form the customer may receive a

the customer and repeat custom may orphone call to check whether the he or she

may not happen.is satisfied with his/her purchase.

Possible Levels of Customer Relationship

Pertnership - Work with the customer to ensure that all aspect of the relationship work well for both paties.

Proactive - Regular contact with customers to keep infromed about their current and future requirements.

Accountable - Customer are contacted to find out if there are any problems with the product or service and to get ideas for future improvements.

Reactive - Custtomers are encouraged to call if there is any problem with the product or service required.

Basic - Once the sale is complete there is no further contact with the customer.

Customer Profitability

There is little doubt that it is more profitable to keep existing customers than to spend money acquiring new ones. It has been suggested that a 5% increase in customer retention could lead to an increase in operating profits as high as 50% in some businesses.

Don't have to be acquired

Familiar with the business so they cost less to service

Why are loyal customers profitable?

Buy a wider range of products

Over timeWillthey are lessrecommendsensitive toyou to otherspriceTotal Quality Marketing

Quality control has always been important to organisations. In the past this was mainly for the benefit of the organisation itself. One of the key reasons for this is that improves quality and reduces waste which in turn minimises wasted money.

With the recent trend towards a marketing approach quality is increasingly being seen from the perspective of the customer.

The needs of theMeeting the needs

customer areof the customer is

identified and metthe key to being

competitive

The aim of total quality marketing is to ensure that every activity carried out within the organisation combines to deliver products and services which meet customer expectations.

Internal Customers

Anybody you provide a service to in your organisation is described as an internal customer. For example, front line staff learning about customer service will be the internal customers of the training department.

Total quality marketing requires that you have a good working relationship with your internal customers and provide them with the service that they require in the way that they need it so that they can do their jobs effectively. The concept is that this has a positive effect on the running of your company and the service that is provided to the external customers of the business.

Many organisations ignore this and dont identify the requirements of internal customers and this is to the detriment of the business.

SECTION 2

Segmentation, Targeting & Positioning.

Macro-Environment

The macro environment refers to major external factors that affect a business. These are outside of the control of the business but need to be tracked and understood as they will influence the organisations decision making, and affect its performance and strategies.

These factors include economic factors; demographics; legal, political and social conditions; technological changes; and natural forces.

Environment Scanning

It is vital that organisations constantly scan and understand the environment in which they operate.

To minimise threats arising from changing market conditions

To exploitopportunitiesTo target marketsarising fromeffectivelychanging market conditions

Reasons for environmental scanning

Environmental scanning involves collecting and analysing market intelligence. Possible sources of intelligence include:

Business and financial newspapers and magazines

Academic and trade journals

Courses, conferences, exhibitions and trade fairs

Feedback from own employees (especially sales staff)

Trade associations

Networking (building a network of personal contacts)

Monitoring the competition Market Research

Organisations will also need to carry out market research. There are two main types.

Primary ResearchSecondary Research

Primary research is necessary when Secondary researchmakesuseof

there is no existing data available ordata that is already available.

when data is needed for the specificSources include publicationsor

purposes of the organisation.reports likenewspapers orannual

company reports.

Time needs to be spent designing The researcher does not need to

questionnaires, collecting data fromstart from scratch and uses

respondents andanalysing theinformationalready available from

results.other organisations or publications .

The main disadvantage of primary The main disadvantage of secondary

research is that it is time consumingresearch is that the data was

and potentiallyvery expensive.originallycollectedforother

purposes and may not suit the

needs of the organisation.

It helps to categorise environmental factors when anaylsing them. The PESTEL model (sometimes called PESTLE) helps with this. The model distinguishes between these factors:

Political

Economic

Socio- Cultural

Technological

Ecological

Legal

Political Factors

This refers to government policy and the decisions made by the government.

To what degree does the government intervene in the economy?

What goods and services does the government want to promote?

To what extent does it believe in subsidising firms?

What are its priorities in terms of business support?

What are its social policies (e.g. education and health)?

What are its tax policies?

What are its policies on business regulation?

These and many other political decisions can have a big effect on the business environment.

In the UK and other democracies policy can change dramatically if the government changes following an election.

Organisations operating in European Union (EU) countries will also be affected by its political decisions.

The EU has done a lot to make the sale of goods and the movement of capital and labour within its borders easier. Here are some examples.

Capital movements liberalised (e.g. its easier for UK investors to invest in other EU countries)

All EU citizens given the right to work anywhere in the EU.

Common standards on food labelling and hygiene

Removal of rules limiting access to financial services

Mutual recognition of professional qualifications (e.g. allowing a UK lawyer to practice law in Spain).

Common standards for information technology

There are also rules relating to government contracts. When the government of an EU company needs to buy something then companies from any EU country are given an equal opportunity to bid for the contract. They must not favour a business from their home country.

Volatile Regions

Some parts of the world are more volatile than others. For example, unrest in the Middle East early in 2011 has already led to the fall of governments and to civil war. At the time of writing the outcome is in this part of the world is very uncertain. However, there is sure to be political change that will have great effects on businesses operating in or trading within these countries.

Economic Factors

These are the main economic factors that have major impacts on how businesses operate and on the decisions they make.

Rate of growth

Rate of inflation

Levels of employment

The rate of increase in economic activity Measured as Gross National Product

More people buy products during times of growth

The rate at which prices are rising

Affects the costs of the business

Some prices fluctuate (e.g. price of oil)

In consumer markets this is particularly important Unemployed people do not go shopping

During periods of high employment it may be difficult to find staf

Most businesses borrow money (overdrafts or long term loans)

Interest Rates Interest rates affect the cost of borrowing

High interest rates can be damaging for businesses

This affects businesses andTax and Taxtheir customersPolicyHigh taxes affect spending

Levels ofsavings

If people are saving money they are not spending it High levels of savings mean that there is more money available to invest in business

Most businesses are also affected by global markets so there are three additional factors for them to consider.

Balance of Payments

This is the difference between the cost of imports and exports. A country that is selling more abroad than it buys is said to be in surplus but is in deficit when it is buying more.

If the balance of payments is in surplus this is generally good for importers as prices tend to reduce. Exporters tend to benefit when there is a deficit.

Economies of other Countries

What is the state of the economy in other countries? Countries with strong economies may be good to export to.

Barriers to Trade

Some countries may prevent or restrict trading in certain products to protect their local markets.

35

Socio-cultural Factors

Changes in social factors have an effect on the demand for products and the way in which a company operates.

Culture

There are three interdependent elements in a cultures society.

Ideas, values, beliefs, ways of reasoning

The IdeologicalSystem

TheThe

TechnologicalOrganisational

SystemSystem

The skills, arts and crafts that enable us to make things

Government, companies, families, social clubs

Demographic Factors

Demography is the study of the trends and characteristics of the population.

How many people in the population?

Is the population growing or declining?

Where do people live? (e.g. in towns or in the country)

What is the mix of people? (e.g. ages, proportion of men and women, etc.)

What is the age distribution of the population nationally and regionally?

These factors all have an effect on a business. For example the trend is towards an aging population in the UK. This will affect the products that people require. It also affects employment. Older people may have more experience and skills to bring to the workforce but may be less willing to go out to work unless they are paid very well.

Standard Classifications

Analysis of the population can be helped by the use of standard classifications. There are a number of classifications and the theory is that people falling within a particular category have similar behaviours and buying habits.

The use of socio economic groupings is particularly helpful for marketing purposes.

Managerial and Professional (e.g. Lawyers,Doctors, Company Directors)

Intermediate managerial and prfoessional (e.g.Teachers, Managers)

Supervisory and clericaltaff (e.g. Foremen, CallCentre Employees, Shop Assistants

Skilled Manual Workers (e.g. Electricians,Plumbers, Carpenters)

Semi Skilled and Unskilled Manual Workers (e.g.Cleaners, Machine Operaters)

People not working (e.g. Pensioners)

This chart is an example of socio economic grouping developed by the UK Registrar General.

In a later chapter we will look at a more sophisticated classification approach known as ACORN (A Classification Of Residential Neighbourhoods)

Technological Factors

When considering technological factors it can be helpful to understand some terminology.

TechnologyThe use of tools to make things.

New TechnologyThis generally refers to technology that comes from recent scientific

research and often relates to the use of computers.

High TechThis refers to the most advanced technologies currently available

(e.g. computer technology).

Low TechThis is the opposite of high tech and refers to simpler technology

such as child proof tops on cleaning products

InventionThe outcome of research and development work

InnovationThe ability to make commercial use of invention.

Rapid changes in technology present many challenges to businesses. Those that make the right decisions about technology early will have an advantage over their competitors. However, the opposite is also true.

Effects of technology

Products constant development and improvement of new and existing products

Quality Automated processes and systems reduce human error

Availability Point of sale technology has improved stock control and ordering

Manufacturing methods changing and improving (e.g. robots in factories)

Delivery e.g. the internet has led to a growth in home shopping

Databases enables monitoring of customer behaviours

Employees technology changes how they work

It is worth remembering that the use of computer technology has given a lot of power to businesses. This has led to concerns about customer rights and the need to treat them fairly.

To some extent this is dealt with by laws such as the Data Protection Act and by voluntary codes of practice that exist in many industries.

Ecological Factors

There is a growing awareness of the impact businesses have on our environment. This is having an increasing effect on how companies operate and on the products and services they offer. New markets are being created as a result of this (e.g. solar and wind power industries) and old markets are diminishing or are disappearing altogether (e.g. the coal industry in the UK).

Green Marketing

Green or Environmental Marketing is still aimed at meeting the requirements of customers but with the minimal detrimental impact on the natural environment. With this in mind it has been suggested that the 4 Ps of marketing are replaced by the four Ss.

Safety of products and the waySatisfaction of customer needsthey are produced

The 4 Ss of GreenMarketing

Social Acceptability of theSustainability of the product

product or service and the wayand its production and all of the

in which it is produced.other activities of the company

Green Marketing Process Checklists

Green marketing is similar to conventional marketing because there are internal and external factors to consider. These factors have been described as the Green Ps which can be used as a checklist to assess how well a company is achieving its green objectives.

Products How safe arePromotion Are

they and what are theirreliable and accurate

environmentalgreen messages being

consequences?used?

Price Do the prices forPlace Are the

green products reflectproducts being

differences in thedistributed using green

demand for them?methods?

The Internal Ps

Providing Information

Is this related to environmental performance?

Policies Are they designed to monitor and react to environmental performance?

Processes How much energy is being used and how much waste is being produced?

People Do the employees know how environmental issues relate to the business?

Paying Customers Problems What

What are their needs forenvironmental problems

green products and whathas the business had in

information do they get?the past?

Predictions What

Politicians How attunedenvironmental problems

is the business to theare expected in the

green politics?future?

The External Ps

Providers How green

are the suppliers used by

Pressure Groups Howthe business?

may the business bePartners How green are

affected by green

our business partners?

pressure groups?

Note that in some versions of PESTEL ecological factors are referred to as environmental factors.

Legal Factors

The law has a big effect on any business and can impact it in a number of ways. We wont be able to look at this in detail here but it is worth noting four areas where it has an effect.

Customers

Sales of goods and services, advertising, trade descriptions and some opening hours are covered by the law

Shareholders

In heUK this is governed by the CompaniesActs which set out the rules on publishingaccounts and the paymnt of dividends toshaeholders.

Employees

Employers must comply with employment law and trade union law protecting employee rights

Criminal Law

Some criminal law applies to companies which are regarded as legal persons distinct from their directors and employees.Micro-Environment

The micro-environment consists of stakeholder groups that a firm has regular dealings with. The relationship of the business with these stakeholders can affect the overall success of a business.

Unlike the macro environment the micro environment can b influenced or controlled by the business.

The micro environment

Customers

IntermediariesCompetitors

Components of theMicro Environment

InterestSuppliersGroups

43

Stakeholders

There are three main types of stakeholder for any organisation.

Internal Stakeholders

(e.g. management, employees)

ConnectedExternal

StakeholdersStakeholders

(e.g. shareholders,(e.g. the

customers,community,

suppliers,government,

financiers)pressure groups)

It is important for an organisation to identify who its stakeholders are and to understand their interests.

Common Interests

This is where different stakeholders have similar interests. For example, employees and shareholders have a common interest in the success of the business. For shareholders this is likely to increase the value of their shares and dividends. For employees, a successful business improves job security and may lead to higher wages.

Conflicting Interests

With so many potential stakeholders it is inevitable that there will also be many conflicting interests. For example, growth of a business may be good for shareholders but may not be good for the local community especially if their environment is affected.

Stakeholder Risks

Stakeholders will want to defend their interests in an organisation. For example, a bank that lends money to a business will want to ensure that the loan and interest is repaid. Suppliers to the business will also want to ensure that they are paid for the goods they supply.

In the case of the bank they may protect their interests by securing the debt against property or perhaps charging high interests rates. The supplier, on the other hand, may refuse credit unless satisfied they will definitely be paid.

Direct and Indirect Competitors

All businesses face competition and they have to contend with both direct and indirect competitors. An example that is often used to explain this is the fast food industry.

Direct Competitors

A direct competitor is anyone who offers a similar product and aims it at the same target market. So companies like McDonalds and Burger King and indeed anyone else offering a similar product are direct competitors with each other.

Indirect Competitors

Indirect competitors are people who offer substitute products that could be used by your target market. So a company like Dominos Pizza, who sell a different product may be indirect competitors to McDonalds.

Porters Competitive Forces

Porter's Five Forces is a framework that can be used to help a business develop its strategy. It was developed by Michael E Porter of Harvard Business School in 1979.

Porter makes the case that a firms strategy is a way of creating and sustaining a profitable position in the market environment in which it operates (Competitive Strategy 1996). This simplified diagram shows how the marketing strategy of an organisation is linked to the five competitive forces identified by Porter.

Bargaining power ofCompetition from

supplierssubstitute products

Marketing strategy

New Entrants in theBargaining power of

Marketconsumers

Bargaining power of

suppliers

Buyer Behaviour

Understanding buyer behaviour is crucial to any business. In this chapter we will examine the key aspects of this.

Dimensions of Buyer Behaviour

There are five mental processes that a consumer goes through when deciding to purchase a product.

Need RecognitionThe buyer recognises a need or a problem triggered by internal

stimuli (such as hunger or thirst) or external stimuli (such as social

esteem).

Information SearchThe consumer searches for products to satisfy the need identified.

This divides into two levels.

1. Heightened Attention (the consumer becomes more receptive

to information about appropriate products)

2. Active Information Search (where the consumer searches for

information about appropriate products using various sources)

Evaluation ofThe consumer evaluates alternative products and brands and is

Alternativesseeking one that meets his or her requirements.

Branding can be very important here as consumers will choose the

brand that they perceive is best for them.

Purchase DecisionAt this stage the consumer may have made a decision to buy a

particular product but there are still factors that could change this:

1. The attitude of others (e.g. the opinion of a friend)

2. Unexpected change in circumstances (e.g. redundancy)

Post PurchaseThe consumers experience of the product will influence whether he

Decisionor she buys it again and whether he or she recommends it to other

people.

Personal Variables

Personal factors play a big part in our buying decisions. These factors include age, occupation, financial circumstances and lifestyle and all of these variables change over time.

Age

Individuals buy different products according to their age. This is particularly relevant to certain products such as clothing and recreation.

Age not only affects the products people buy but where they will buy them and the brands they choose. It also affects their attitude to advertising and how susceptible they are to it. Consider this portrait of the youth market described by Charles Watt in B&T Weekly (5/7/02) which is an Australian marketing and advertising magazine.

Media SavvyDistrustful of advertising

Fear of not belonging Desire to be accepted

Want cutting edgeMarketers must use SMS

productsThe youth market

and the internet

Life Cycle

Buying patterns are not only influenced by age but also by the stage in a family life cycle in which an individual falls.

How do you think that the buying behaviour of these three 27 year old men might differ?

Unmarried male Married male with no children

Married male with a young child

Financial Circumstances

Financial or economic circumstances will also affect what an individual will buy.

Spendable Income -Savings and assets -

What level of income?What level of savings and

Over what time period?how accessible is this

How sustainable is it?money?

Borrowing - What is theSpending What is the

borrowing power and

attitude of the individual

credit worthiness of the

towards spending as

individual?

opposed to saving?

Occupation

Occupations also affect the buying behaviour of people. For example, somebody who works in the building trade may need to buy his or her own tools. Another person working in a job that involves meeting customers will need to buy appropriate clothing.

Lifestyle

Our buying habits will also be determined by what we do during our time away from work. For example, a keen golfer will buy products associated with the sport.

Environmental Factors

Consumers also make buying decisions based on environmental factors and influences. Very simplistically, you would expect some differences between city dwellers and people who live in the countryside to be reflected in what they buy?

There is also greater awareness of how we affect the environment in which we live and more and people take account of this when making purchases.

For example, we have recently witnessed a growing demand for organic produce as intensive farming methods have come under increased criticism by celebrity chefs and others.Social Factors

A number of social factors have a direct effect on buyer behaviour. For example an individuals social role or social status effect the products and brands he or she chooses.

Two of the most important social factors are reference groups and the family.

Reference Groups

These are four groups of people that individuals identify with.

Primary Membership Groups

These are usually informal groups that people belong to. Examples include family, friends, neighbours and work colleagues.

Secondary Memebership Groups

These tend to be more formal than primary membership groups and there tends to be less interaction between members. Examples include trade unions, professional societies, religious groups, etc.Aspirational GroupsDissociative Groups

These are groups that an individual wants toThese are groups that an individual does not

belong to. An example, may be the local golf

want to join and whose behaviour and values

club or tennis club which may influence

he or she rejects.

buying behaviour even beforeh he or she is a

member.

One of the tasks of the marketer is to identify the reference groups that individuals identify with. It is also helpful to identify the individuals who lead opinion in these groups. For example the local shop steward is a likely opinion leader in a trade union.The Family

Families are a major influence on buying decisions. Research suggests that there are three main patterns of decision making within families.

Husband dominated

Wife dominated

Equal

Psychological Stimuli

Typical buying decions will include life assurance, cars and television

Typical buying decisions will include washing machines, carpets, kitchen equipment and non living room furniture.

Some decisons tend to be made jointly and thse include living room furniture, holidays, housing and entertainment. Three are four main psychological factors that affect buyer behavior:

1. Motivation

2. Perception 3. Learning

4. Beliefs and Attitudes

1. Motivation

Motivation has been defined as an inner state that energises, activates or moves that directs or channels behavior towards goals (Assael). This arises from perceived needs of which there are two main types

BiogenicPhysiological factors such as hunger, thirst, discomfort, etc

PsychogenicPsychological factors such as the need for recognition, belonging,

esteem, etc.

There are many theories of motivation but we will concentrate on Maslows Heirarchy of Needs as it is probably the most widely used by marketers. However, students may also find it useful to study Freuds theory of motivation and Herzbergs Two Factor Theory.

Fulfilment of personal potential

Status, independence, respect, recognition, etc

Relationships, affections and belonging

Security, order, free from threat, predictability

Food, water, shelter, comfort

SelfActualisation

Esteem Needs

Love/Social Needs

Safety Needs

Physiological Needs

According to Maslow the lowest level of need that is unsatisfied is dominant. Only when that is satisfied does the next one up become dominant.

So, if we are hungry our need for food will be dominant and only when this is satisfied will we look to our security and only when that is satisfied will we look to satisfying our need to belong, etc.

Marketers are able to adapt the hierarchy of needs to help with market segmentation. This is so that they target their advertising at the needs of as many people as possible. Similarly, they aim to position their product and brand so that it is perceived to satisfy a particular category of need in Maslows hierarchy.

Perception

Peoples perceptions also have a big influence on their buying behavior. These perceptions are driven by their own motives, expectations, past experiences, personality, etc.

We are, of course, all unique and this means that our perceptions are personal to us which in turn means that we have different attitudes to different products and brands.

Attitudes

Beliefs and attitudes are important as they determine how people react and behave towards brands and products.

These are often deeply ingrained in people and are not easily changed. This means that the marketer would be well advised to ensure that their products fit within the beliefs and attitudes of their existing and potential customers. Trying to change those beliefs and attitudes would be very unwise.

Organisational Buying

There are many differences between organisational and consumer markets.

Smaller number of buyers

GreaterOrganisationalCloser

buyingrelationship

Buyers

powerswith sellers

May

Require customsied products

Organisations make buying decisions in a different way to individual consumers. A key difference is that it is rare for a single person to make a buying decision on behalf of an organisation.

This means that sellers need to be aware of all people involved in the buying process (the Decision Making Unit) and their relative importance in the decision.

Possible Make Up of a Decision Making Unit

Users: May initiate the buying process and help to define product requirements

Influencers: Play a part in defining requirements and evaluating alternative products

Buyers: Have the authority to select suppliers and negotiate terms with them

Gatekeepers: Control the flow of information and may be able to stop sellers contacting decision makers direct

Deciders: Decide on the product and supplier

Approvers: Give final authority following the decisions of the buyers and deciders

Segmentation

Market segmentation is important because it allows businesses to make the best of the opportunities that exist in the market.

Segmentation involves breaking the market down into smaller groups (segments) based on common characteristics and variables. These segments are then targeted according to the marketing objectives of the organisation.

However, effective segmentation requires a lot of information which means that good market research is essential.

Definition: Segmentation is the subdividing of a market into distinct and increasingly homogenous subgroups of customers, where any subgroup can conceivably be selected as a target market to be met with a distinct making mix. (Kotler 1994)

Process of Market Selection

Market selection targets segments of the market that have been identified by segmentation rather than trying to target the entire market.

There are two main factors to consider and these are the attractiveness of the market segment and how it fits with the resources, capabilities and objectives of the business.

Attractiveness of the market segment

size of thet segment

growing or contractiing?

what is the competition?

what market share is attainable?

how profitable is it likely to be?

How the segment fits with the business

-can the business serve this segment?

-How will serving this segment affect its image?

56

Macro and Micro Segmentation

One of the most common models used to segment markets is based on two steps. These are macro-segmentation and micro-segmentation.

This divides a market into broad characteristics. For Macro-Segmentation example, car manufacturers may divide its marketsgeographically and/or by age of potential customers.

This is relatively easy to do as there is plenty of information readily available. However, it does have limitations.

Retuning to our example of the car manufacture one marker segment may be the 25-35 age group. In reality it is extremely unlikely that everyone in that segment will have the same requirements when buying a car.

Micro segments are homogenous groups of buyers within Micro-Segmentation macro segments. The aim is to find out who makes buyingdecisions and what drives those decisions.

Returning to our example of the car manufacturer the 25 to 35 age group is a very large segment. Within that group buying decisions will vary because of a number of factors such as lifestyle, attitudes, preferences, etc. Understanding this will helps with marketing strategy.Bases for Segmenting Markets

There are a number of ways in which customers differ and these include geographical, demographic, psychographic and behavioural factors. Each of these can be used to segment markets.

Geographic

Geographic segmentation is particularly important for multi- national and global businesses but is also useful for companies that operate in just one country. This is because companies can vary their marketing and advertising programmes according to different geographic areas.

There are many different ways of segmenting markets geographically. Here are some examples:

Regions - in the UKCountries -These

these might becould be classified by

England, Scotland,size or perhaps by

Wales, Northernbeing part of a

Ireland.geographic region.

Cities/Towns- ThesePopulation Density -

may be segmentedFor example: urban,

according tosuburban region,

population size.rural, semi-rural

Psychographic or Behavioural

Psychographic segmentation groups markets according to customer lifestyles. This is sometimes known as behavioural segmentation.

This works on the basis that there are many possible influences on the behaviour of buyers. These include the attitudes, expectations and activities of customers. Knowing these enables a business to customise its products and marketing campaigns to appeal directly to what its customers want.

LifestyleOpinions, Interests, Hobbies, etc.

Our lifestyle changes as we pass throuh life. The sagacity lifestyle model is an example:

1. Dependent (living at home with parents

2. Pre family (own household but no children)

3. Family (parents with at least one dependent child)

4. Late (children have left home or childless couples)

This covers areas such as political opinions, views on the environment, sporting and recreational activities. All potentially influence our buying behaviours.

Examples ofPsychographicSegmentation

Customer Loyalty

Customers who are loyal to your brand are valuable to you. Segmenting them by degree of loyalty allows firms to adapt their marketing to retain loyal customers.

Occasions

This segments a market according to when products are purchased. For example, many customers only buy certain products on special ocassions (e.g. boxes of chocolatesDemographic

The total size of the population in which a business operates defines the maximum possible demand for a product. However, this does not mean that every member of the population is a potential customer.

Let us take the teenage market as an example. A company that manufactures prams is unlikely to find a huge market in this age group. On the other hand a company that produces video games might do well to target this segment of the population.

Factors such as sex or age may be used. Another characteristic that is used a lot is the type of residence. The best known of system is known as ACORN (A Classification of Residential Neighbourhoods).

Geodemographic -Segments in the UK -

Combines geographicSmall neighbourhoods,

location with the type ofpostcodes or consumer

neighbourhood andhouseholds.

lifestyle factors.

Classifications - SplitsThe people in each

residential areas into 5Acorncategory share similar

categories, 17 groups andcharacteristics in terms of

56 types.the types of products

they buy.

Multivariable Segmentation and Typologies

Where more than one type of segmentation is used this is known as multivariable segmentation. This is sometimes necessary because two or more bases of segmentation may be useful at the same time.

For example a group may be segmented by age, geography and financial circumstances with different variations of a product being marketed to different sub groups

Benefits of Segmentation

Segmentation helps businesses to understand their customers and potential customers. This helps them to target, acquire, manage and develop profitable relationships.

Practical Benefits

Marketing Opportunities

Through understanding customer needs in each segment

Budgeting : Marketing budgets can be allocated according to segments with the most potential

Product Assortment

Assortments of products can be refined to appeal to different segments

Specialism: Specialists can be appointed to build each of the firms main segments

Precision Marketing: The approach can be fine tuned according to each market segment

Competitive advantage

May result through specialist knowledge of particular segments

Segmentation enables a business to use its expertise in that particular part of the market to solve and prevent problems.

Benefits to Customers

Segmentation also brings benefits to customers.

More product variaitonsProducts and servicesare developed meaningbetter match customerthat customers arerequirementsoffered more choice

Evaluation of Segments and Targeting Strategies

Before deciding whether it is worth working with a market segment a business must first evaluate it. This means that there are a number of key questions it needs to ask.

Can the segment

Is the segmentIs the segment big

be reached by the

capable of beingenough to be

business?

measured?profitable?

Is the segment

Do the identifiedstable enough to

segments respondCan the segmentbe a worthwhile

differently?commitment?

be reached profitably?

Targeting Strategies

Market FactorsEconomic & Technological Factors

- Size of the segment (is it growing?)- Barriers to entry/exit

- Stage of industry evalaution- Bargaining power of suppliers

- Predictability- Level of technology

- Price sensitivity and stability- Investment needed

- Bargaining power of customers- Profit margins

- Seasonal factors

Factors for evaluating market attractivness

Competitive Factors

How intense is the market?

What is the quality of the competition?

What threats from substitute products?

Degree of differentiation

Environmental Factors

Exposure to political and legal factors

Degree of regulation

Social acceptability

Is the market subject to economic fluctuation?

Once the evaluation is complete the business is ready to choose its target markets. It will also need to consider its strategy from three main options.

Undifferentiated Marketing

Concentrated Marketing

Differentiated Marketing

A single product is produced

The aim is to reach as many customers as possible This is sometimes called mass marketing

The firm aims to produce ideal products

These are aimed at a single segment of the market Examples include Aston Martin cars, Mothercare (for mothers and babies), etc

The firm produces different versions of a product Each version is aimed at a different market segment

For example, the supermarkets sell products packaged in basic, premium and quality versions

Positioning

Positioning is the process of designing what the company offers and its image to distinguish it in the minds of its target customers.

The car industry is a good example of this. Consider who the target markets might be for these car manufacturers and how their products are designed to meet the needs of those markets. Why do they offer a range of products?

Rolls RoyceMercedes

FerrariJaguar

LexusRenault

LexusVolkswagen

ToyotaSeat

Ford

Segmenting and Industrial Markets

Segmentation in industrial markets is similar to consumer market segmentation but can be more of a challenge. This is because buying processes and buying criteria are often more complex.

Industrial markets are smaller than consumer markets but may still worth segmenting. A number of possibilities exist.

Location - Many businessSize - The turnover of a

sectors are located incompany or the number

particular areas. (e.g. inof employees it has may

England the computeraffect the products it

industry is concentratedneeds (e.g. type of

around the M4 corridor)computer system)

Usage Rates - CustomersProduct Use - Products

may be segmentedmay be used in different

according to how muchways. For example they

they use a product ormay be for the use of the

service (e.g. light,buyer or may be sold on

medium or heavy users)to another customer

Industrial Classification

One approach is classification according to the nature of the business. In the UK marketers can use information from the National Office of Statistics. It produces the Standard Industrial Classification of Economic Activities (SIC). This is useful to marketers because it classifies businesses by the type of economic activity in which they are engaged.

Value

Segmentation is a key function of marketing and if it is done well it will add value to an organisation by helping to make it more profitable.

Facilitates the

creation of products

Diferences betweenand services

Clearly identifiable

the segments enablecriteria make it easy

you to designto seperate the

different offeringssegments from each

for each of themother

Based on the profitValue basedLeads to improved

potential of themarketing and

segmentation

segmentpricing decisions

SECTION 3.

The Marketing Mix

Products

This is an essential part of the marketing mix as the development and exploitation of products is vital for any business.

Products and Brands Features, Advantages & Benefits

Products

To survive and thrive a business must consistently provide products that provide value and meet the requirements of its customers. Products must also be attractive to customers. This means that in a marketing sense it is wrong to think products only as a physical objects.

People buy products because of what they can do. When people buy drills, they want holes. (Source unknown)

Think of product in terms of their attributes which can be both tangible and intangible.

Tangible AttributesIntangible Attributes

- Availability and delivery

- Performance- Image

- Price- Perceived value

- Design

The Total Product Concept

There are a number of layers to the concept of the total product. The diagram below shows that the core product is about what the product is designed to do. Therefore, a coffee making machine will make coffee.

However, the actual product will be augmented with additional elements aimed at building the reputation and trust associated with it. So, a basic coffee maker may come in various shapes, designs and colours. It is also likely to come with an after sales service and guarantee.

Extended Product

After sales service,guarantee, brand, repairs, training, company ethics, etc

Actual Product

Features, ingredients, design, pacckaging, colour, etc

Core Product

Functionality

Key Benefits

Product Augmentation

Building on the benefits of the core product to increase attractiveness and customer satisfaction.

Product Mix

The product mix sits within the marketing mix and there are a number of factors to consider.

Segmentation and

positioning

Features, Advantages

and Benefits (FAB)

Range of products

Packaging

Directional Policy

Matrix (Ansoff)

Unique Selling Research and Proposition (USP) development

Portfolio Analysis: Boston

Consulting Group Matrix

Branding

Product Life CycleDifferentiation: Unfulfilled preferencesNew Product

Development

The marketer is able to use these factors to design a product audit. This is a systematic examination of the product offerings of the company and it helps the organisation answer three key questions.

Does the product fit with the goals of the organisation? How does it compare with the completion?

Does it meet the requirements of the market? Product Life-Cycle & Its Effect on Other Elements of the Marketing Mix

Most products have a limited life cycle. This means that sales and profitability can be expected to change over time. This chart is a representation of a typical product life cycle

30The Product Life Cycle

25

20

15

10Sales

Profit

+

0

01234567

-

-10

-15

IntroductionGrowthMaturityDeclineSenility

New productsSales riseNormally theMost productsThe product is

take time tosharply andlongest phasego to a declineno longer

be acceptedproductionin the productphase.profitable. The

by customers.increases.life cycle.producer

Costs are highSales andreacts by

and sales areCompetitorsSales remainprofits fall.leaving the

low so profit isstart tosteady butmarket or by

unlikely duringemerge.growth slows.introducing

this phase.new products.

The nature of the product will determine how quickly it will progress through the life cycle. Products such as clothing are subject to fashions and trends and often reach decline very quickly.

Other factors that affect the lifestyle include technological advances and developments in competitors products.Product Strategy

It can be difficult for a business to manage growth so an effective strategy is important. The Ansoff matrix is a well-known framework that helps with making product and market decisions.

The Ansoff Matrix

Existing ProductsNew Products

MarketProduct

PenetrationDevelopment

NewExisting Markets

Markets

MarketDiversification

Development

Market Penetration = Increasing the share of existing products in existing markets

Product Development = Developing new products for existing markets

Market Development = Moving into and developing new markets for existing products (requires a lot of investment so this can be risky)

Diversification = Developing or acquiring a new product to enter into a new market (this strategy represents the highest risk)New Product Development

New Product Development (NPD) is described as the complete process of bringing a new product to market.

What do we mean by new products?

New to the WorldThese products are totally new to everybody and often have a

major effect on buying behaviour (e.g. mobile phones).

New to theA company may offer existing products or its own version of an

Companyexisting product to enter a new market (e.g television companies

now offer telephone and broadband services).

New ImprovementsProducts are changed significantly affecting how we use them.

Sources of Ideas

Ideas for new products can come in a wide variety of ways and may be generated from within the company or externally. Here are a few examples.

InternalExternal

Focus GroupsMarket Research

SWOT analysisCompetitors

Customer ComplaintsCustomer Suggestions

Sales staff feedbackIndustry Research

Suggestion boxesPressure Groups

Research and Development DepartmentInventors

The NPD Process

The development of new products should follow a logical process.

Original Concept

This is the initial idea - most ideas do not progress beyond this stage

Screening of Ideas

An initial evaluation of the idea and any obstacles to going ahead with it

Business Analysis

A risk assessment to evaluate the viability of the idea

Concept Definition

Builds on the original idea by defining the criteria needed to meet market needs

Product Development

This includes building and testing prototypes

Marketing Mix Issues

This needs careful attention and any issues need to be identified and resolved

Pilot Launch

The product is piloted with a small number of customers before a full roll out

Roll Out Full Launch

The product is launched to the full target market

Screening of New Product Ideas

This is an important step because the failure rate of new products is as high as seven out of eight. A business should therefore only take a new product to market if the conditions are right. There are three factors to balance.

Is there enough demand for the product?

Does the firmDoes the firm

have thehave the

ability toability to

market it?produce it?

Adoption Process

The adoption process is also known as the diffusion of innovation. It was first described in 19591 and describes how different members of a target market accept and purchase a new product.

Innovators

Early Adopters

Early Majority

Late Majority

Laggards

Enthusiasts who are eager to try out new things but tend not to be loyal

Enthusiastic about new products but more practical than innovators can influence the future success of products

This is the start of entry into the mass market and respresents up to 33% of customers

Although this group takes a 'wait and see' approach profits are usually higher when they start to purchase

The last people to adopt something new and are often resistant to the product

75Place

Place is a crucial part of the marketing mix. It may also be referred to as distribution, delivery systems or marketing channels. To avoid confusion it is worth noting that these terms are often used interchangeably.

It is vital that a companys distribution policy is well thought out and well managed to make it easier for customers to buy its products. There are three main strategies that it may choose from.

Intensive Distribution

Selective Distributrion

The aim is to saturate the market by using many channels

More distribution outlets equates to more sales

Often used with brands where there are many competitors selling acceptable products (e.g. fizzy drinks)

Limited number of outlets used

The business uses the 'best performing' outlets

Often used if customers have a preference for the brand (e.g. some electrical goods)

Only one retailer or distributor is used in aExclusive Distributiongeographic area

77

Customer Convenience and Availability

Customers are more likely to buy products if they are convenient and readily available. This means that any business must pay proper attention to this if it is to be successful. A concept called The five rights of distribution helps here.

The right productThe product must be what the customer wants, needs or requires

In the right placeProducts should be available where the customer wants to buy

them. For example, it would make sense for golfing equipment to be

available for purchase and/or hire at a golf course.

At the right timeIt should be supplied when the customer requires it. For example,

seasonal products should be available at the right time of year.

Other products may need to be available for 24 hours a day all year

round.

In the rightCustomers expect to be able to buy products in convenient forms

quantityand in amounts that are convenient to them.

For the right priceProducts should be priced so that they meet customers

expectations and provides them with value for their money .

In the context of this model the word right has two meanings:

Right Correct or appropriateRight The rights of the customer

Definition of Channels

Distribution is the means of getting products and/or services to the customer.

All distribution channels fall under one of two main categories.

Direct Distribution

The business supplies its products direct to the customer without using an intermediary. This is common in many of the service industries such as banking and insurance.

However many physical products may also be distributed direct to the customer by a variety of means. Examples include:

Own shops and stores

Mail Order

Telephone selling

Door to door sales

Computer or television sales

Indirect Distribution

Products are supplied to customers through intermediaries. This is common in manufacturing where wholesalers and/or retailers are used to sell the products.

Another option may be to appoint agents to sell on behalf of the business.

This is also seen in service industries. For example an Insurance Company may choose not to sell direct to customers but through Insurance Brokers instead.

Types and Functions of Intermediaries

Most businesses will make use of indirect channels to bring their products to market. This means making use of third parties known as intermediaries. There are various types of intermediary.

Many products are sold through retailers. These can be classified in a number of ways (e.g. types of products sold, size, type of service, location, etc.) They can also be classified according to the type of retailer.

Independent Retailers The best example might be the local corner shop although it is worth bearing in mind that some independentretailers can be very large businesses.Retailers

Multiple Chains For example, supermarkets and department stores. They will buy products direct from the producer for re sale to customers. In some cases, these will be sold under the retailers own brand label.

Wholesalers are intermediaries who buy and hold stock from a number of different suppliers. They may specialise in particular types of products or ranges of products. They then sell these goods on at a profit to retailers or other businesses

Wholesalers

Distributers and dealers have a similar role to wholesalers and retailers but will generally offer a much narrower range of products. For example, car dealerships will usually concentrate on the products of just one manufacturer.

Distributors andDealers

Unlike distributors, agents do not buy and re sell goods. Instead they sell goods and services for a fee or commission. Examples include travel agents, estate agents and insurance brokers.

Agents

Functions of Intermediaries

The main function of intermediaries is very simple. They are used by the producers of product and services to distribute them to their customers.

There are a number of reasons why an intermediary may be a more effective distribution channel than attempting to sell direct:.

Channel Selection

Selecting the right channels of distribution is important and there are five factors to take into account.

Customers Product Characteristics Distributor Characteristics

Channels Used by Competitors

Supplier Characteristics

Customers

Customers are a key factor in deciding distribution channels. There are a number of considerations that will influence suppliers.

How many potential customers exist?

What are their buying habits?

Where do they live? Product Characteristics

The product being sold will influence how it is distributed.

Is the product perishable? In which case how can it be got to market quickly?

Is the product customised for buyers? These products are often distributed direct to customers.

Will there be a need for after sales service and/or technical advice? If so, how can this be provided? Will distributors need to be trained to provide this service? Would franchising be the best way of providing this?

Distributor Characteristics

Which distributors have the capability and capacity to carry out the distributive work at the right price?

Channels used by Competitors

It may be necessary to accept that your own products will sell alongside competitor brands. This particularly applies to consumer products.

Is it possible to compete by opening different distribution channels. For example businesses such as Amazon have been particularly successful at distributing products through the internet that were only available through high street stores in the past.

Supplier Characteristics

Does the supplier of the product have the capability and capacity to operate their own distribution channel? A good example of this in the UK is Direct Line Insurance which built a very successful business distributing insurance products direct to its customers.Integration and Distribution Systems

To develop an integrated distribution system the supplier not only needs to know the factors that influence distribution but also needs t to be knowledgeable about the merits of various distribution channels.

Reasons to choose direct selling

Certain products need an expert sales force who can demonstrate it and provide after sales help

Direct sales may be best if customers are concentrated in a geographic location

Existing channels may have links with your competitors

Intermediaries may not be willing to sell the product so the supplier has to sell it direct

Intermediaries may not have the capabilities you need (e.g. specialised transport)

Reasons to Choose Intermediaries

The supplier does not have the financial muscle to pay for a large sales force

The supplier may not have enough marketing expertise to sell direct

Intermediaries may be better able to serve large numbers of customers spread over a wide geographic area

It may be wiser to invest in increased production rather than in marketing

Product quantities and the range of products may not justify employing a sales force

The supplier does not have to incur high sales overheads on smaller orders

Multi Channel Decisions

In some situations suppliers may choose to use more than one channel. For example, large confectionary manufacturers sell to wholesalers and to large retail groups..

Industrial Distribution Channels

Industrial markets have fewer customers than consumer markets. However, the customers are larger and tend to buy more expensive products. Many products are also custom built.

These characteristics mean that there is more of a tendency towards direct distribution channels. However, this is not always the case and there are also specialist distributors who suppliers might use. A good example is the building trade where building materials are often sold and delivered through distributors.

Physical Distribution Management and Logistics

The physical distribution of products and the logistics involved in this involve some important decisions. This includes selecting the best mode of transport for the product.

Modes of Transport

The main advantage of road transport is that suppliers can use it to deliver products direct to the customer. It is flexible and keeps delays and handling to a minimum. However, there are limits to how much can be carried so it can be expensive.

Road Transport

Large loads can be carried over long distances by rail. This helps to minimise costs. However, this method of transport is limited by the physical reach of the rail network. It must also be remembered that there will be transfer costs moving loads to and from the rail network.

Rail Transport

Where geographic conditions allow transport by sea has similar advantages and disadvantages to rail transport. A major disadvantage is that travel by water is slow which is a problem with perishable items and goods that are needed quickly.

Water Transport

This is the most expensive of the four transport options but has the advantage o being quick. Where fast delivery is important products can be priced accordingly especially if they need to be delivered in peak condition (e.g. early season flowers).

Air Transport