Marketing management two

BBPM2203 MARKETING MANAGEMENT II Zahari Mohamad Nor Pujawati Md Said Abdul Rahim Othman Sany Sanuri Mohd Mokhtar Noor Hasmini Abd Ghani Loo Sze Wei Copyright © Open University Malaysia (OUM), October 2010, BBPM2203

All rights reserved. No part of this work may be reproduced in any form or by any means

without the written permission of the President, Open University Malaysia (OUM).

Version December 2009 Project Directors: Prof Dr Mansor Fadzil

Prof Dr Zakaria Ismail

Open University Malaysia

Module Writers: Zahari Mohamad

Nor Pujawati Md Said

Abdul Rahim Othman

Sany Sanuri Mohd Mokhtar

Noor Hasmini Abd Ghani

Universiti Utara Malaysia

Co-writer: Loo Sze Wei


Moderators: Dr Rosli Salleh

Universiti Putra Malaysia

Dr Oh Teik Hai


Translated & Edited: Pearson (M) Sdn. Bhd.

Developed by: Centre for Instructional Design and Technology


Printed by: Meteor Doc. Sdn. Bhd.

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First Printing, August 2007

Seventh Printing, December 2009

Eight Printing, October 2010

Table of Contents Course Guide xi-xvi

Topic 1 Market Positioning and Managing Product Life Cycle 1

1.1 Market Positioning 2

1.2 Bases of Positioning 2

1.2.1 Based on Products Differentiation 3

1.2.2 Based on Services Differentiation 5

1.2.3 Based on Channel Differentiation 5

1.2.4 Based on Staff or Personnel Differentiation 6

1.2.5 Based on Image Differentiation 6

1.3 Product Life Cycles 7

1.3.1 Introduction Stage 7

1.3.2 Growth Stage 8

1.3.3 Maturity Stage 8

1.3.4 Decline Stage 9

1.3.5 Product Life Cycle Patterns 10

Summary 11

Key Terms 12

Topic 2 New Product Development 13

2.1 What is a New Product? 13

2.2 Challenges in New Product Development 14

2.3 Stages in New Product Development 15

2.4 Success and Failure Factors of New Products 21

2.4.1 Success Factors of New Products 21

2.4.2 Failure Factors of New Products 22

Summary 23

Key Terms 23

Topic 3 Managing New Product Lines and Brands 24

3.1 Product Levels 24

3.2 Product Classification 25

3.2.1 Consumer Products 26

3.2.2 Organisational Products 27

3.3 Product Mix 28

3.4 Product Line Analysis 29

3.5 Brands 30

3.5.1 Characteristics of Effective Branding 30

i v TABLE OF CONTENTS

3.5.2 Brand Equity 30

3.5.3 Brand-name Decision 31

3.5.4 Managing Brand 32

3.6 Packaging 33

3.6.1 Packaging Functions 33

3.7 Labelling 33

Summary 35

Key Terms 35

Topic 4 Managing Services Marketing 36

4.1 What are Services? 37

4.1.1 Categories of Service Mix 37

4.1.2 Characteristics of Services 38

4.2 Marketing Strategies for Service Firms 40

4.2.1 Traditional Marketing Mix 40

4.2.2 Advanced Marketing Mix Elements for Services 41

4.2.3 The Services Triangle 41

4.2.4 Managing Service Differentiation 43

4.2.5 Managing Service Quality 44

Summary 46

Key Terms 46

Topic 5 Developing Strategies and Managing Pricing 47

5.1 Factors in Pricing 48

5.1.1 Internal Factors 48

5.1.2 External Factors 50

5.2 Pricing Policies 53

5.3 Pricing Programmes 57

5.3.1 Geographical Pricing 58

5.3.2 Price Discounts and Allowances Strategies 58

5.3.3 Promotional Pricing Strategies 59

5.3.4 Discriminatory Pricing Strategies 60

5.3.5 Product Mix Pricing Strategies 61

5.4 Price Changes 62

5.4.1 Decreasing and Increasing Prices 62

5.4.2 Reactions to FirmsÊ Price Changes 63

5.4.3 Responding to CompetitorsÊ Price Changes 64

Summary 65

Key Terms 66

TABLE OF CONTENTS v

Topic 6 Managing Marketing Channels, Intermediaries and Physical 67

Distribution

6.1 What is a Marketing Channel? 68

6.1.1 Classifications of Marketing Channel? 68

6.1.2 Marketing Channel Functions 69

6.1.3 Marketing Channel Levels 70

6.2 Channel Design Decisions 71

6.2.1 Channel Design Systems 71

6.3 Channel Management Decisions 74

6.4 Channel Dynamics 76

6.4.1 Vertical Marketing Systems 76

6.4.2 Horizontal Marketing Systems 79

6.4.3 Multi-channel Marketing Systems 79

6.5 Conflict, Co-operation and Competition 80

6.6 Legal and Ethical Issues in Channel Relations 81

6.7 Managing Intermediaries of Distribution Channels 83

6.7.1 Importance of Intermediaries 84

6.8 Wholesaling 86

6.8.1 Importance of Wholesaling 86

6.8.2 Types of Wholesalers 87

6.8.3 Trends in Wholesaling 87

6.9 Retailing 88

6.9.1 Importance of Retailing 88

6.9.2 Forms and Types of Retailers 89

6.9.3 Retailing Wheel 90

6.9.4 Trends in Retailing 90

6.10 Agents and Brokers 91

6.11 Managing Physical Distribution 91

6.11.1 Components of Physical Distribution Management 93

6.11.2 Integrated Physical Distribution Management 95

System

Summary 96

Key Terms 98

Topic 7 Managing Integrated Marketing Communications 99

7.1 Marketing Communication Mix 100

7.2 The Communication Process 101

7.3 The Steps of Developing Effective Communications 104

7.3.1 Identify the Target Audience 104

7.3.2 Determine the Communications Objectives 105

7.3.3 Design the Message 107

7.3.4 Media Selection 107

7.3.5 Message Source Selection 108

v i TABLE OF CONTENTS

7.3.6 Feedback Collection 109

7.4 Promotional Budget Deciding Method 109

7.4.1 Most Affordable Method 110

7.4.2 Percentage of Sales Method 110

7.4.3 Competitive-parity Method 111

7.4.4 Objective-and-task-based Method 111

7.5 Promotional Mix Strategy 112

7.6 Integrated Marketing Communication 113

7.7 Ethical and Social Issues in Marketing Communications 114

Summary 116

Key Terms 116

Topic 8 Managing Advertising, Sales Promotion and Public Relations 117

8.1 Advertising 118

8.1.1 Setting the Advertising Objectives 119

8.1.2 Setting the Advertising Budget 121

8.1.3 Choosing the Advertising Strategy 122

8.1.4 Advertising Effectiveness 127

8.1.5 Advertising Management 128

8.1.6 International Advertising Decisions 128

8.2 Sales Promotion 129

8.2.1 Sales Promotion Objectives and Strategies 129

8.2.2 Major Decisions in Sales Promotion 131

8.2.3 Deciding on Major Sales Promotion Tools 132

8.3 Public Relations 134

8.3.1 Public Relations Marketing 134

8.3.2 Functions of Public Relations Department 135

8.3.3 Making Major Decisions in Public Relations 135

Summary 137

Key Terms 138

Topic 9 Managing the Sales Force and Direct Selling 139

9.1 Roles of Personal Selling 140

9.2 Managing the Sales Force 141

9.2.1 Sales Force Objectives and Strategies 141

9.2.2 Designing Sales Force Strategy and Structure 142

9.2.3 Recruiting and Selecting Sales Force 144

9.2.4 Training Sales Force 145

9.2.5 Sales Force Compensation 145

9.2.6 Supervising Sales Force 146

9.2.7 Motivating Sales Force 146

9.2.8 Evaluating Sales Force 147

9.3 The Process of Personal Selling 147

TABLE OF CONTENTS vii

9.4 Relationship Marketing 149

9.5 Benefits of Direct Marketing 149

9.5.1 The Advantages of Direct Marketing 150

9.6 Consumer Database and Marketing Database 150

9.7 Major Channels of Direct Marketing 151

9.8 Online Marketing 153

9.8.1 Advantages and Disadvantages of Online Marketing 154

9.8.2 Managing Online Marketing 155

Summary 158

Key Terms 158

Topic 10 Marketing Control 159

10.1 Control Process 160

10.1.1 Deciding on Performance Standards 160

10.1.2 Deciding on Types of Feedback 161

10.1.3 Obtaining Feedback 161

10.1.4 Evaluating Feedback 161

10.1.5 Implementing Corrective Action 161

10.2 Control Mechanisms 162

10.2.1 Annual-plan Control 162

10.2.2 Profitability Control 164

10.2.3 Efficiency Control 164

10.2.4 Strategic Control 164

10.3 Marketing Audit 165

Summary 167

Key Terms 167

Answers 168

TOPIK 2 KAEDAH DAN TEKNIK � 17

COURSE GUIDE COURSE GUIDE � xi

COURSE GUIDE DESCRIPTION You must read this Course Guide carefully from the beginning to the end. It tells

you briefly what the course is about and how you can work your way through

the course material. It also suggests the amount of time you are likely to spend in

order to complete the course successfully. Please keep on referring to the Course

Guide as you go through the course material as it will help you to clarify

important study components or points that you might miss or overlook.

INTRODUCTION BBPM2203 Marketing Management II is one of the courses offered by the Faculty

of Business and Management at Open University Malaysia (OUM). This course is

worth 3 credit hours and should be covered over 15 weeks.

COURSE AUDIENCE This is a core subject for students enrolled in the Bachelor of Management,

Bachelor of Business Administration, Bachelor of Tourism Management and

Bachelor of Hospitality Management. It is also a foundation course for students

undergoing the Bachelor of Human Resource Management. This module aims to

impart the knowledge of marketing and managing marketing efficiently.

As an open and distance learner, you should be able to learn independently and

optimise the learning modes and environment available to you. Before you begin

this course, please confirm the course material, the course requirements and how

the course is conducted.

STUDY SCHEDULE It is a standard OUM practice that learners accumulate 40 study hours for every

credit hour. As such, for a three-credit hour course, you are expected to spend

120 study hours. Table 1 gives an estimation of how the 120 study hours could be

accumulated.

x ii � COURSE GUIDE

Table 1: Estimation of Time Accumulation of Study Hours

STUDY ACTIVITIES

STUDY

HOURS

Briefly go through the course content and participate in initial discussion 3

Study the module 60

Attend 3 to 5 tutorial sessions 10

Online participation 12

Revision 15

Assignment(s), Test(s) and Examination(s) 20

TOTAL STUDY HOURS ACCUMULATED 120

LEARNING OUTCOMES By the end of this course, you should be able to:

1. Discuss what is marketing and managing marketing efficiently and

effectively;

2. Assess the environment and the factors that influence marketing

management, from the consumersÊ and competitorsÊ perspective;

3. Appraise the development stages and marketing mix strategy, from the

aspects of market positioning, product management, pricing, distribution

channels and integrated marketing communications;

4. Explore the methods of managing and implementing the marketing

program; and

5. Evaluate the insights and control implementation and performance

evaluation for marketing activities.

COURSE SYNOPSIS This course is divided into 10 topics. The synopsis for each topic is presented

below:

Topic 1 discusses general efforts taken by the marketer to place products in the

market according to consumer taste and preferences. Perceptual maps which are

the main methods used in managing product placements in the market, will be

discussed in-depth to explain the best method used by the marketer to place

products in the market.

COURSE GUIDE � xiii

This topic also discusses the first part relevant to product strategy, which is the

product cycle management. Through this topic, product life cycle concepts and

product life-cycle management methods will be introduced. The focus will be on

the design strategy appropriate for each marketing situation faced by the

product.

Topic 2 explains new product concepts and effective and efficient new product

development processes. New products can be classified into three categories,

innovations, modifications and imitations. All three new product categories have

to comply with the new product development process and marketing strategy

design which are unique to the marketers.

Topic 3 discusses product management from the aspects of product mix

management, specifically from the aspects of product line decisions. Besides,

brand management process, product packaging and labelling are also discussed

in detail.

Topic 4 explains the concept of intangible products, that is services. This topic

answers questions regarding why the marketer needs to market services

differently as compared to marketing physical products. This is caused by the

unique influences of services. This topic also explains the process of creating

services, gap reduction concepts and service quality in detail.

Topic 5 discusses pricing management processes in terms of pricing objectives

and pricing methods. It explains all the steps in the pricing management process

from selecting the pricing objective to selecting the final price. This topic focuses

on how the marketer needs to manage pricing based on the 3C model, cost

considerations, consumer value and competitorsÊ pricing. Techniques or pricing

programmes such as new product pricing, product mix pricing, standardised

pricing and reactions to price changes are discussed here too.

Topic 6 explains channel management concepts in terms of distribution channels

and the creation of effective distribution channels. Channel conflict concepts and

vertical marketing systems are introduced here. Generally, marketers can choose

from two types of distribution channels, either the direct channel or the indirect

channel. This topic also discusses wholesalers and retailers. The distribution

channel management process is explained using physical distribution

management. Order management, inventory management, warehousing and

transportation will be discussed in-depth to aid in the understanding of

integrated logistics systems.

Topic 7 discusses the last element in the marketing mix strategy, which is

marketing communication. This topic explains the communication process and

x iv � COURSE GUIDE

the method chosen by the marketer to come up with an effective communication

process and marketing management.

Topic 8 discusses strategies and the elements of management tactics in the

promotional mix (except for individual/personal selling). Each decision made by

the marketing manager in advertising management, sales promotional mix,

public relations and publicity is explained in detail here.

Topic 9 explains managing the sales force, which is an important topic in the

management of personal selling and promotional mix. Managing the sales force

and the personal selling process effectively are discussed here as well. This topic

also covers direct marketing and on-line marketing. Direct marketing and on-line

marketing methods and the advantages and disadvantages to the marketer and

consumers are explained in depth.

Topic 10 is the last topic in the module. This topic discusses marketing control

processes, and covers specifically on marketing audits. The marketing audit is

used to control and evaluate performance of all marketing activities and

strategies done by the marketer.

TEXT ARRANGEMENT AUDIENCE Before you go through this module, it is important that you note the text

arrangement. Understanding the text arrangement should help you to organise

your study of this course to be more objective and more effective. Generally, the

text arrangement for each topic is as follows:

Learning Outcomes: This section refers to what you should achieve after you

have completely gone through a topic. As you go through each topic, you should

frequently refer to these learning outcomes. By doing this, you can continuously

gauge your progress of digesting the topic.

Self-Check: This component of the module is inserted at strategic locations

throughout the module. It is inserted after you have gone through one subsection

or sometimes a few sub-sections. It usually comes in the form of a

question that may require you to stop your reading and start thinking. When you

come across this component, try to reflect on what you have already gone

through. When you attempt to answer the question prompted, you should be

able to gauge whether you have understood what you have read (clearly,

vaguely or worse you might find out that you had not comprehended or retained

the sub-section(s) that you had just gone through). Most of the time, the answers

to the questions can be found directly from the module itself.

COURSE GUIDE � xv

Activity: Like Self-Check, activities are also placed at various locations or junctures

throughout the module. Compared to Self-Check, Activity can appear in various

forms such as questions, short case studies or it may even ask you to conduct an

observation or research. Activity may also ask your opinion and evaluation on a

given scenario. When you come across an Activity, you should try to widen what

you have gathered from the module and introduce it to real situations. You should

engage yourself in higher order thinking where you might be required to analyse,

synthesise and evaluate instead of just having to recall and define.

Summary: You can find this component at the end of each topic. This component

helps you to recap the whole topic. By going through the summary, you should

be able to gauge your knowledge retention level. Should you find points inside

the summary that you do not fully understand, it would be a good idea for you

to revisit the details from the module.

Key Terms: This component can be found at the end of each topic. You should go

through this component to remind yourself of important terms or jargons used

throughout the module. Should you find terms here that you are not able to

explain, you should look for the terms from the module.

References: References is where a list of relevant and useful textbooks, journals,

articles, electronic contents or sources can be found. This list can appear in a few

locations such as in the Course Guide (at References section), at the end of every

topic or at the back of the module. You are encouraged to read and refer to the

suggested sources to elicit the additional information needed as well as to

enhance your overall understanding of the course.

PRIOR KNOWLEDGE Learners of this course are required to pass BBPM2103 Marketing Management I

course.

ASSESSMENT METHOD Please refer to myVLE

x vi � COURSE GUIDE

REFERENCES Bagozzi, R. P., Rosa, J. A., Celly, K. S., & Coronel, F. (1998). Marketing

management. New Jersey: Prentice Hall.

Dalrymple, D. J., & Parsons, L. J. (2000). Marketing management: Text and

cases (7th ed.). New York: John Wiley & Sons.

Harrel, G. D. (2007). Marketing: Connecting with customers (1st ed.).

Chicago Education Press.

Hoffman, D. K., & Bateson, J. E. G. (2001). Essentials of services marketing (2nd ed.). Fort Worth: The Dryden Press.

Kotler, P., & Amstrong, G. (2007). Principles of marketing (12th ed.). New

Jersey: Prentice Hall.

Kotler, P., Ang, S. H., Leong, S. M., & Tan, C. H. (1999). Marketing

management: An Asian perspective (2nd ed.). Singapore: Prentice Hall.

Kotler, P. (2008). Marketing management (13th ed.). New Jersey: Prentice Hall.

Lamb, C. W., Hair, J. K., & McDaniel, C. (2008). Marketing (10th ed.).

Canada: South-Western Publishing.

Mowen, J. C. & Minor, M. (1997). Consumer behaviour (5th ed.). New


Shiffman, L. G. & Kanuk, L. L. (2003). Consumer behaviour (8th ed.). New


Zeithaml, V. A., & Bitner, M. J. (2002). Services marketing: Integrating

customer focus across the firm (3rd ed.). Boston: Irwin-McGraw-Hill.

Market

Positioning

and Managing

Product

Life Cycle INTRODUCTION

There are many types of products in the market. For example, in Malaysia there

are more than ten types of fast food outlets. Even so, we are able to differentiate

between them. McDonaldÊs and Kentucky Fried Chicken (KFC) offer different

products, services, staff or personnel, distribution channels and images.

We often witness new products being introduced in the market. Some survive

while the others vanish from the market within a short period of time. Every

product has its own product life cycle. First, the product is introduced, then it

obtains positive responses from the consumers and finally consumers no longer

buy and use the product.

LEARNING OUTCOMES By the end of this topic, you should be able to:

1. Define the market positioning concept;

2. Explain in detail the basic differentiating factors that are used in

market positioning to distinguish products, services, staff or

personnel, distribution channel, image; and

3. Describe product life cycle concepts and its strategies.

Topic

1 TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

2

1.1 MARKET POSITIONING Market positioning is the act of designing the companyÊs offerings and image

to occupy a distinctive place in the mind of the target market.

Without differentiation, a product will be viewed as similar to other products. If

a product is not unique, consumers will find no reason to purchase and consume

that particular product, or to replace the current product that is being consumed.

Perodua and BMW are two companies which produce cars. The majority of

consumers perceive that a BMW possesses better quality, performance and safety

measures. A Perodua Kancil on the other hand, is perceived by the consumer as

the cheapest car although its quality is not at par with the BMW. Both cars are

different from the perspective of quality, pricing, performance level and safety

measures.

Perodua Kancil uses pricing and the „small car‰ concept as the basis of its market

positioning in marketing its cars in Malaysia, while BMW uses „luxury and

status‰ as its main strategy.

There are many methods used to differentiate businesses and products offered.

For example, we can use brand, quality, services offered, sales force, materials

used and business location to differentiate between businesses and products

offered.

The market positioning desired should be achieved by the product which is

being offered. If the company emphasises differences which cannot be carried by

the product, consumers will feel disappointed or cheated and this will leave a

negative image for the company and the product as well. Negative image can

cause losses for the company and the product will not be marketable.

1.2 BASES OF POSITIONING ACTIVITY 1.1 Coca-cola and Pepsi are renowned soft drink producers. How do you

differentiate Pepsi and Coca-cola?

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE 3

In the beginning of the topic, the basis used to differentiate products that are

offered and the business itself has been explained. Generally, a business or a

company can be differentiated based on five aspects:

(a) The product itself

(b) Services offered

(c) Company staff or personnel

(d) Distribution channel used

(e) Company image

1.2.1 Based on Products Differentiation Products offered by a company can be used as a basis to differentiate the

companyÊs business. The bases used in market positioning are:

(a) Form

Most products can be differentiated based on productÊs design like size,

shape or physical structure. Some are round, cylindrical, square and others.

(b) Features

Most products can be offered with varying features or accessories that

supplement the productÊs basic function. For example, the features of a

radio are CD and cassette players and a loud stereo.

(c) Quality

Most products can be differentiated based on the quality of the product

itself. Normally, quality is categorised into three levels: high, average and

low or inferior. Product quality can be measured according to the following

features:

(i) Performance

Performance quality is the level at which the productÊs primary

characteristics operate. For example, a washing machine that washes

efficiently is said to be of good quality and high performance.

(ii) Durability

A product that can last for many years is perceived as a product of

good quality.

(iii) Defect Free

A product which is defect free is perceived as a good quality product.

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

4 (iv) Features

Products with various attractive features can be perceived as good

quality products too. For example, a Sony television set with loud

stereo sound, clear picture quality, remote control and a big screen

falls into the good quality product category.

(v) Brand

Well-known brands also mean that the products are of good quality.

For example, Rolex watches, Mercedes cars and Nescafe coffee.

(vi) Fit and Finish

This aspect makes sure that the product is strong, efficient and is of

good quality. For example, a dining table is said to be of good quality

if the wood used is hard, steadfast and unshakeable.

(d) Design and Style

Design and style offers a good way to differentiate and position a

companyÊs products. A Jaguar car uses attractive design and style as its

basic market positioning strategy. Perfume manufacturers use various

bottle designs and styles which are attractive and unique as the basis of

their product differentiation. Figure 1.1 displays various designs and

shapes of perfume bottles for the purpose of attracting the consumerÊs

attention. Figure 1.1: Designs and shapes of perfume bottles

Source: http://images.google.com/images?/=perfume+bottles&ie=UTF-8&hl=en


ACTIVITY 1.2 Based on the product list below, what is the suitable basic difference for

the given products?

Products Basic Difference

Text books

ChildrenÊs story books

„Nasi Lemak‰

Jewellery

Garments by BONIA

Garments at the night market

1.2.2 Based on Services Differentiation The business of one company can be differentiated from another based on the

services offered or the services that are attached to the products sold. Services

that can be used as market positioning are delivery services, fixing, maintenance,

staff training and repair work.

1.2.3 Based on Channel Differentiation Distribution channels used to distribute the products of a company can be used

as a differentiation factor as well. Some companies use only stores to distribute

products whereas others use intensive distribution, exclusive distribution or

selective distribution strategies.

(a) Intensive Distribution

In intensive distribution, a company sells its products in as many shops as

possible. The objective of this method is to enable consumers to purchase

the products anywhere and when it is needed.

(b) Exclusive Distribution

Through exclusive distribution, the company distributes its products in

exclusive stores only. The company gives special rights to certain stores to

distribute its products. For example, manufacturers of Cartier accessories


6 only distribute their accessories in one store in Malaysia, which is situated

in Suria KLCC.

(c) Selective Distribution

Selective distribution strategy incorporates aspects of intensive distribution

and exclusive distribution. Through this strategy, the manufacturer will

select a few stores to carry its products. The objective of this strategy is to

build good relationships with a few stores in order to provide excellent

service to consumers.

1.2.4 Based on Staff or Personnel Differentiation We can also use the personnel as a differentiating factor for a company. Trained,

dedicated, friendly, self-confident, capable and honest personnel are a few basic

examples that can be used to differentiate a company from its other competitors.

1.2.5 Based on Image Differentiation Today there are many types of images that are used to differentiate products and

companies in the market. McDonaldÊs portrays an image of a clean and cheerful

restaurant. Nestle pictures its Nescafe coffee as an international beverage.

Marlboro portrays its cigarettes as a cigarette that embodies a rugged lifestyle.

Pepsi on the other hand, portrays its carbonated cola as a drink for the new

generation.

Generally, images are created through advertisements that are passed on to

consumers. Global companies are willing to spend billions of Ringgit in

advertisement programmes to create an image for their products or company

name which is desired by them. Image and brands are differentiating factors that

are the most difficult to be copied by competitors. Other market positioning

differentiating factors like features, design and style, and services offered are

easily imitated and followed by the competitors.

EXERCISE 1.1 Essay Questions

1. Describe briefly the market positioning concept.

2. Why do basic differences exist in businesses?


1.3 PRODUCT LIFE CYCLES Each product has its own life expectancy, the product will go through stages

when it is very popular and later it will decline. For example, when the VCD

player was first introduced the response from the consumers were

overwhelming. Now, sales of VCD players are declining because consumers are

purchasing DVD players.

Figure 1.2 shows the life cycle of a product.

Product life cycles can be divided into 4 stages, which are:

(a) Introduction stage;

(b) Growth stage;

(c) Maturity stage; and

(d) Decline stage. Figure 1.2: Product life cycle curve

1.3.1 Introduction Stage The product is newly introduced in the market. Consumers are not aware of the

product and profits that are very low or negative at the moment. This is caused

by the heavy expenses incurred during the product introduction stage and low

sales volume.

The market positioning strategy which should be followed by companies at the

product introduction stage are:

(a) Increase the volume of advertisements to create consumer awareness.

(b) Increase the number of distributors to distribute the products to the

consumers.


8 (c) Pricing the product high or low depending on the suitability of the market.

(d) Pricing the product high if the product is new and has not existed in the

market before.

1.3.2 Growth Stage At the growth stage, sales increase tremendously. Consumers are aware of the

existence of the product in the market and they have purchased the product for

the first time. Profit increases and is at a profit-making level. When the product

gains attention from the consumers, competitors start entering the market with

similar products.

The market positioning strategies which should be followed by companies at the

growth stage are:

(a) Continue the advertisement campaigns to build awareness, interest and

confidence among the consumers.

(b) Appointing more distributors to ensure the products can be purchased by a

larger number of consumers.

(c) Slashing product price if it was priced too high during the product

introduction stage. Slashing the price will increase the number of

purchasers and it will scare off competitors who are beginning to enter the

market.

(d) Expand factory and company operations to fulfil increasing demands from

the consumers.

1.3.3 Maturity Stage At the maturity stage, profits and sales start to reach the maximum level. The

other companies start to offer similar or identical products. Therefore, consumers

have more options. At this moment, competition is tough and there are many

competitors in the market. The market positioning strategies which should be

followed by companies at the maturity stage are:

(a) Offer products with improvised design, enhanced quality and features.

Figure 1.3 depicts PepsiÊs soft drink design that has been modified

according to time.

(b) Offer new models to the existing product lines. The advertising campaigns

have to be continued to build consumer trust and loyalty.


(c) The price offered is lower or at-par with the competitorÊs price.

(d) Own wide and excellent distribution networks.

(e) Able to obtain economies of scale to enable the company to price their

products lower and control a bigger market share. Figure 1.3: Design of Pepsi cans in the seventies and the modified version in 2002

Source: http://images.google.com/images?q=2002+pepsi&btnG=

Google+Searchhl=en&lr=&ie=UTF-8&oe=UTF-8

1.3.4 Decline Stage At the decline stage, sales and profits decline until there arenÊt any sales or

profits anymore. This happens because there is a better product replacement,

new technology exists, or the consumers are bored of the old product and they

donÊt want to purchase them anymore. When this happens, that particular

product will disappear from the market. An example of a product that has

disappeared from the market is the black and white television set. Video

recorders are experiencing the decline stage but they havenÊt disappeared from

the market yet. It will eventually disappear from the market altogether when

technology developments set in.

The market positioning strategies which should be followed by companies at the

decline stage are:

(a) When the technology changes rapidly and the consumer demand declines

sharply, it is better for the company to cease the productÊs production.

(b) When there is continuous demand for the output, the company can

continue to produce the product at a smaller quantity from time to time

until there isnÊt any new production.


10

1.3.5 Product Life Cycle Patterns Some products have similar product life cycles as shown in Figure 1.4. There are

other product life cycle patterns such as:

Fad product life cycle

Style product life cycle

Seasonal product life cycle

(a) Fad Product Life Cycle

Fads are fashions that come quickly into public view, are adopted with

great zeal but decline very fast as shown in Figure 1.4 as follows. Figure 1.4: FadÊs product life cycle

(b) Style Product Life Cycle

A style is a basic and distinctive mode of expression. When style is created,

it will exist for a few generations. Then, it will disappear and reappear

again. Figure 1.5 shows styleÊs product life cycle. Figure 1.5: StyleÊs product life cycle


(c) Seasonal Product Life Cycle

Figure 1.6 shows seasonal product life cycle. Figure 1.6: Seasonal product life cycle

ACTIVITY 1.3 Try to give an example of a product which has gone through all the

product life-cycle stages.


1. How do we ensure that the product purchased is of high quality?

2. Explain the stages in the product life cycle.

This topic explains how businesses and products can be differentiated.

Companies are able to use design, pricing, product quality and branding as

the differentiating factors.

Without product differentiation, a company will not be able to stay on in the

market and will soon fail.

Without differentiation, consumers will not be able to distinguish the

companyÊs products with the competitorÊ products.

Each product will pass through a few stages in its product life cycle. It begins

with the introduction stage until it disappears from the market.


12

There are a few market positioning strategies that can be carried out at each

stage of the product life cycle.

These strategies implementations are important to ensure products that are

marketed survive long in the market.

Exclusive distribution Market positioning

Image differentiation Personal differentiation

Intensive distribution Services differentiation

New Product

Development INTRODUCTION

Needs and wants of humans constantly vary. Companies need to innovate and

introduce new products from time to time to fulfil the needs and wants of

consumers. Without new products, a company will struggle behind its

competitors. New product introduction is a continuous process and requires high

initial expenditure.

In this topic, we will discuss new product categories, challenges in new product

development, new product development processes and the factors contributing

towards the success and failure of new products.

WHAT IS A NEW PRODUCT? We often read, watch or listen to advertisements about new products in the

newspapers, on television and over the radio. Some new products are brand new

and they enter the market for the first time and there are some new products

which are similar in features to the existing products in the market. Generally,

new products can be categorised into:

Innovation Products

Modification Products

Imitation Products

2.1 LEARNING OUTCOMES By the end of this topic, you should be able to:

1. Define new products;

2. Explain the six stages of new product development; and

3. Discuss the factors behind the success or failure of new products.

Topic

2 TOPIC 2 NEW PRODUCT DEVELOPMENT

14 (a) Innovation Products

Innovated products are products that have not been introduced in the

market before. Examples of product innovation are microwave ovens,

cellular phones, CD players and digital cameras.

(b) Modification Products

Modified products are existing products in the market that has been modified

and given a new look from the aspects of packaging, design, features and

functions. Modified products are new products that are vastly available in the

market. An example of a modified product is a car. Cars were introduced in

the market during the nineteenth century. New cars introduced by

manufacturers are modified products with new designs and features.

(c) Imitation Products

An imitation product is a new product to a company, but the product type

has been introduced and marketed by other companies. The company

copies a particular product and introduces it in the market using a different

brand name. For example, Proton introduced Waja cars recently. For

Proton, Proton Waja was a new product but cars are products that have

been introduced way earlier by other companies. Product imitation and

product modification can take place concurrently, but an imitation product

can be a modified product as well.

CHALLENGES IN NEW PRODUCT DEVELOPMENT 2.2 Introducing new products is not an easy task. There are companies that fail in

their effort to introduce and market new products. Companies have to face many

obstacles and challenges (refer Figure 2.1). Some of the challenges in new product

development are:

(a) Insufficient ideas to create new products because most of the products

needed by the consumers are already available in the market.

(b) Costs to create new products are very high because it involves research and

development. It is difficult for small companies to introduce new

innovations.

(c) Product life-cycle becomes shorter because of technology and better

replacement products.

(d) Government regulation and social obstacles. A product has many safety

measures and rules assigned by the government. For example, medical

products have to obtain permission and approval from the Ministry of

Health before they are marketed.

TOPIC 2 NEW PRODUCT DEVELOPMENT 15

(e) A company has to act fast in introducing new products. A company which

introduces a product first in the market will become the market leader.

Market leaders are able to control market share, build loyalty and consumer

awareness, gain experience as well as create and control distribution

networks. Figure 2.1: Competition in new product development

2.3 STAGES IN NEW PRODUCT DEVELOPMENT Introducing new products involves high risk. This is because most of the

products needed by the consumers are already available in the market. As a

consequence, most new introductions often fail and the company has to bear the

losses. New product development process has to be carried out carefully to

ensure products developed fulfil the consumersÊ needs and tastes and is

profitable for the company. There are six main stages in the new product

development process. The stages are shown in Figure 2.2. Figure 2.2: Stages in new product development

(a) Idea Generation

Every product produced originates from an idea. Normally, ideas for new

products are obtained from a few sources and the sources are:

TOPIC 2 NEW PRODUCT DEVELOPMENT

16 (i) Personnel or Employees

A companyÊs employee is a reliable idea source for new products.

This is because most employees like the sales personnel of a company

often deal with consumers and suppliers.

Some companies conduct brainstorming sessions to generate new

ideas among their employees. Refer to Figure 2.3. Figure 2.3: Brainstorming session

(ii) CompanyÊs Customers

Good new product ideas can be obtained from consumers. This is

because, consumers know better what is needed and wanted by them.

Companies normally have suggestion boxes, customer complaints

(Figure 2.4) and they conduct surveys to generate new ideas from the

consumers. Figure 2.4: Customer complaint


(iii) Competitors and Suppliers

Companies should observe reactions and actions that are being taken

by other companies to obtain new product ideas. Marketers are

allowed to copy competitorsÊ ideas if the ideas are accepted by

market. Smaller companies often copy ideas from other companies to

introduce new products.

Raw materials and component suppliers of a company are a good

source of new product ideas. Generally they are aware of the new

products introduced by the competitors because they supply the

competitors with components too.

(iv) Through Research Conducted

Global and large companies normally set up their own Research and

Development Department to source for ideas and develop new

products. Companies that extensively research about new products

are consumer good companies like Nestle, Sony, Honda, Proton, and

Procter & Gamble.

(b) Idea Screening

Not all ideas obtained during the idea generation stage can be

implemented. Some of them cannot be implemented because they are too

expensive, inappropriate technology definition, definition of raw materials

needed, definition of knowledge, too early to be introduced or the market is

not ready to accept the idea. This is why companies need to screen ideas

generated to ensure it is practical and it is well received by the consumers

when it is marketed. Ideas that are attractive and ideas that do have the

ability to prosper will be chosen.

Idea screening is normally done by a committee appointed by the top

management. The committee comprises of personnel from the technical

department, finance, marketing, manufacturing, and research and

development. Some of the basic criteria used to evaluate the new ideas are:

(i) Market Opportunity Identification

Market opportunity identification evaluates whether there is sufficient

demand and profit for the company when the product is marketed.

(ii) Investment Costs

Costs needed to create new products must be affordable to the

company. Investment should be recovered at a predetermined period

through product sales.


18 (iii) Manufacturing and Marketing Skills

Before a company decides on turning an idea into reality, it has to

evaluate whether it has the skills and ability to manufacture the

product. A company needs technology and proper factory to

manufacture the product. Besides, a company needs sufficient sales

force to market the product using appropriate distribution channels.

(iv) Other Factors

Other factors used as bases in evaluating new ideas are legal effects,

social product impact, community and company image.

At the idea screening stage, companies will run concept testing to ensure

the selected idea is well received when it is marketed. At this moment, the

physical shape of the product does not exist yet. It is still at the idea stage

on paper, which is a product concept that depicts the product or a few

statements about the product. At this stage, a few questions will be posed to

the consumers to obtain early reaction about the product. Questions

normally asked are:

Will you purchase this product?

Do you see any benefits from this product?

How often will you use this product?

Who will purchase this product?

(c) Business Analysis

If concept testing obtains positive reactions from the consumers, it will be

evaluated at the next stage, which is the business analysis stage. At this

stage, the company will analyse market size, competition, expected cost,

total sales and other environmental factors that will influence product sales.

(d) Prototype Development

At the prototype development stage, product concept will be given a

physical form. It will be given shape and design, packaging, branding and

features. Prototype development is normally done in the companyÊs

research and development lab. It will be tested for its strength, durability

and ability to carry out the benefits suggested.

Automobile manufacturing companies often issue prototypes and display

them to the public to identify consumersÊ reaction. Later, they will return to

the lab, change and re-test the prototypes to produce a good quality product.


SELF-CHECK 2.1 What do you understand about product prototypes?

(e) Market Testing

After the prototype is developed, it will be tested in a few market areas

using selected groups of consumers. The objective of market testing is to

identify consumerÊs actual reaction towards the companyÊs new product.

This includes:

(i) How do consumer purchase?

(ii) How do they use the product?

(iii) Who purchases?

(iv) Who uses the products?

(v) What attracts their attention?

(vi) What are their reaction towards the marketing strategy of the

company?

Figure 2.5 shows an example of market testing process for a new product, a

detergent powder. Figure 2.5: Method of Âmarket testingÊ

Information gathered from market testing helps the company to identify

appropriate marketing strategies and to find out product potential when it

is marketed.


20 There are many types of market testing methods that can be carried out by

the company. Test market is one of them. Through this method, the company

will choose one or a few areas as test venues. The new product will be

distributed and marketed in those areas. Later, the company will run

promotional programmes, distribute products at appropriate outlets and run

pricing strategies as planned. When the product reaches the market, the

company will collect data on consumer buying patterns. In Malaysia, Klang

Valley, Penang and Johor Bahru are the areas often chosen as testing areas.

The Test Market strategy is one of the most efficient ways of getting to know

the consumersÊ actual reactions. But, this test will give the competitors a

chance to copy the product and marketing campaign run by the company.

Other testing methods frequently used are, market simulation test, focus

groups and controlled test marketing.

(f) Product Launching

From test marketing, a company will determine whether to launch or not to

launch a product. If the company decides to introduce the new product in

the market, it needs to determine a few important matters first. Some are:

(i) Launching Time

Sometimes the launching function has to be postponed, because of the

unstable economic condition. For example, like the one in Malaysia at

the end of 1977.

(ii) Place of Product Introduction

The company can use information obtained from market testing to

determine where the new product will be introduced.

(iii) Other Preparations

The company has to make sure the manufacturing department and the

employees are ready to manufacture the new products commercially. Figure 2.6: New productÊs commercial stage


ACTIVITY 2.1 From your point of view, why are urban areas chosen for market testing

of new junk food products?

SUCCESS AND FAILURE FACTORS OF NEW PRODUCTS 2.4 Some new products launched are successful while the others reach a dead end or

fail in the market. Why does this happen? The next section will discuss the

factors contributing to the successes and failures of new products in the market.

2.4.1 Success Factors of New Products The commercial launching of the first national car, Proton Saga on 9th July 1985

by YAB DatoÊ Seri Dr. Mahathir Mohamed was received well by the consumers.

That success motivated EON to launch its new product; Proton Waja on 31st

August 2000. The response from the consumers was encouraging and Proton

Waja was also well received. Refer to Figure 2.7.

Proton Waja was Well Received SALES of Proton Waja cars were very encouraging. On the 31st

August 2000, its launching day, 2000 units were already booked.

It was launched by the Deputy Prime Minister, Datuk Seri Abdullah

Ahmad Badawi at the headquarters of Edaran Automobil Nasional

Bhd (EON). The launch was followed by EONÊs Carnival to make it

livelier and to attract visitors and potential consumers. The Carnival,

which was visited by many people, lasted until late at night.

The Deputy Prime Minister commented that Proton Waja was the

best in its class and also the best from the Âmoney for valueÊ

category. The product launched in May 2000 has a solid make and it

is economical because for every one litre of petrol used, it can move

as far as 62.5 kilometres for manual transmission. A one-way journey

to Penang from Kuala Lumpur only costs RM25.

Figure 2.7: Article from Proton WajaÊs launch

Source: http://www.drb-hicom.com/endeavour/vol15/news-protonwaja.htm


22 The followings are a few success factors for a new product:

(a) The product must be unique and different from the existing products in the

market.

(b) The product has to be needed and wanted by the consumers.

(c) The product has to have high consumer demand and a high growth rate.

(d) The product has to be reasonably priced and affordable to the majority of

consumers.

(e) The company should have sufficient funds to build consumer awareness

and carry on other promotional activities.

2.4.2 Failure Factors of New Products Some new product launches fail and this leaves a negative impact on the

profitability of the company. Ford Motor Corporation has experienced new

product failure with the Ford Edsel car model which was introduced in early

1990. Ford lost hundreds of millions of dollars because of this.

Some of the main factors why new products fail in the market are:

(a) The new product is not distinctively different from the other products in

the market. Because of this, consumers donÊt see a need to try out that

particular product.

(b) The product is not of high quality and does not function as expected.

(c) New product idea is not very good and less rational, but it is still continued

by management because of some reasons.

(d) Inappropriate market definition and insufficient market testing.

(e) New product development cost is too high and burdensome.

(f) Lack of good promotional programmes to build awareness, trust and

consumerÊs interest towards the product.

(g) The time of launching is not appropriate.

(h) Tough competition.



1. Some companies have to bear millions of ringgit of losses because

the new product introduced was not well received by consumers.

What are the reasons behind it?

2. Name sources that can be referred to in obtaining new ideas.

New products are important to every business.

Without new products, the company will be left behind and will be

uncompetitive compared to the other companies.

New product offers has to be on-going to fulfil constantly changing consumer

needs and desires.

Ideas for new product development normally come from the companyÊs

employees, consumers, competitors and researchers.

Decisions to offer new products have to be handled strategically and with

care because the new product development process involves a large sum of

money and time.

Business analysis Market testing

Idea generation Modification product

Idea screening Product launching

Imitation product Prototype developmet

Innovation product

Managing New

Product Lines

and Brands INTRODUCTION

Products are the most important marketing mix component. Without products,

there isnÊt any other marketing activity. Generally, products are what the

marketerÊs offer to be seen experienced and consumed for personal, household,

manufacturing or to be resold. A product includes the product itself, services,

places, ideas individuals and organisations.

In this topic, you will be exposed to the product stages, types of products and

product mix management and product lines. This topic also discusses brand

management processes, packaging and product labelling.

PRODUCT LEVELS A product normally consists of three stages, which are core product, actual

product and product support.

3.1 LEARNING OUTCOMES By the end of this topic, you should be able to:

1. Categorise stages and types of products;

2. Discuss concept of product mix management and product lines;

3. Assess brand management processes; and

4. Illustrate packaging processes and product labelling.

Topic

3 TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS 25

(a) Core Product

When we create a product, we will have to consider the benefits that will be

provided by the product. Core benefit is the actual reason why most

consumers purchase a product. It is the actual benefit provided by the

product. For example, the core benefit of a refrigerator is to store food so

that it remains fresh. The core benefit of a pen is to write. The core benefit of

a car is for transportation and to move from one place to another.

(b) Actual Product

The second component of a product is the actual product or tangible and

intangible characteristics of a product. Obvious characteristics of a product

consist of design, size, colour, brand, features and quality.

(c) Product/Service Support

The third product component is product or service support.

Product/service support is a value-added component of a product to make

it easier for the consumers to consume or purchase the product. It can either

be a delivery service, assembling, maintenance, warranty and credit

granting.

Figure 3.1 shows the product stages. Figure 3.1: Product stages

Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing

(9th ed.). New Jersey: Prentice Hall.

3.2 PRODUCT CLASSIFICATION Generally, a product can be divided into two categories:

Consumer products; and

Organisational products.

TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS

26

3.2.1 Consumer Products Consumer products are products used by end-users for personal or family

consumption. A consumer product can be divided into four categories:

(a) Convenience Goods

Convenience goods are products that are regularly purchased by the

consumers. The buying process does not take very long. Convenience

goods consist of:

(i) Emergency Goods

Emergency goods are purchased when a need is urgent like umbrellas

and candles.

(ii) Staple Goods

Staples are basic goods consumers purchase on a regular basis like

sugar and rice.

(iii) Spontaneous Goods

Spontaneous goods are products bought spontaneously like

newspaper, chocolate and other products displayed at the

supermarketÊs paying counter.

(b) Shopping Goods

Shopping goods are goods that the consumers, in the process of selection

and purchase, compare on such basis as price, quality, features and style.

The buying process is quite long and sometimes can be time consuming.

Examples of shopping goods are garments, household equipment, furniture

and shoes.

(c) Specialty Goods

Specialty goods are goods that have unique characteristics, exclusive

brands and can only be obtained from certain places. For a consumer,

speciality goods canÊt be replaced. Consumers are willing to pay a high

price and normally are willing to travel a distance to obtain the product.

Examples are brands like Versace and Rolex, antique products and luxury

cars.

(d) Unsought Goods

Unsought goods are those the consumer does not normally think of buying.

An example of unsought good is life insurance. Unsought goods require the

support of advertising and personalised selling.

TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS 27

3.2.2 Organisational Products Organisational products are products that are purchased by organisational

consumers to be used in the output of end products and in the organisationÊs

daily operations. Industrial goods consist of:

(a) Materials and Parts

Materials and parts are raw materials, components and other materials

used in the output of end products. For example, wheat to be made into

bread, white cloth to be made into clothes and rubber to be made into tyres.

Figure 3.2 shows a few raw materials which are processed to produce the

end products. Figure 3.2: Raw materials and its products

Source: http://www.google.com/imghp?hl=en&ie=UTF-8&oe=UTF-8&q=

(b) Capital Products

Capital items are important goods in the output process. For example,

ovens are used to bake the bread. Capital products also include building,

machines and office equipment.


28 (c) Supplies and Business Services

Supplies and business services are products used in office work and other

temporary works. Examples of supplies are paper, paper clips, plastic bags,

pens and pencils. Examples of services are office washing services and air

conditioner maintenance services.

3.3 PRODUCT MIX Product mix is the type, category or product line that is marketed by a company.

There are companies that offer only one product type and there are others who

offer many product types. Normally a company that offers only one product type

is a small company which adopts the specialisation strategy or „concentration‰. It

normally concentrates on one segment of the market. A company that offers

many product types is a large company that normally markets consumer

products. For example, Nestle offers many product types.

The basic concept of product mix is the width, depth, length and product

consistency. Figure 3.3 will aid in the understanding of the concept. Figure 3.3: Product Mix for Nestle Corporation (M) Sdn. Bhd.

(a) Product Width

The width of a product mix refers to how many different product lines the

company carries. For example, Nestle Corporation produces more than 20

product types like baby milk, chocolates and breakfast cereals. A product

with a wide product width is able to satisfy various needs of different

market segments.


(b) Product Depth

The depth of a product mix refers to how many brands or items are offered

in each product category. For example, in Figure 3.3, the product depth of

chocolate products is four, the product depth of baby milk products is three

and the product depth of breakfast cereal is two. A product has more

product depth when the product has more items in each product category.

A product that has product depth is able to meet various needs and wants

of different market segments. For example, various types of chocolates are

able to meet different tastes of purchasers.

(c) Product Length

The length of the product mix refers to the total number of items in the mix.

For Nestle Corporation they have more than three hundred items in the

product mix that is marketed.

(d) Product Consistency

The consistency of the product mix refers to a close link or synergy between

one product and another which is offered by the company. Nestle

Corporation offers consistent products, most of them are food and

beverages based products. Consistent products enable the company to

specialise in that product.

3.4 PRODUCT LINE ANALYSIS A product line is a group of products that have the same functions, is

marketed to the same group, is sold at the same price range, and is distributed

by the same distributors.

At Nestle Corporation, the company has many product lines such as the baby

milk lines, chocolates lines and cocoa drink lines.

Normally each product line will be managed by a manager. Product line

managers need to identify the items in that line that are going to be built, taken

care of and taken off from the market. Items that generate low sales and are

making losses are normally retracted from the market. Each companyÊs sales,

cost, and market profile is analysed. If a company offers too many items, it will

have to bear high operation costs, inventory cost and advertising cost.


30

3.5 BRANDS ACTIVITY 3.1 There are many brands in the market. Some brands are popular while

others are unknown to the consumers. What is the purpose of product

branding?

Brand is a name, alphabet, or symbol that identifies a product. Branding is a part

of the product. Without branding, it is difficult for a consumer to recall or

differentiate products. Products with well known brands and that are easy to

remember are profitable. Examples of well known brands in Malaysia are Milo,

Nescafe, McDonaldÊs, KFC, Maggi, Telekom and Coca-Cola. Examples of wellknown

brands in the world are McDonaldÊs, Sony, Coca-Cola, Pepsi Cola,

Marlboro, Kodak, Toyota and Mercedes. Coca-ColaÊs brand value is estimated

exceeding USD$35 billion. (RM140 billion).

3.5.1 Characteristics of Effective Branding An effective brand is a brand that has the following characteristics:

(a) Easy to pronounce.

(b) Easy to remember.

(c) Easy to identify.

(d) DoesnÊt bring any negative meaning.

(e) Different from the competitorÊs brand.

(f) Depicts product benefits to the consumers.

3.5.2 Brand Equity Brands vary in the amount of value and power they have in the marketplace. For

example, McDonaldÊs is a well-known fast food restaurant as compared to

GrandyÊs which is losing its influence in Malaysia. A powerful brand has got

high-brand equity. Brand equity is the value of the brand and it is measured

based on the following characteristics:


(a) Brand Awareness

When a consumer knows that a brand exists in the market, the brand is said

to have high brand awareness. If consumersÊ awareness towards the brand

is high, its brand equity is also high.

(b) Brand Identity

Brand identity is the connection between a brand and an individual,

services or other feelings. For example, McDonaldÊs is normally connected

with burgers, clean restaurant and a cheerful place.

(c) Brand Loyalty

A brand is valued high when consumers stay loyal to that particular brand.

Consumers donÊt switch to other brands and they are willing to wait even if

the store runs out of stock. Examples of products and brands that have high

brand loyalty are Milo, Nescafe, Coca-Cola and Maggi.

(d) Estimated Quality

A brand is perceived to have high value if the brand is of good quality.

Sony is a brand that describes its products as high-quality products.

3.5.3 Brand-name Decision Choosing a brand name is not an easy task. Companies who brand their products

must choose based on four strategies:

(a) Individual Names

The company uses a different brand for every product or product line

introduced. For example, Procter & Gamble names its shampoo as Pantene,

Head & Shoulders, Rejoice and Vidal Sassoon. The advantage of individual

branding is, it attracts attentions from different segments and every brand

will have a distinct image and position. The disadvantages are, the brands

will have to compete among themselves.

(b) Blanket Family Names

The company uses only one name for all the products. Normally the

company will use its company name itself. For example, Sharp Roxy (M)

Sdn. Bhd. uses Sharp for refrigerators, television, rice cookers and other

kitchen appliances. The disadvantages of this brand type is when problems

exist in one product, it will leave a negative image on all the other products

that are marketed.

(c) Separate Family Names for All Products

The company uses a few brands for every product line that is introduced.

For example, Matsushita Corporation uses the National brand generally for


32

its electrical product line, the Panasonic brand for its audio visual product

line and the Technics brand for its music product line.

(d) Corporate Name Combined with Individual Product Names

This brand type is the most popular and widely used by the majority of

companies. The company name and the individual product brand are

combined here. For example, Proton uses brand names Proton Waja, Proton

Wira, Proton Iswara and Proton Perdana for its line of cars them. The

advantage of this brand type is, it strengthens the company name and it has

its own image and position.

3.5.4 Managing Brand Brands are non-tangible assets that are valuable to a company. A famous brand

can be marketed anywhere and normally it will be well-received by the

consumers. Most consumers purchase based on the familiarity with a certain

brand. They rarely purchase products that are unheard off or never used before.

Some companies donÊt manage their brands well till they lose their popularity

and finally become unfamiliar again. When this happens, the company is unable

to compete with the other market players that are increasing in the market. There

are a few factors that cause a brand to lose its popularity and they are:

(a) The company focuses its business on a short-term only. Company

emphasises on short-term sales and profitability and doesnÊt emphasise on

advertising to build its brand. The company treats advertising as cost and

not as long-term investment.

(b) Lack of marketing support includes the inability to obtain sufficient budget

for advertising. Brand management is not given importance and it is placed

in a less important section like the corporate issues management section.

Brand management has to be put under brand management itself or under

product management for that particular product.

(c) Company only concentrates on sales promotion that leaves an impact on

increasing sales for the short term.

(d) Unstable economic condition also leaves an impact on brand popularity.

When there is a recession, consumers donÊt give importance to product

brands anymore, they give importance to the products that are attractive

and sold at low prices. But the company still has to carry on with its

advertising programmes from time to time to remind consumers about its

existence.


ACTIVITY 3.2 Competition constantly exists between famous brands. In this brand

competition, what has to be done by the marketer to popularise the

brands that are introduced by them?

3.6 PACKAGING What is meant by packaging? Packaging is a part of the product. Some

companies use their packaging as a competitive advantage and also as their

product positioning basis. For example, Pringles potato chips are kept in a

cylindrical box which is made out of hard paper. This packaging method differs

from the other companies that market potato chips because they pack their

potato chips in soft aluminium covers.

Now, packaging plays an important role in marketing a product. A good and

attractive package design can attract interest, make it easier for consumers and

act as the differentiation basis to promote the product.

3.6.1 Packaging Functions The various functions of packaging are:

(a) As a container to contain and protect the product.

(b) Makes it easier for the distributors to store, arrange and display products at

their stores. It also makes it easier for the consumers to store the products

that are purchased.

(c) Packaging can be used as the basis for segmentation as well. Small

packages for single people and large packages for family consumption.

(d) As a communication and promotion tool directed to the consumers.

(e) As an element that can be used in the new product development. There are

companies that change packaging shapes and promote them as a new

product although the basic product doesnÊt change.

3.7 LABELLING Labels are any writing that appears on the package. It consist of price tags,

product brand, company name, information on product content, product recipe,


34 „halal‰ sign, company address, expiry date and others. Figure 3.4 shows one of

the product labels, which is Nescafe. Figure 3.4: NescafeÊs product label

Source: http://www.bevnet.com/images/reviews/nescafe/nescafe-espressoroast.jpg

Label plays a few important functions:

(a) Enables consumers to identify a particular product or brand.

(b) Enables a product to be graded like, grading done to chicken eggs, fruits

and other foodstuff.

(c) Explains who distributes the products, where it is manufactured, what the

contents of the product are and how to use it effectively.

(d) Promotes the product through its attractive graphic design.

Label is an important issue in marketing. The company has to take into account

the issue of appropriate language usage, government regulation on safety issues

and product content, product pureness issue for the products marketed in

Islamic countries.


1. Explain the types of convenience goods.

2. Provide four functions of packaging.


Product is the most important component of the marketing mix. Without a

product, the other marketing activities donÊt exist.

Generally, a product can be categorised into individual consumer products

and organisational products.

Individual consumer products can be categorised into convenience goods,

shopping goods, specialty goods and unsought goods.

All these product types can further be sub-divided based on the consumerÊs

behaviour when they purchase the product.

A product is incomplete without its packaging and labelling. Now, most

companies use product packaging as a basis for competing and

differentiating.

An attractive product package wins the hearts of the consumers to purchase

the product.

Government regulation regarding product content like calorie value and

vitamin and nutrient content causes a lot of information to be labeled on the

package.

Brand is a product component which is very important. Without branding,

consumers canÊt identify a product.

Branding is an intangible asset but it is valuable to the company because

famous brands can be sold anywhere.

Brand identity Speciality goods

Branding Spontaneous goods

Emergency goods Staple goods

Product line Unsought goods

Product width

Managing

Services

Marketing INTRODUCTION

The interest to look at services in more detail surfaced when a significant trend

existed that started to realise the importance of services. Services are seen as an

output that is able to shape the advantages to compete when it is used together

with the physical product. But it is also important in increasing the gross output

of the country. This can be seen from the contribution from the banking industry,

food industry, education and health. Based on the statistics report from the US

Labour Bureau, job opportunities in the service sector are growing and has

increased since 2005.

Discussions in this topic will focus on services as products and services as

tangible product complements and its importance to the market.

Topic

4 4. Appraise customer support services.

3. Assess the strategies in differentiating offers, presentation and service

image besides understanding the needs of quality management and

service productivity; and


1. Explain services and the categories of services;

2. Discuss how services are different from physical products;

TOPIC 4 MANAGING SERVICES MARKETING 37

4.1 WHAT ARE SERVICES? ACTIVITY 4.1 WhatÊs the difference between the OUM Module and the course which

is being offered by OUM?

Services are seen as a series of actions, processes and implementations that

cannot be viewed. A service is any act or performance that one party can offer to

another that is essentially intangible and does not result in the ownership of

anything.

The service industry can be categorised into three main categories:

(a) The government sectors like the Courts, employment services, loan

agencies, military services, police and fire departments, regulatory

agencies, post office and schools.

(b) Private non-profit sectors such as museums, churches, colleges and

hospitals.

(c) Business sectors such as its airlines, banks, hotels, insurance companies, law

firms and consulting firms.

Services that are being offered are not centred on the services as products only,

but also as part of the offer to complete the tangible product. Service departments

like the accounts department, the law department and hotline services have been

created in companies.

4.1.1 Categories of Service Mix A companyÊs offering to the marketplace often includes some products and

services. The service component can be a minor or major part of the total

offering.

There are five categories of offerings:

(a) Pure Tangible Goods

The offering consists primarily of a tangible good such as soap, toothpaste,

or salt. No services accompany the product.

TOPIC 4 MANAGING SERVICES MARKETING

38 (b) Tangible Goods with Accompanying Services

The offering consists of a tangible good accompanied by one or more

services. For example, Proton and Perodua both offer cars and after-salesservices.

(c) Hybrid

The offering consists of equal parts of goods and services. For example,

people patronise restaurants for both food and services like good treatment

from the restaurantÊs waiters.

(d) Major Service with Accompanying Minor Goods and Services

For example, Malaysian Airlines SystemÊs (MAS) basic product is

transportation and the supporting services consist of food offerings and

baggage services to the consumers.

(e) Pure Services

The offering consists primarily of a service. Examples include baby-sitting,

psychotherapy and massage.

4.1.2 Characteristics of Services Services have characteristics that are different from tangible products. Because of

that, the business firm has to take into account all those characteristics in its

marketing strategy.

Services have four major characteristics that differentiate them from the other

physical outputs. The characteristics are:

(a) Intangibility

Unlike physical products; services cannot be seen, tasted, felt, heard or

smelled before they are bought.

The service cannot be evaluated until a person uses the service. This means

that a person has to purchase the service first before he can evaluate the

service.

To reduce uncertainty, buyers will look for evidence of the service quality.

They will draw inferences about the quality from the place, people,

equipment, communication material, symbols, and price that they see.

Therefore, the service providerÊs task is to „manage the evidence‰, to

„tangibilise the intangible.‰


(b) Inseparability

In the process of introducing a physical product, the product has to be

manufactured, kept in a warehouse, distributed through multiple

distribution channels and purchased and consumed by consumers.

Services are typically produced and consumed simultaneously. The buyer

has to be present when the service is created. For example, a restaurant can

not create its services until the food is ordered by the consumer. Providerclient

interaction is a special feature of services marketing. Provider and

client will influence the service output that is being delivered.

(c) Variability

Services are highly variable because they depend on who provides them

and when and where they are provided. For example, services in a

restaurant, McDonaldÊs serves delicious instant food. But McDonaldÊs

employees may not have the skills to prepare the order immediately. To

overcome this weakness, a few steps should be taken:

(i) Control in hiring employees. Recruiting the right employees and

providing them with the right training is crucial to increase their

knowledge and expertise.

(ii) Standardising the service-performance process throughout the

organisation. This is done by preparing a service blueprint that

depicts events and processes in a flowchart, with the objective of

recognising potential fail points.

(iii) Monitoring customer satisfaction through suggestion and complaint

systems as well as customer surveys.

(d) Perishable

Services cannot be stored. The perish ability of services is not a problem

when demand is steady. When demand fluctuates, service firms have

problems. For example, if there is a shortage in demand for airtransportation,

it cannot be stored for the next day. The airline agency has

to bear losses at that time for offering more than what is being demanded.

To control this problem, a few strategies can be used:

(i) Differential pricing for peak demand and non-peak demand.

(ii) Create reservation systems.

(iii) Part-time employees can be hired to serve peak demand.

(iv) Increase customer participation in the form of self-service.


40 If you are receiving an offer for a hair cut, what are the important

criteria that have to be taken into consideration for you to evaluate the

satisfaction which will be obtained from that service?

ACTIVITY 4.2 Essay Questions

1. What are services? Explain the main categories or types of

services.

2. Explain three categories of service mix that you normally

experience or you make purchases on.

3. What are the characteristics that differentiate services from

physical products?

4. What are the marketing implications that have to be done to

minimise elements that cannot be separated in services?

EXERCISE 4.1

MARKETING STRATEGIES FOR SERVICE FIRMS 4.2 Marketing strategies for service firms refers to:

(a) Traditional marketing mix;

(b) Advanced marketing mix elements for services; and

(c) Service triangle.

4.2.1 Traditional Marketing Mix One of the basic concepts in marketing is marketing mix. Marketing mix is the

organisationÊs control elements which can be used to satisfy consumers or to

communicate with them.

The main marketing mix elements are product, price, distribution and

promotion. These elements are basic deciding factors in any marketing plan.


4.2.2 Advanced Marketing Mix Elements for Services Services are typically produced and consumed simultaneously. Normally, the

buyer has to be present when the service is offered. Services are something that

are intangible or cannot be seen. This is why consumers normally look for

tangible evidence to aid them in evaluating the service. Service marketers use

additional methods to communicate and satisfy their customers because of these

factors. As an addition to the basic marketing mix elements like product, price,

place and promotion are marketing mix elements for services which include:

(i) People

Human management refers to the involvement of individuals, either

personnel, firms, users or other consumers in conveying and influencing

buyerÊs perceptions.

(ii) Physical Evidence

Physical evidence refers to the surroundings where the service is offered,

the firm and consumers interact and any tangible component that enables

communication to take place. For example, business cards, formal reports,

catalogues, equipment and buildings.

(iii) Process

Processes involve actual procedures, mechanisms and activity flows where

services are offered including the offer process and service operations.

Service providers can offer various service processes to the consumers. For

example, restaurant with a cafeteria concept, fast food, buffet and romantic

candle light services.

4.2.3 The Services Triangle The creation of a service is influenced by the physical evidence, people

management and processes that support the tangible element for the consumers.

ServicesÊ marketing does not only need external marketing, but it also involves

three other marketing processes, like external marketing, interactive marketing

and internal marketing.

(a) External Marketing

External marketing refers to marketing that involves promotion mix like

advertising, sales promotion, public relations, direct selling or online

selling.


42 (b) Interactive/Relationship Marketing

Interactive or relationship marketing involves interpersonal relationship

which is carried out by an employee with a consumer through channels like

personal selling, customer service centres, service encounters and services

capes. It involves employeeÊs skills and knowledge in managing

consumers. Customer service evaluates services from the perspective of

technical and functional quality.

(c) Internal Marketing

Internal marketing describes the work to train and motivate employees to

serve customers well. Internal marketing needs a systematic and capable

management so that communications between the employees are accurate,

clear and consistent with what is seen and heard by the consumers. Figure 4.1: Services triangle

Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing

(9th ed.). New Jersey: Prentice Hall.

All the three types of marketing above were based on the services triangle as in

Figure 4.1.

The suppliers of services are responsible to ensure that the interactive message is

in-line between the companyÊs employees (internal and interactive marketing)

with what is channelled by the company through external marketing. To ensure

that the companyÊs objectives are achieved, internal marketing communication

has to be managed well. This is done so that the firm communicates accurately

and sufficiently with its employees and is consistent with the information that

the consumersÊ receive through what is being delivered through external

communication.

TOPIC 4 MANAGING SERVICES MARKETING 43 Figure 4.2: ConsumerÊs evaluation for different types of products and services

Figure 4.2 shows various products and services according to the continuum of

evaluation for different types of products and services. Services are generally

involved experience and credence qualities; there is more risk in purchase here.

This has several consequences:

(a) Service consumers generally rely on word of mouth rather than advertising.

(b) They rely heavily on price, personnel, and physical cues to judge quality.

(c) They are highly loyal to service providers who satisfy them.

Due to these factors, service companies have to perform three main tasks:

Manage competitive differentiation for the services offered by the firms

Manage service quality offered

Manage productivity

4.2.4 Managing Service Differentiation Service marketers frequently complain the difficulty in differentiating their

services. If consumers are unable to differentiate between services that are

provided by a company and other service providers, consumers will pay less

attention to them. Consumers on the other hand will give emphasis on the price

that is being offered.


44 The alternative to price competition is to develop:

Differentiated offering;

Service delivery; and

Image.

(a) Differentiated Offering

The offerings can include innovative features. The customer is offered the

primary service package and the secondary service features complement or

support the primary service package.

For example, Malaysian Airlines System (MAS) offers its primary service

package which is providing transportation through air. The secondary

services offered are baggage services, television, and music.

The major challenge is that most service offerings and innovations are

easily copied. Still, the company that regularly introduces innovation will

be successful through its reputation as the market innovation leader.

(b) Service Delivery

A service firm can hire and train employees to be qualified and to deliver

services to consumers. The company has to shape and create an attractive

physical environment in the service delivery process because it is one of the

factors that influences the customer.

(c) Image

Service companies can also differentiate through symbols and branding.

For example, American Express is one of several highly branded service

companies that have developed a successful international image.

4.2.5 Managing Service Quality If a firm succeeds in delivering services to consumers better than their

competitors, the company has increased their customer expectation for the

services offered. Customer expectation refers to the benefits that are expected

from the consumption of a service. Increased customer expectation can increase

loyalty levels in consumers and they are apt to use the services again. Customer

expectation is developed through past experiences, word of mouth and

advertising.

If the perceived service level falls below the expected service level, customers

will be disappointed. The existence of a gap between the perceived service and

expected service causes consumers to lose interest in continuing to use that

service in the future.


So, the company needs to manage the service quality smartly to fulfil and

increase customer expectations. There are five determinants of service quality:

(a) Reliability

The ability to perform the promised service efficiently and accurately.

(b) Responsiveness

The willingness to help customers and to provide prompt service.

(c) Assurance

The knowledge and courtesy of employees and their ability to deliver

trusted services.

(d) Empathy

The willingness to provide caring, individualised attention to customers.

(e) Tangibles

The appearance of physical facilities, equipment, personnel and

communication materials.

Quality determinant also known as SERVQUAL is an important and major

guideline that is widely used by the firm to manage service quality.

ACTIVITY 4.3 EXERCISE 4.2 Have you faced an uncomfortable situation when dealing with

companies that offered services? If yes, think of one example of

dissatisfaction.

Essay Questions

1. Services differ as compared to other physical outputs. Discuss the

major differences between the characteristics. Explain marketingÊs

effect on each characteristic.

2. Discuss three forms of services marketing mix elements that are

considered important, but the importance has not been emphasised

in the marketing mix of the physical product.

3. Explain the elements that are involved in the Services Marketing

Triangle. How do these elements influence the service marketing

communication?


46

Services include seven elements from the marketing mix as compared to the

physical product and they are output, price, place, promotion, human,

physical evidence and process.

Services have four major characteristics that differentiate them from the other

physical outputs. The characteristics are intangibility, inseparability,

variability and perishable quality.

Services marketing strategy not only involves external marketing but it also

needs capability and trust in interactive marketing and integrated internal

marketing in the firm.

Service firms face three main marketing tasks, which consists of

differentiating their product offerings, service delivery and companyÊs image,

service quality management and service productivity management.

Services offered need excellent customer support service for each service that

gives high importance to consumers. This support programme involves

before- sales and after-sales programmes.

Hybrid Perishable

Inseparability Pure services

Intangibility Variability

INTRODUCTION Pricing is one of the most important elements of the marketing mix apart from

product, promotion, and place. It shows the value of the product or service to the

seller or buyer. The value of a product or service involves tangible and intangible

marketing factors. Setting the price of a product is very important because it

influences the consumerÊs buying decisions. The marketer has to choose and

determine the final price which is capable of maximising consumer satisfaction

and competing with the competitorsÊ pricing strategy.

Examples of tangible marketing factors are cost savings offered by firms if

purchases are made in large quantities. Intangible marketing factors are like a

consumerÊs pride when they own luxurious posh cars like a Jaguar. Pricing can

be connected with the price list, discount, allowances, payment period, and credit

terms.

Topic Developing

Strategies and

Managing

Pricing

5 By the end of this topic, you should be able to:

1. Identify a firmÊs internal and external factors that influence pricing;

2. Explain the important steps in pricing procedure;

3. Discuss the effects of pricing on the prices of products;

4. Appraise the five major pricing programmes;

5. Assess price changes; and

6. Examine the reactions towards price changes.

LEARNING OUTCOMES TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING

48 The discussion in this topic starts with an explanation regarding price setting

factors. This discussion is continued with the pricing process, price matching,

initiating price changes and effects towards price changes, pricing strategies,

pricing change management, and marketerÊs and competitorÊs reactions toward

price changes.

5.1 FACTORS IN PRICING The pricing process involves the firmÊs internal factors and external

environmental factors. Figure 5.1 shows examples of factors that influence

pricing. Figure 5.1: Factors in pricing

5.1.1 Internal Factors Internal factors that influence pricing are:

FirmÊs marketing objectives

Marketing mix strategy

Cost

Organisation

(a) FirmÊs Marketing Objectives

When a firm has clear marketing objectives, it will go through the pricing

process smoothly. For example, General Motors has set its marketing

objective, which is producing sports cars which will compete with sports

cars from Europe. Its main target market is focused on the high income

group. There is a possibility of pricing the sports car higher because of the

targeted market.

TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING 49

Some of the pricing objectives normally used by the firm are:

(i) Survival

Survival refers to low price setting for the purpose of generating high

demands. In this situation, the survival concept is more important

than profit.

(ii) Maximising Current Profits

Companies that use Âcurrent profit maximisationÊ as a factor in setting

price will estimate cost and demand at different prices. Then, the

company will select the price that will produce current profits, cash

flow and maximum return on investment.

(iii) Market Share Leadership

Most companies desire to obtain market share leadership because

market leaders believe they will enjoy low costs and high profits for

long periods of time. Price is set at the lowest level.

(iv) Product Quality Leadership

Companies that desire to be product quality leaders are generally

active in research and development activities that involve high costs.

This requires the company to maintain a higher price to bear quality

costs incurred due to product research and development.

To achieve the marketing objectives above, a productÊs pricing

decision has to be in line with the marketing mix strategy.

(b) Marketing Mix Strategy

Price is the only marketing mix instrument which is used by a firm to

achieve its marketing objectives. Thus, the pricing decision has to be in line

with the product design, distribution and promotion. This is important to

develop marketing programmes that are effective and consistent. Decisions

made for the other elements in the marketing mix may leave an impact on

the pricing decision.

(c) Cost

Cost is an instrument used by a firm to fix the productÊs floor

price/minimum price. The company will choose a price that will be able to

bear the overall production cost, distribution and product sales including

sufficient profit to be used as the capital turnover for the company. Fixed

cost, variable cost and total cost are the types of costs that influence the

pricing of a product.

Fixed costs are costs that do not vary with production or sales revenue.

Variable costs are costs that vary directly with the level of production. Total

TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING

50 cost consists of the sum of the fixed and variable costs for any given level of

production.

(d) Organisation

A firmÊs management has to decide who in its organisation will set prices.

For a small firm, price setting is generally done by the top management.

Meanwhile, for a big firm, price setting is generally done by the output

manager or division manager.

5.1.2 External Factors ACTIVITY 5.1 As a consumer, does the price of a product influence your

purchases?

External factors that influence pricing are:

Market condition and demand

CompetitorÊs price and offer

Other factors like economy, sales personnelsÊ needs and governmentÊs actions

(a) Market Condition and Demand

The marketer has to understand the relationship between market and

demand before pricing is done. Pricing in the market depends on four

different types of markets:

(i) Pure Market Competition

Pure market competition refers to the market that has many buyers

and marketers who market products that are the same or similar like

rubber, palm oil, rice and tin. In this market, prices are quite standard.

As a result of this, the marketer and buyer are unable to influence

pricing. If a marketer increases the price, the buyer will purchase from

another marketer at a lower price. Thus, marketing strategy does not

play an important role in this market.

(ii) Monopolistic Market

The monopolistic market includes many buyers and marketers who

conduct business at different prices. Different prices are based on the

marketerÊs ability to differentiate their offers to the buyers, from the


aspect of quality, characteristics, image, or service forms prepared. In

this market, marketing strategy plays an important role.

(iii) Oligopoly Market

An oligopolistic market is a market that has very few marketers

because it is difficult for new marketers to enter the market. Outputs

offered are uniform outputs like steel and tin, and non-uniform

markets like cars and computers. Marketers are always alert for price

pricing strategies and marketing strategies between them. When a

marketer reduces price, the other marketers have to follow suit. But, if

a marketer increases the price, it may not be followed by other

marketers.

(iv) Pure Monopoly Market

In a pure monopoly market, the market consists of one marketer only.

The marketer is normally the government (example, for water supply)

or government operated companies (example, Tenaga Nasional

Berhad, Malaysian Airlines System and Telekom Malaysia Berhad).

Price that is fixed by the government and a government-controlled

company are different from one and another. Government

monopolies may fix many objectives in setting prices, some are:

Pricing below costs

Pricing that is able to cover costs

Pricing that produces lucrative returns to the government

Pricing high to reduce consumption

For a government-controlled company, price setting is done either

through the government itself or through the freedom that is given by

the government. But, the price setting freedom is at a rate that enables

the company to maintain and develop its operations.

Besides market conditions, consumer perceptions on the price and

value will determine whether the firm has priced itÊs product

appropriately. If the product has been priced higher as compared to

the perceived value, customers will not purchase that product.

Because the perceived value of every customer is different, the

marketer normally differentiates their pricing strategy based on

identified market segments. For example, Sony offers a television

model which is less expensive and small for consumers who prefer

the basic features. The expensive television model can be offered to

consumers who want additional features and benefits.


52 When evaluating markets and demand, firms have to estimate price

elasticity of demand. The relationship between price and demand

level can be seen through the demand curve. Demand curve shows

the possible quantity that will be purchased for a time period at a

stipulated price. Figure 5.2 shows this relationship. Figure 5.2: Price elasticity

In Figure 5.2, demand curve (a) shows the number of market purchases for

a stipulated duration at various prices. Normally, demand and price are

inversely related. The higher the price, the lower the quantity demanded. If

a firm increases price from P1 to P2, quantity demanded by the market will

decrease from K1 to K2.

In the case of prestige goods (b), the demand curve sometimes slopes

upwards. This means, when the company increases price from P1 to P2,

quantity will increase from K1 to K2. If the price is increased too high, from

P2 to P3, quantity demanded will decline from K2 to K1. This is because not

many buyers have the means to purchase at that price.

(b) CompetitorÊs Price and Offer

Most consumers compare the price of a product with the competitorsÊ price,

and will choose the product that offers the best value. So, it is important for

a firm to know about the price and quality that is offered by the

competitors. It can be made as the basis for smart and appropriate pricing

decisions for all products.

(c) Other Factors

Other external factors that influence the pricing decision are economy, the

effect of price on other marketers and government. An economic downfall


influences pricing decisions because it influences production cost and

consumersÊ perceived cost towards price and the value of the products. The

price decided on has to provide reasonable profit to the retailer or

wholesaler to encourage more effective sales.

Government is also an important external factor who can influence pricing.

Pricing decisions shouldnÊt be against the law.

EXERSICE 5.1 Essay Question

List the internal and external factors that influence pricing.

5.2 PRICING POLICIES After discussing the factors in pricing, next we will discuss how the price of

product is decided. The firm has to consider many factors in setting its pricing

policy.

There are six steps that can be used by firms as procedures of setting their pricing

policy. These steps are:

Step 1: Selecting the pricing objective

Step 2: Determining demand curve

Step 3: Estimating costs

Step 4: Analysing competitorsÊ costs, prices and offer

Step 5: Selecting a pricing method

Step 6: Selecting the final price

(a) Step 1: Selecting the Pricing Objective

Firms have to decide and select a pricing objective. The major objectives

that are normally used by firms are survival, maximising current profits,

market share leadership, and product quality leadership.

(b) Step 2: Determining Demand Curve

After the pricing objectives have been selected, the firm needs to estimate

the quantity that can be sold at each price. Generally, the higher the price

the lower the demand. In the case of prestige goods, the demand increases

although the price offered is higher. However, if the price is too high, the

level of demand may fall.


54 (c) Step 3: Estimating Costs

Cost estimation has to be done to look at how the firmÊs cost differs at

different output levels, increases in outputs and market offers which is

done by a firm to satisfy consumer needs. A firmÊs costs refer to production

cost, distribution cost and product sales cost.

(d) Step 4: Analysing CompetitorsÊ Costs, Prices, and Offer

A firm has to take into account the cost, price and the possibility of price

changes caused by the competitors in setting their prices. Besides, a firm

has to look into the competitorsÊ offers as well. If the firm offers something

that is similar to its competitors, the price set has to be more or less or

better than its competitors. If not, the firm will lose its market. Besides, if

the firmÊs offer is better than its competitors, a higher price can be set. But

the firm has to be careful towards any price change that may be carried out

by the competitors.

(e) Step 5: Selecting a Pricing Method

When it comes to the pricing method, the firm will generally choose a

method which takes the pricing factors that have been discussed previously

into account. There are five pricing methods that can be used by firms.

Those methods are:

Markup pricing

Target-return pricing

Perceived-value pricing

Going-rate pricing

Auction-type pricing

(i) Markup Pricing

Through this method, the producerÊs cost is determined first and a

standard percentage is added:

to the producerÊs cost; or

as a percentage of product price.

Example 5.1

ABC Company produces „Baju Kurung‰ for school children. Financial

information and sales of ABC Company are shown below:

Variable cost = RM20

Fixed cost = RM400,000

Expected sales = 100,000 pairs

Based on the information above, the cost of one pair of „Baju Kurung‰

is:


Baju Kurung Cost = Variable Cost +

Fixed Cost

Total Sales

= RM20 + RM400,000/100,000 pairs

= RM 24 a pair

Now, assume ABC wants to earn a profit of 20% on output price, so

the output price will be:

Output price

Cost per unit + Cost per unit (markup)

Cost per unit + Cost (0.2)

= RM24 + (0.2 x RM24)

= RM24 + RM 4.80

= RM28.80 per pair

Now assume ABC Company wants to earn a 20% markup on sales,

the product price will be:

Product Price =

Unit cost

(1-% of markup or desired return on sales)

= RM24 / (1-0.2)

= RM30 per pair

(ii) Target-return Pricing

Price setting can also be done using the break-even analysis. Through

this method, we can also determine target profits that are desired by

the firm. At the break-even point, total revenue and total cost are the

same. The formula to find break-even point is:

Break-even point (unit) =

Fixed Cost

(Price - Variable cost)

Using the example in 5.1 and assuming that product price is RM30,

the break-even point for ABC Company is:

Break-even point (unit) =

RM400,000

(RM30 RM10)

= 20,000 pairs

If the firm wishes to make profits, it must sell more than 20, 000 pairs

of „Baju Kurung‰ at RM30.

(iii) Perceived-value Pricing

An increasing number of companies base their price on the customerÊs

perceived value. A purchase is done not only based on cost or price


56 that is decided by the firm but according to the perceived value

offered as well. For example, the price of a glass of orange juice is

higher at an exclusive restaurant as compared to an ordinary stall.

This is because the perceived value increases with the environment

which is experienced by diners at the restaurant as compared to the

stall.

(iv) Going-rate Pricing

Through this method, the firm bases its price largely on the

competitorÊs prices and pays less attention to cost and demand itself.

The firm may charge the same, more, or less than major competitors.

(v) Auction-type Pricing

This method refers to pricing based on the ways competitors to set

their price. For example, when a firm desires to win a contract, it has

to bid lower than its competitors. But, companies cannot set prices too

low until they are lower than the firmÊs cost. Pricing too highly has to

be avoided as well to avoid the firm from missing the opportunities

offered. The firm has to balance all these issues.

(f) Step 6: Selecting the Final Price

Pricing methods discussed above can aid firms in selecting the final price.

Before the final price is selected the firm has to take into account

psychological pricing factors. Price is set based on psychological factors to

encourage purchases based on emotional actions as compared to the

rational actions. The determinants of psychological pricing are:

(i) Odd-even Prices

The setting of odd-even price refers to the use of certain numbers at

the end of the price like RM59.99 and not RM60. This is used to

influence the consumerÊs perception about the price and not the

product. Many customers will round up the figure by thinking

RM59.99 as RM50 and a little more rather than RM60.

(ii) Even Prices

This method is used to give an expensive and exclusive image to the

product. For example, a shoe dealer may decide on RM88 rather than

RM79.90 as the retail price for a pair of shoes. Even numbers are used

to enhance the product image.

(iii) Prestige Prices

Through this method, products are priced high to create prestigious

and high product quality image. For example, Rolex watches are


priced high because they leave an impression of a prestigious product

with quality.

ACTIVITY 5.2 During the sales season, there are many companies that use

psychological pricing strategy to attract the consumerÊs attention.

Through your observation, will this strategy succeed? What are the

success or failure factors of this strategy?

EXERCISE 5.2

1. List and explain briefly the steps on pricing.

2. Kelisa Company Sdn. Bhd. is at the stage of setting prices for its

new products that will be marketed one year from now. As an

executive from a prestige company, explain briefly the price setting

process.

3. For a firm in the price selection stage, explain briefly four other

main objectives of the firm in price setting.

4. The production cost for XYZ Company is:

Variable cost per unit = RM20

Fixed cost = RM400, 000

Expected unit sales = RM50, 000

What is the product cost per unit for XYZ Company? If the

company wants to earn a 12% markup on sales, what is the

markup price for that product? If the product price has been

decided at RM30, what is the total break-even for that product?

5.3 PRICING PROGRAMMES Companies usually do not set a single price, but rather a pricing structure that

reflects variations in geographical demand and cost, market-segment

requirements, purchase timing and order levels. There are five price adaptation

strategies that are normally used by companies and they are:

Geographical pricing

Price discounts and allowances


58

Promotional pricing

Discriminatory pricing

Product mix pricing

5.3.1 Geographical Pricing Geographical pricing involves the company in deciding how to price its products

to different customers in different locations and countries. Besides the price issue,

another issue is how to get paid especially when it involves countertrade. Forms

of countertrade are:

(a) Barter System

The direct exchange of goods, with no money and no third party involved.

In 1993, Eminence S.A., one of FranceÊs major clothing makers, launched a

five-year deal to barter $25 million worth of U.S. produced underwear and

sportswear to customers in eastern Europe, in exchange for a variety of

goods and services, including global transportation and advertising space

in eastern European magazines.

(b) Compensation Deal

The seller receives some percentage of the payment in cash and the rest in

products. A British aircraft manufacturer sold planes to Brazil for 70

percent cash and the rest in coffee.

(c) Buyback Arrangement

The seller sells a plant, equipment or technology to another country and

agrees to accept as partial payment for products manufactured with the

supplied equipment. The other half of the payment is made in cash.

(d) Offset Agreement

The seller receives full payment in cash but agrees to spend a substantial

amount of the money in that country within a stated time period.

5.3.2 Price Discounts and Allowances Strategies Most companies will adjust their list price and give discounts and allowances for

early payment, volume purchases and off-season buying. Some of the types of

discounts and allowances are:

(a) Cash Discounts

Cash discount is a price reduction to buyers who pay promptly or pay in

cash.


(b) Functional Discounts

Functional discount also known as trade discount, is offered by a

manufacturer to trade-channel members if they perform certain functions.

(c) Quantity Discounts

Quantity discount is a price reduction to those who buy large volumes.

(d) Seasonal Discounts

Seasonal discount is a price reduction to those who buy merchandise and

services out of season.

(e) Trade-in Allowances

Trade-in allowance is granted for turning in an old item when buying a

new one.

(f) Promotional Allowances

Promotional allowance rewards dealers for participating in advertising and

sales support programmes.

5.3.3 Promotional Pricing Strategies Companies can use several promotional pricing techniques to stimulate early

purchase:

(a) Loss-leader Pricing

Loss-leader pricing is a normal practice practiced by departmental shops

and shopping centres which lower some of their productsÊ price to attract

customers. It is implemented with the hope customers will buy other

products at normal price.

(b) Special-event Pricing

Sellers will establish special prices in certain seasons to draw in more

customers. For example, promotion is done every January to attract

purchasers who are on holidays to return to the store.


60 Figure 5.3: Cash rebates

Source: http://www.era.fm/cgi-bin/epass/vouchers/icon_malay_strawberry.gif

(c) Cash Rebates

Cash rebates are discounts that are given for a specified time period. Figure

5.3 shows an example of cash rebates used to attract customers.

(d) Psychological Discounting

This strategy involves setting an artificially high price and then offering the

product at substantial savings. For example, „Was $359, now $299.‰

(e) Other Techniques

Other techniques in promotional pricing are low-interest financing, long

payment terms and warranties.

5.3.4 Discriminatory Pricing Strategies Discriminatory pricing consists of a few forms and they are:

(a) Segment Pricing

Different customer groups are charged differently for the same products or

services. For example, museums often charge a lower admission fee to

students and senior citizens.

(b) Product-form Pricing

Different versions of products are priced differently but not proportionately

to their respective costs. For example, the canned Coke is cheaper than the

bottled Coke although the quantity is the same in both.

(c) Image Pricing

Pricing is decided based on the image of the products or services.


(d) Location Pricing

The same product is priced differently at different locations even though

the cost of offering at each location is the same.

(e) Time Pricing

Prices are varied by season, month, day or hour.

5.3.5 Product Mix Pricing Strategies Through this strategy, the firm searches for a set of prices that maximises profit

in the overall product mix. There are five product mix pricing and they are:

(a) Product-line Pricing

This strategy is adopted when the firm has a few product lines. Each

product line is priced differently. Through this strategy, the firm has to look

at the overall product lines to ensure that the new modelÊs price is in the

price range of the current products. The setting of prices has to take into

account for cost differences between the product lines, consumerÊs

evaluation on features and competitorsÊ pricing.

(b) Optional-feature Pricing

Many companies offer optional products, features and services along with

their main products. For example, a person who purchases a computer may

purchase additional accessories like modem, speakers, and other

accessories.

(c) Captive-product Pricing

This strategy is used by firms that offer products that have to be used with

a main product. Take for example, the price of a box of film with a camera.

For services, this strategy is known as two-part pricing. Telephone users

pay a minimum monthly fee plus charges for calls made.

(d) By-product Pricing

If the by-products have value to a customer group, they should be priced

for their value. For example, chicken farmers use this strategy in valuing

their manure, setting prices and informing interested potential customers.

(e) Product-bundling Pricing

Sellers often bundle products and features. For example, a special package

that is offered by a hotelier or supplier of personal computer software. The

seller normally charges less for the bundle than if the items were purchased

separately.


62 ACTIVITY 5.3 Other than the examples that are provided above, suggest an example of

price adaptation strategy that is normally used by firms to market their

outputs.


1. The Managing Director of Automobile Sdn. Bhd. has intentions to

expand its product marketing at the international level. The

Managing Director is interested to venture into the business using

countertrade. As the Marketing Director explain:

(a) What is meant by countertrade?

(b) List and explain four main countertrades that can be used as

an alternative for your company.

2. Explain four types of discriminatory pricing that is normally

carried out by a firm in its pricing strategy.

3. When is price discounts and allowances strategy appropriate to

be used? Explain the forms of discounts and allowances.

4. If a firm wants to maximise profits for all its product lines, state

the suitable pricing strategy that can be used by the firm. Discuss

five determinants that are involved in this strategy and provide

suitable examples for each determinant that is discussed.

5.4 PRICE CHANGES Generally, companies will face situations where they may have to change prices

either by lowering or increasing the prices.

5.4.1 Decreasing and Increasing Prices Companies often face situations where they may need to cut or raise prices.

Several circumstances may lead a firm to price cut:

(a) Excess capacity.


(b) Firm wants to dominate the market. Thus, marketers introduce low

introduction prices as compared to the competitors.

(c) Declining market share will force the firm to reduce prices.

Price-cutting strategy involves the following possible traps:

(a) Low-quality Trap

Outputs that are priced low are normally perceived by consumers as low

quality products or goods.

(b) Fragile-market-Share Trap

A low price buys market share but not market loyalty.

(c) Shallow-pockets Trap

Pricing products low will influence the competitors to reduce their prices as

well. The higher-priced competitors may cut their prices and may have

longer staying power because of deeper cash reserves.

Major circumstances provoking price increases by firms are done in the following

situations:

(a) Cost Inflation

Rising cost squeezes companiesÊ profit margins and leads them to increase

their products or servicesÊ prices. Companies often raise their prices more

than their cost increase, in anticipation of future inflation.

(b) Over Demand

When a company cannot supply all of its customers, it can raise its prices,

ration supplies to customers or both.

5.4.2 Reaction to Firms’ Price Changes Any price changes by the marketer will generally provoke a response from a few

parties like:

(a) Customers

The normal reaction among the consumers when there is a price reduction

is:

(i) The item is about to be replaced by a new model. Thus, a price

reduction is done to clear old stock.

(ii) The item is not selling well.

(iii) The firm is in financial trouble.


64 (iv) Price will come down even further.

(v) Quality has been reduced.

A price increase, which would normally deter sales, may carry some

positive meanings to customers. The item is „hot‰ and represents an

unusually good value.

(b) Competitors

Besides consumers, firms have to monitor competitorsÊ reactions towards

its price changes. Some competitorsÊ reactions toward price changes are:

(i) The company is trying to steal their market.

(ii) The company is doing poorly and is trying to boost its sales.

(iii) The company wants to dominate the whole industry by reducing

prices to stimulate total demand.

Competitors normally prepare a few strategies to avoid something bad

from happening when there are price changes by the other marketers. As

marketers, they will analyse the objectives that the competitors are striving

to achieve. If the competitor has a market share objective, it is likely to

match the price change. If it has a profit-maximisation objective, it may

react by increasing the advertising budget or improving product quality.

Before a firm does any changes to its price, it will need to research on the

competitorsÊ current financial situation, recent sales, customer loyalty and

corporate objectives.

5.4.3 Responding to Competitors’ Price Changes If a firm realises that competitors have reduced prices, the firm will have to

consider alternative strategies. If the price reduction did not leave a negative

impact on the market share and firmÊs profits, the firm can maintain its price

while monitoring the prices of its competitors. But, if the competitorÊs price

changes leave a negative impact on the firm, there are a few strategies that

should be implemented:

(a) Reduce price

(b) Increase consumers perceived quality

(c) Modify products

(d) Launch brand-fight through low prices


EXERCISE 5.4

1. Domestic Motors Company has intentions to control market

share for one of its product through pricing the product low as

compared to pricing it high at the beginning stages of its product

introduction in the market.

(a) Price changes that are undertaken by Domestic Motors

Company may create a few consumer perceptions in the

market. Explain briefly three major effects of the price

changes.

(b) List and explain two competitorsÊ reaction towards the

price changes that are carried out by Domestic Motors

Company.

Pricing is one of the most important elements of the marketing mix besides

product, promotion and place. It shows the value of the product or service to

the seller or buyer. It is the only marketing mix element that is flexible and

can be increased or decreased depending on the factors that influence pricing.

The pricing process includes the firmÊs internal factors and external factors.

Internal factors that influence pricing are firmÊs marketing objectives,

marketing mix strategy, cost and organisation. External factors that influence

pricing are market condition and demand competitorsÊ, pricing and offers,

and other factors like economy, sales personnelÊs needs and actions by the

government.

Based on the factors of pricing, there are six steps in price setting. The first

step is selecting the pricing objective (survival, maximise current profits,

market share leadership and product quality leadership). The second step is

determining the demand curve, which involves estimating the quantity that

can be sold at each price. The third step is estimating costs, how cost differs at

different output levels. The forth step is analysing competitorsÊ costs, prices,

and offers. The fifth step is selecting a pricing method and the final step is

selecting the final price. In the final step, the firm has to take into account the

psychological pricing factors, the influence of the other marketing mix

elements towards price and the effects of the pricing on others.


66

Pricing is still one of the most critical elements of the marketing mix besides

products, promotion and place, although other non-price factors are

becoming more popular in the modern market.

The marketer has to design a price determining programme, taking into

account the selection the pricing objective, cost estimation, competitorÊs

pricing and the final price selection method.

There are a few important decisions in determining the final pricing

programme and they consist of prices based on geography or location, price

discounts and allowances, promotional pricing, discriminatory pricing and

product mix pricing.

Besides managing the pricing strategy, the marketer has to decide on price

changes and reactions towards price changes that takes place in the market

especially due to competitorsÊ price changes.

Cash discounts Quantity discounts

Functional discounts Seasonal discounts

Loss-leader pricing Special-event pricing

Markup pricing Target-return pricing

Promotional pricing Trade-in allowances

Topic Managing

Marketing

Channels,

Intermediaries

and Physical

Distribution

6 By the end of the topic, you should be able to:

1. Identify and explain the marketing channel elements like function

types and marketing channel levels;

2. Explain the design decision and marketing channel management;

3. Differentiate between dynamic marketing channels and traditional

marketing channels;

4. Assess conflict, cooperation, and competition that exist between the

marketing channels, legal and ethical issues in marketing channel

relations;

5. Appraise the management concept of managing intermediaries of

distribution channels;

6. Explore wholesaling and retailing; and

7. Examine physical distribution management and the concept of

integrated logistics system.

LEARNING OUTCOMES

TOPIC 6 MANAGING MARKETING CHANNELS, INTERMEDIARIES AND

PHYSICAL DISTRIBUTION

68

INTRODUCTION Most firms or producers use intermediaries to carry their outputs to the market.

This intermediary channel is a marketing channel and it is also known as a

distribution channel.

The marketing channel is one of the important elements of the marketing mix.

Marketing channel decisions have direct effects on other marketing activities. In

this topic, we will discuss forms of intermediaries, responsibilities of

intermediaries and their marketing activities. Besides this, effective marketing

channel management and design will be discussed.

Apart from paying attention to forms and conflicts of distribution channels, a

marketer has to manage the members of the distribution channel. Most of the

products these days are channelled to the consumers through indirect channels,

who are the intermediaries. Distribution channel intermediaries like agents and

brokers, wholesalers and retailers have to be managed so that they move in line

towards achieving the companyÊs objectives, especially from the aspects of

maximising customer satisfaction and increasing the companyÊs competitiveness.

Thus, the marketer has to choose, allocate resources and power, manage conflict

and communicate effectively to all the intermediaries used to create an efficient

and effective distribution channel process. This topic also discusses an important

component in the distribution channel which is physical distribution. Physical

distribution is a process to ensure the products reach the market efficiently and

effectively and fulfils consumer needs especially from the aspect of delivering ontime.

6.1 WHAT IS A MARKETING CHANNEL? Marketing channels are sets of interdependent organisations involved in the

process of making a product or service available for use or consumption.

6.1.1 Classifications of Marketing Channel There are three types of marketing channel:

(a) Merchants

Merchants refer to retailers and wholesalers. The merchantÊs marketing

channel purchases products from firms, takes title of the goods and resells

the merchandise. Merchants make profits from buying and selling.

TOPIC 6 MANAGING MARKETING CHANNELS, INTERMEDIARIES

AND PHYSICAL DISTRIBUTION

69 (b) Agents

Agents are manufacturerÊs representatives or brokers who search for

customers and may negotiate on the producerÊs behalf but do not take the

title of the goods. Agents obtain revenues in the form of commission from

the manufacturer.

(c) Facilitators

Facilitators are those involved in the firmÊs merchandise distribution

process but neither takes the title of the goods nor negotiates purchases or

sales. Instead they provide support services to the firm to ensure the

merchandise distribution process to the consumers or customers is

successful. Examples of facilitators are transportation companies,

warehouses, banks and advertising agencies.

6.1.2 Marketing Channel Functions A marketing channel is an important marketing mix element because it performs

the work of moving goods from producers to consumers. The key functions of

the marketing channel are:

(a) They gather and disseminate marketing information about potential and

current customers, competitors and other actors and forces in the marketing

environment.

(b) They develop and disseminate persuasive communications regarding the

offer designed to attract the consumerÊs interest.

(c) They reach agreements on price and other terms so that transfer of

ownership or possession cannot be effected.

(d) They acquire the funds to finance inventories at different levels in the

marketing channel.

(e) They assume risks of carrying out responsibilities as distributors.

(f) They provide the storage and movement of physical products.

(g) They provide for buyerÊs payment of their bills through banks and other

financial institutions.

(h) They oversee actual transfer of ownership from one organisation or person

to another.



70

6.1.3 Marketing Channel Levels Marketing channel can be explained based on channel levels that are involved in

the process of moving goods from producers to consumers. A channel level is

every layer of the channel or intermediary who carries out the activity of moving

goods from producers to consumers. There are four forms of marketing channels

based on marketing channel levels and they are:

(a) Zero-level channel;

(b) One-level channel;

(c) Two-level channel; and

(d) Three-level channel.

Figure 6.1 shows four forms of marketing channels. A zero-level channel is also

known as a direct marketing channel while one, two and three-level channels are

known as indirect marketing channels. A direct marketing channel doesnÊt

involve intermediaries in the process of moving goods from producers to

consumers. An indirect marketing channel involves intermediaries in the process

of moving goods from producers to consumers. Figure 6.1: Marketing channel levels

(a) Zero-level Channel

A zero-level channel also called a direct marketing channel consists of a

manufacturer selling directly to the final consumers. Examples of direct

marketing are personal selling like Avon, Amway and Tupperware,

telemarketing, internet selling, manufacturer-owned stores and TV selling.



71 (b) One-level Channel

A one-level-channel consists of one selling intermediary, such as a retailer.

For example, manufacturers of electrical goods, furniture and tyres sell

their merchandises directly to large retailers like Carrefour and Jaya Jusco.

(c) Two-level Channel

A two-level channel contains two intermediaries, these are typically a

wholesaler and retailer. This marketing channel normally takes place in

consumer markets like small distributors for foodstuff and house

appliances.

(d) Three-level Channel

A three-level channel contains three intermediaries, these are typically a

wholesaler, jobber and retailer. This marketing channel is normally used in

industrial markets like the meat packaging industry.

6.2 CHANNEL DESIGN DECISIONS In designing a marketing channel, the producer has to consider what is ideal and

what is practical. A firm that newly started business normally starts in a limited

market. Thus, it has limited capital, using only a few intermediaries to carry its

products to the consumers.

They design a channel system involving analysing customer needs, establishing

channel objectives, identifying major channel alternatives, and evaluating major

channel alternatives. The problem of designing marketing channel is to identity a

good ways to convince the best intermediary to carry product to consumers.

6.2.1 Channel Design System Channel design system refers to:

Analysing customer needs

Establishing channel objectives

Identifying major channel alternatives

Evaluating major channel alternatives

(a) Analysing Customer Needs

Designing the marketing channel starts with determining the value that is

expected by the consumer from the marketing channel. Normally,

consumer needs analysis involves the following items:



72 (i) Lot Size

Lot size refers to the number of units the channel permits a typical

customer to purchase on one occasion.

(ii) Waiting Time

Waiting time refers to the average time customers of that channel wait

for receipt of that goods.

(iii) Spatial Convenience

Spatial convenience refers to the degree to which the marketing

channel makes it easy for customers to purchase the product like

having more agents selling the product in the market.

(iv) Product Variety

Product variety refers to the assortment breadth provided by the

marketing channel.

(v) Service Backup

Service backup refers to the add-on services like installation, repairs,

credit and delivery.

(b) Establishing Channel Objectives and Constraints

Channel objectives differ based on the characteristics of products. Channel

institutions should arrange their functional tasks to minimise total channel

costs with respect to desired levels of service outputs. Channel design must

take into account the strengths and weaknesses of different types of

intermediaries. Legal regulations and restrictions have to be seriously

considered when deciding on channel objectives.

(c) Identifying Major Channel Alternatives

After a firm identifies its customer needs and objectives, it has to identify

major channel alternatives like:

(i) Types of Intermediaries

A firm needs to identify the types of intermediaries that are suitable to

be appointed to carry on its channel work. Some of the intermediaries

who are normally appointed by the firms are:

CompanyÊs Sales Force

CompanyÊs sales force is the companyÊs direct selling

representatives who have been appointed to contact all prospects

in an area. For example, sales representatives from Avon, Amway,

and Nutrimetics.



73

Company Agents

The firm appoints or hires manufacturersÊ agents in different

regions or end-user industries to sell its products. For example,

agents for selling cars, tourist agents and insurance agents.

Industrial Distributors

Find distributors in the different regions or end-user industries

who will buy and carry products to end-users. The firm has to

offer a few benefits for the purpose of motivating its distributors.

The firm then gives them exclusive distribution, adequate

margins, product training, and promotional support.

(ii) Number of Intermediaries

Companies have to decide on the number of intermediaries to use at

each channel level. Three main strategies that can be used are:

Exclusive Distribution

Exclusive distribution means severely limiting the number of

intermediaries. It is used when the seller wants to maintain control

over the service level and products offered. Granting of exclusive

rights is normally evident in distribution of new automobiles and

a few prestige goods.

Intensive Distribution

Intensive distribution consists of the manufacturer placing the

goods or services in as many outlets as possible. This strategy is

generally used for items such as tobacco products, gas, snack food

and soap. Responsibilities and rules for channel members, refers

to the pricing policy, sales rules, territory rights and certain

services that have to be carried out by elected channel members.

Selective Distribution

Selective distribution involves the use of more than a few but less

than all of the intermediaries who are willing to carry a particular

product. Most products like television, furniture and some of the

electrical appliances normally involve retailers or selected agents

only.

(d) Evaluating Major Channel Alternatives

Each channel alternative needs to be evaluated against:

(i) Economy

The manufacturing firm has to take into account sales level that can be

achieved by the channel members and different cost of sales

estimation for every channel member.



74 (ii) Control

Control refers to a form of control that has to be implemented by the

firm on its elected intermediaries. Control is important if the

intermediary is an independent unit, like an agent.

(iii) Adaptive Criteria

Channel members must take some degree of commitment to each

other for a specified period of time. The producer needs channel

structures and policies that provide high adaptability.

ACTIVITY 6.1 Give an example of a company in Malaysia which implements exclusive

distribution, intensive distribution and selective distribution strategies.

EXERCISE 6.1 Essay Question

1. Provide the definition of marketing channel.

2. There are four forms of marketing channels that has been

discussed in this topic. List and explain those marketing channel

levels.

3. In the marketing channel design system, what are the four major

elements that act as reference for a firm?

4. Explain briefly three important elements in identifying a suitable

marketing channel for a producer.

5. Explain the differences between exclusive distribution strategy,

selective distribution strategy and intensive distribution strategy.

6.3 CHANNEL MANAGEMENT DECISIONS The following are the steps that have to be implemented by a firm after choosing

a marketing channel.

(a) Selecting Channel Members

Selection of channel members must be done based on qualification.

Normally, the ability to attract qualified channel members differs for every



75 producer. For example, Toyota has the ability to attract many new agents to

market its new Lexus car. Whether producers find it easy or difficult to

recruit intermediaries, they should at least determine what characteristics

distinguish the better intermediaries.

(b) Evaluating Channel Members

Producers must periodically evaluate intermediariesÊ performance against

such standards as sales-quota attainment, average inventory levels,

customer delivery time, treatment of damaged and lost goods and cooperation

in promotional and training programmes. The recruitment

process demands the producers to differentiate the best characteristics of

their channel members.

(c) Training Channel Members

Companies need to plan and implement careful training programmes for

their appointed intermediaries to increase their understanding on the firmÊs

policies, rules and restrictions.

(d) Motivating Channel Members

The company should provide training programmes, market research

programmes and other capability building programmes to improve

intermediariesÊ performance.

Besides implementing the activities above, the producer has to use the

power of co-operation to increase its channel memberÊs motivation. They

can draw on the following types of power to elicit co-operation:

(i) Coercive Power

A manufacturer threatens to withdraw a resource or terminate a

relationship if intermediaries fail to cooperate.

(ii) Reward Power

The manufacturer offers intermediaries extra benefit for performing

specific acts or functions.

(iii) Legitimate Power

The manufacturer requests a behaviour that is warranted under the

contract. For example, Proton requests its agents to carry a certain

amount of stock in their area as part of the agreement done.

(iv) Expert Power

The manufacturer has special knowledge that the intermediaries

value. Normally, it refers to the technology which is owned by the

manufacturer. The manufacturer permits the agent to use the



76 technology if without using it, the agent cannot increase their

performance level and they will be left behind.

(v) Referent Power

The manufacturer is so highly respected that intermediaries are proud

to be associated with it. For example, companies like IBM,

McDonaldÊs and Rolex have high referent power and intermediaries

are normally willing to co-operate in all ways desired by the firm.

(e) Modifying Channel Arrangements

A producer must periodically review and modify its channel arrangements.

Modifications become necessary when the distribution channel:

(i) Is not working as planned.

(ii) There are changes in consumer buying patterns.

(iii) The market expands.

(iv) New competition arises.

(v) Innovative distribution channels emerge.

(vi) The product moves into other stages in the product life cycle.

Normally, changes done to channel arrangements are:

(i) Adding or dropping individual channel members.

(ii) Adding or dropping particular market channels.

(iii) Developing a totally new way to sell goods.

6.4 CHANNEL DYNAMICS Channel dynamics refer to marketing channels that are categorised according to

continuous changes or dramatic changes. There are three trends or important

transitions:

Growth of vertical marketing systems

Growth of horizontal marketing systems

Growth of multi-channel marketing system

6.4.1 Vertical Marketing Systems The development of vertical marketing system (VMS) challenges the traditional

marketing channel system. Figure 6.2 shows the traditional marketing channel as

compared to the vertical marketing channel.



77 A traditional marketing channel comprises an independent producer,

wholesalers and retailers. Each party is a separate business seeking to maximise

its own profits. There is no complete control over the appointed channel

members. Figure 6.2: Traditional marketing channel versus vertical marketing channel

A vertical marketing system by contrast, comprises the producers, wholesalers,

and retailers acting as a unified system. Each channel member co-operates under

one entity and is capable of forming a big power of influencing the market. This

system is capable of eliminating conflict and designing complete control over

every channel. There are three types of vertical management system:

(a) Corporate Vertical Management System

A corporate vertical management system combines successive stages of

production and distribution under single ownership. Vertical integration is

utilised by a company that needs a high level of control for each channel

that exists. For example, Toyota owns equity in most of its major suppliers

in the world and this makes it one of the giant companies that still survives

till today. Table 6.1 shows equity percentage owned by Toyota among the

main suppliers in the world.



78 Table 6.1: Major Suppliers and ToyotaÊs Equity Percentage

Company Equity Percentage (%)

Akebono Disc Brakes 13.1

Koito Lighting 19.0

Aisin Sicki Transmissions 21.7

Shiroki Door 11.5

Trinity Paint 30.2

Kyowa Upholstery 33.5

Nippondenso Electronics 22.9

Jaco Clocks 34.2

Tokai Rika Seat Belts 29.5

(b) Contractual Vertical Management System

A contractual vertical management system consists of independent firms at

different levels of production and distribution integrating their

programmes on a contractual basis to obtain more economic or sales impact

than they could achieve alone. Contractual vertical management system is

divided into three forms:

(i) Wholesaler-sponsored voluntary chain

(ii) Retailer co-operatives

(iii) Franchise organisations

There are three types of franchise organisations:

Manufacturer-sponsored Retailer Franchise System

Manufacturer-sponsored retailer franchise system is normally found in

automobile industries. Ford, for example licenses dealers to sell its cars.

Manufacturer-sponsored Wholesaler Franchise System

Manufacturer-sponsored wholesaler franchise system is normally found

in the soft drink industry. Coca-Cola, for example, licenses bottlers

(wholesalers) in various markets who buy its syrup concentrates and

then carbonate, bottle and sell them to retailers in local markets.

Service firm-sponsored Retailer Franchise System

Through this franchise system, a firm gives licenses to retailers allowing

them to offer services to consumers. Examples are found in the fast food

industry (McDonaldÊs and Burger King) and also motel businesses like

Holiday Inn and Seri Malaysia.



79 (c) Administered Vertical Management System

An administered vertical management system co-ordinates successive

stages of production and distribution through the size and power of one of

the members, and not through normal ownership or contractual ties.

Famous brand producers like P&G, Kraft and Campbell Soup are able to

command high levels of co-operation from their resellers in connection with

displays, shelf space, promotions and pricing policies.

Figure 6.3 shows the overall vertical marketing system. Figure 6.3: Vertical marketing system

6.4.2 Horizontal Marketing System In the horizontal marketing system, there are two or more unrelated companies

put together resources or programmes to exploit an emerging marketing

opportunity. For example, Proton co-operates with a few local banks to channel

multiple loan facilities and automobile insurance to the consumers.

6.4.3 Multi-channel Marketing System

Multi-channel marketing occurs when a single firm uses two or more marketing

channels to reach one or more customer segments. The benefits of using multichannel

marketing are:

(a) Increased market coverage.

(b) Lower channel cost. The firms may add new channels for the purpose of

reducing cost of sales for the existing customer group.

(c) Better understanding and give priority to consumers in the selling process.

The company may add another channel to sell products that are needed by

consumers.



80 In Figure 6.4, through multi-channel marketing, the firm sells consumer segment

1 direct through catalogues, telephone and other forms of telemarketing. Then,

the firm sells its output to consumer segment 2 through retailers. For the

industrial consumers, the firm sells indirectly to industrial segment 1 using

distributors and agents. For industrial segment 2, firms use their own sales force. Figure 6.4: Multiple marketing channel

Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.).

New Jersey: Prentice Hall.

CONFLICT, CO-OPERATION AND COMPETITION 6.5 The entire marketing channel may be involved in a conflict and competition

because of unsuitable objectives, unclear roles and rights, differences in opinions,

and relationships that are not free which requires the firmÊs intervention in each

decision that is made.

Types of conflict that often take place are:

(a) Vertical Channel Conflict

Vertical channel conflict means conflict between different levels within the

same channel. For example, conflict between a manufacturing firm and its

distributors on price, service policies, and advertising.

(b) Horizontal Channel Conflict

Horizontal channel conflict involves conflict between members at the same

level within the channel. For example, some Proton Wira car dealers in one

state criticised the aggressive promotion done by other Proton Wira dealers

in the same state.

(c) Multi-channel Conflict

Multi-channel conflict exists when the manufacturer has established two or

more channels that sell to the same market. For example, Swatch agreed to

distribute its watches through selected agents besides distributing them

through specialty stores.



81 The manufacturing firm normally manages all these conflicts through:

(a) Adoption of superordinate goals. This strategy resolves conflict when

channel members come to an agreement on the fundamental goals they are

jointly seeking when the agreement was made.

(b) Exchange persons between channels.

(c) Co-optation. Co-optation is an effort by one organisation to win the support

of the leaders of another organisation by including them in the advisory

councils and board of directors. Through this method they are able to give

opinions and are aware that their opinions will be accepted. But, the

initiating organisation may have to compromise its policies and plans to

win their support.

(d) Joint membership in and between trade associations. For example, there is a

good co-operation between the Grocery Manufacturers of America and the

Food Marketing Institute, which represents most of the food chains.

(e) Mediator. Mediation means resorting to a neutral third party who is skilled

in conciliating the two partiesÊ interests.

(f) Arbitrator. Arbitration occurs when the two parties agree to present their

arguments to one or more arbitrators and accept the arbitration decision.

LEGAL AND ETHICAL ISSUES IN CHANNEL RELATIONS 6.6 Companies are legally free to develop whatever channel arrangements that suit

them. But there are a few legal and ethical issues that have to be considered in

the marketing channel arrangements. Those issues are:

(a) Exclusive Dealings

Exclusive dealings refer to the arrangements done between the firm and the

intermediary. For example, the dealers cannot handle competitorsÊ

products; dealers can only handle the firmÊs products. Exclusive

arrangements are legal as long as they do not substantially lessen

competition or tend to create a monopoly, and as long as both parties enter

into the agreement voluntarily.

(b) Exclusive Territories

Exclusive territories refer to certain areas of intermediaries. It is legal as

long as the intermediary does not sell the products outside the

predetermined territory.



82 (c) Tying Agreements

Producers of a strong brand sometimes sell it to dealers only if they will

take some or all of the rest of the product lines. This practice is called fullline

forcing. Such tying agreements are not necessarily illegal but it will

become a violation if the elements of market monopoly exist.

(d) DealersÊ Rights

Producers are free to select their dealers but their right to terminate dealers

is somewhat restricted. In general, sellers can drop dealers „for cause‰ or

for reasons stated in the agreement.

ACTIVITY 6.2 Can you differentiate The Store supermarket line from the rice

wholesaler at your place based on the purchase volume or sales

volume of rice for both companies?


1. Explain the meaning of:

(a) Exclusive dealing

(b) Exclusive territories

(c) Tying agreements

(d) DealersÊ rights

2. List and explain the forms or types of power that is frequently

used by producers on their appointed marketing channel to

elicit cooperation.

3. WhatÊs the difference for channel dynamics between traditional

marketing channel system and vertical marketing system?

Using a diagram, explain briefly the difference for system

dynamics between vertical marketing and multi-channel

marketing system.

4. Explain briefly three forms of vertical marketing channel.

Explain the difference between wholesaler-sponsored voluntary

chain, retailer co-operatives and franchise organisations.



83

MANAGING INTERMEDIARIES OF DISRIBUTION CHANNELS 6.7 Distribution channel intermediaries refer to members or number of members in

the distribution channel. As stated in the Distribution Management topic,

distribution members are marketers and intermediaries. There are two main

forms of distribution channels; direct distribution channel and the indirect

distribution channel.

Direct distribution refers to the direct distribution channel which is created by

the marketer to channel products to the consumers. Indirect distribution

refers to forms of distribution channel which requires the presence of a third

party or ÂmiddlemanÊ to channel the products to the consumers. This third

party or ÂmiddlemanÊ is known as the ÂintermediaryÊ.

Marketing intermediaries can be classified into three, who are agents or brokers,

wholesalers and retailers. All the three categories of intermediaries have different

functions and influence in the marketing activities. Thus, all three categories can

be differentiated easily based on two factors, which are risk taking and types of

business dealings.

Agents or brokers differ from wholesalers and retailers from the angle of risk

taking. Agents or brokers donÊt assume risk towards any business dealings as

compared to wholesalers and retailers. The agent or the broker functions only as

a third party who arranges for a meeting between the marketer and buyer to

discuss business dealings. A big portion of the agents or brokers revenue is

contributed through commission and price negotiation techniques. Price

negotiation techniques refer to the agents or brokers skill in keeping the actual

offer price a secret from the parties, the consumer and the seller.

Wholesalers and retailers can be differentiated based on the wholesalerÊs

involvement or retailerÊs involvement with the individual consumer. Most

writers state the main difference between the wholesaler and retailer from the

aspect of purchasing volume � the wholesaler buys in bulk while the retailer

buys in smaller order sizes. There are writers who see the difference between

wholesalers and retailers from the aspects of sales volume. Wholesaler sells in

bulks while the retailer sells in smaller quantities.

Based on the question in „Activity 6.2‰ in the previous page, you cannot

differentiate The Store supermarket line with the rice wholesaler at your place

based only on purchase and sales quantity of both the companies. This is because

the purchase quantity for The Store supermarket line is far larger than the rice



84 wholesaler. Thus, the opinion that wholesaling and retailing can be differentiated

through types of business dealings is more accurate.

Wholesalers and retailers can be differentiated based on the statement that

wholesalers donÊt have business dealings with individual consumers. This means

that if Din Borong Supermarket or a trader in SelangorÊs Wholesale Market

carries out business dealing with individual consumers, that trader cannot be

categorised as a wholesaler. Looking at the business transaction that was carried

out by that trader, they have carried out a mixture of transactions, part

wholesaling and part retailing. Wholesaling only takes place in a business

transaction with organisational users, especially retailers while most of the other

business transactions are retailing (individual or public).

To further aid understanding about the presence of intermediaries in a

distribution channel, please refer to the discussion on distribution channel forms

in the distribution channel topic. But Figure 6.5, can aid in recalling distribution

channel forms that involve all three channel intermediaries (three-level

distribution channel). Figure 6.5: Three-level distribution channel

ACTIVITY 6.3 Try drawing all the forms of distribution channels other than the

three-level distribution channel. What dimension is used to name the

forms of distribution channel level?

6.7.1 Importance of Intermediaries All intermediaries have the same amount of influence on the manufacturer and

consumer. The difference in roles between the wholesaler, retailer and agents or

brokers is only in the form of application. This followings are the importance of

intermediaries to the manufacturer and consumer:

(a) Bulk Breaking

The manufacturer faces problems in marketing its products to end-users

(individual or organisation) because of the problem in the quantity offered

Thus, the presence of intermediaries especially wholesalers help



85 manufacturers in marketing their products in smaller quantities according

to the consumersÊ needs.

(b) Product Promotion

Besides distributing products, intermediaries play an important role in the

promotion of the product to the consumers either individually or together

with the manufacturer. For example, the wholesaler gives trade discounts

to retailers or retailers have sales promotion for the consumers.

(c) Transportation

Intermediaries especially wholesalers provide efficient transportation

services in the physical distribution of products for the manufacturers.

Normally, the intermediary is liable for the transportation cost of the

products to the market.

(d) Risk Bearing

The wholesaler or retailer purchases the product from the manufacturer.

This means, the intermediary has transferred the financial risk from the

manufacturer onto itself. Besides, there are wholesalers who grant credit

payment to their retailers or retailers who grant credit sales to the

customers. This means, besides helping the manufacturer to avoid losses,

the intermediary also assumes risk through the granting of credit services

to the other intermediaries or consumers.

(e) Market Information

Intermediaries especially retailers are known to understand better the

needs and wants of consumers as compared to the manufacturer. Normally,

the intermediary will pass the latest information regarding customerÊs taste

and preference to the manufacturer for them to act upon.

(f) Warehousing Services

Besides providing transportation services, there are a few intermediaries

especially wholesalers who provide warehousing services for the

manufacturers in the physical distribution of their products to the market.

(g) Consultation Services

Some intermediaries like wholesalers or agents (brokers) provide business

consultation services to the organisational users from the aspects of

material and financial management. Besides, some retailers also provide

consultation services for the consumer, especially from the aspect of

product usage and financial consultation.



86

6.8 WHOLESALING Although the number of wholesalers is declining by the day because of the

influence from changes in the marketing environment, especially consumerÊs

taste and the existence of supermarket chains like The Store and Parkson, volume

of business through wholesaling has increased tremendously. For example,

wholesaling business activity in the United States has increased more than 5.8

times in the new millennium as compared to the early 1990Ês (Kotler, 2002).

As stated in the earlier section of this topic, wholesaling is a distribution activity

carried out by the wholesaler to the organisational consumers, especially

retailers. Wholesaling excludes business activities with the individual consumer.

Wholesalers can exist in the one-level, two-level or three-level distribution

channel. As shown in Figure 6.5, wholesalers are present before retailers in

distributing the products to the consumers. But, a wholesaler can exist before an

agent or broker in the three-level distribution channel, in which an agent or

broker will deal with the wholesaler before marketing the products to the

retailers. In the two-level distribution channel, the wholesaler can be present

together with the retailer, agent or broker. For the one-level distribution channel,

wholesaling is only involved in the marketing of industrial products or products

for the organisational consumers.

SELF-CHECK 6.1 What is meant by wholesaling?

6.8.1 Importance of Wholesaling Wholesalers like the other important intermediaries are found to play an

important role in multiple aspects of helping the manufacturer produce a

product distribution process that is far more efficient and effective. Some of the

roles of wholesalers are, bulk breaking for retailers and organisational

consumers, conduct trade promotion activities, provide transportation services,

warehousing and consultation, and others. The facilities that are provided by the

wholesalers are able to smoothen out the product distribution process in the

market more efficiently and effectively.



87

6.8.2 Type of Wholesalers Wholesalers can be classified into five major types, which consists of merchant

wholesalers, full-service wholesalers, limited-service wholesalers, manufacturersÊ

and retailersÊ branches and offices, and miscellaneous wholesalers (Kotler, 2002).

The five major types of wholesalers are described briefly below:

(a) Merchant Wholesalers

Independently owned businesses that take title to the merchandise they

handle. They are called jobbers, distributors, or mill supply houses and fall

into two categories: full service and limited service.

(b) Full-Service Wholesalers

This type of wholesaling provides all functions of the intermediaries like

transportation, sales force supports, credit facilities, management support

assistance, promotion and others. Full-service wholesalers are known as

wholesale merchants and industrial distributors.

(c) Limited-Service Wholesalers

This type of wholesaling provides some functions intermediaries like

transportation, sales force support, and credit facilities or a combination of

other intermediary functions. The wholesalers from this category are

known as cash-and-carry wholesalers, truck wholesalers, rack jobbers and

producersÊ cooperatives.

(d) ManufacturersÊ and RetailersÊ Branches and Offices

ManufacturersÊ and retailersÊ branches and offices are organisation units

that are established by the manufacturer to market goods straight to the

consumers. Manufacturers establish branches or offices on a temporary or

permanent basis. Normally, the branch or the sales office is managed by the

companyÊs sales personnel or appointed sales personnel (external sales

personnel).

(e) Miscellaneous Wholesalers

A miscellaneous wholesaler refers to wholesalers who specialise towards

one type of business only like agricultural wholesalers, rice wholesalers,

auction wholesalers and others.

6.8.3 Trend in Wholesaling As stated in the earlier section, wholesaling activities have shown a relatively

huge increase since the 1990Ês. Although the number of wholesalers is decreasing

due to changes in consumerÊs taste and preference and the influence of

technology, the volume of business through wholesaling is increasing steadily.



88 Besides, wholesalers are more aggressive in carrying out marketing activities to

be noticed in the product distribution system, especially from the aspect of sales,

transportation and product promotion.

Thus, it is of no surprise that there are certain brands that are owned by

wholesalers through the private brand strategy. Through this strategy,

wholesalers will support that particular brand in the market through

distribution, pricing and integrated promotion.

EXERCISE 6.3 Fill in the Blanks

1. Wholesaling is a marketing intermediary activity which does not

involve business transactions with the _______________________

users.

2. _____________________ wholesalers, only provide certain

wholesaling services to their consumers.

6.9 RETAILING Retailing is an important process in the product distribution system. The form of

business transaction that involves the retailing process is a business transaction

between the marketer and the individual consumer, which is buying the product

for personal or household consumption. Distribution channel members who are

involved in the retailing process are the retailers. Besides understanding the

retailing concept, you have to understand a few other important concepts that

are related to retailing management, which is the importance of retailing, forms

of retailing, types and organisations of retailers, retailing wheel and the latest

trends in retailing. The next section in this topic will help you in understanding

all those concepts better and in detail.

6.9.1 Importance of Retailing Similar to wholesaling, retailing plays an important role in the creation of an

efficient and effective distribution system. The difference in roles between

retailing and wholesaling is a small issue. The roles of retailing are toward

individual consumers and the other intermediaries in the channel like

wholesalers and agents or brokers. Thus, similar to wholesaling, retailing also

plays an important role from the aspects of bulk breaking for the individual

consumers, conducting promotional activities like internal advertising and sales



89 promotions, provide transportation services, warehousing, consumer

consultation and others.

6.9.2 Forms and Types of Retailers Generally, the retailing process can be classified into two main categories, which

store retailing and non-store retailing. Both forms of retailing differ physically

and have obviously different tangible roles. Although both have obvious tangible

differences, both still have the same roles in creating an efficient and effective

distribution channel. Some marketers use both forms of retailing in creating the

best marketing process for the consumers.

The physical difference which is meant in the earlier section about the differences

in store retailing and non-store retailing is referring to the need for physical

space. This means, even if you sell in a stall at the night market or you use a

motorcycle, that retailer is still categorised as a store retailer because the retailing

process that is carried out involves the use of physical space (selling lot, tables,

motorcycle and others). An example of non-store retailing is direct marketing

and on-line marketing. Below are the list and a brief discussion about all the

main forms of store retailing and non-store retailing.

(a) Store Retailing

The classification of store retailing is done based on a few factors like

physical form (especially size), product lines marketed and services

preparation for the customer. From the physical aspect, a retailer can be

categorised either as a grocery store, supermarket, departmental store,

hypermarket, specialty stores or discount stores. A grocery store sells most

of the items that are needed daily either wet or dry and which are products

frequently purchased by consumers. A supermarket is a concept store

similar to the grocery store but larger in size.

Departmental store is the larger-sized retailing form that is most popular in

Malaysia. The main difference between a departmental store and

supermarket is from the specialisation of departments according to product

categories like first floor is for daily need goods, second floor for womenÊs

products, and third floor for childrenÊs products and so on. Hypermarkets

or business malls is the latest retailing concept that is developing in

Malaysia. The main difference between hypermarkets and other grocery

stores is from the aspect of size and consumerÊs product selection. Specialty

stores refer to the retailers who sell certain selected products like cosmetic

shops, sports equipment, personal accessories and others.

Besides size and product lines, store retailers can be classified according to

the services that are provided to the consumers. Store retailers can be



90 categorised into three: full service, limited service and self-service retailing.

Full-service retailing offers an array of services for the convenience of

customers like salespeople, advisory services, credit, delivery and others.

While the limited-service retailer only offers selected services to consumers

like delivery service or credit and delivery alone.

(b) Non-store Retailing

Direct marketing and on-line marketing are forms of non-store retailing.

Types of direct marketing are direct selling (salespeople without stores or

door-to-door), the usage of machines like vending machines or ATM, kiosk,

catalogue marketing (using catalogues to get nearer to the customers) and

so on.

Online marketing is a retailing form which is gaining popularity among the

consumers in the world. Online retailing is mostly handled through

computer websites or electronic mails and electronic payment method is

used. For example, you can purchase a book and make payment

electronically at www.amazon.com or buy other products from many

marketers that provide electronic business services.

6.9.3 Retailing Wheel

The wheel of retailing refers to the life cycle that is often experienced by most

retailers in the retailing system. Most large retailers like The Store network and

PTK (Pasar Raya Taman Kemajuan) network started business as a small retailer

and expanded into a large retailer.

Besides expanding, there are large retailers that had to close shop or were taken

over by other retailers because they reached the decline stage in the retailing

wheel.

6.9.4 Trends in Retailing Retailing in the world and in Malaysia have shown an encouraging growth.

Besides experiencing a growth rate in business, the existence of more

hypermarkets and specialty stores and the vast development in electronic

transactions through electronic retailing is an important trend that is being

experienced in retailing in Malaysia and in the world.



91 ACTIVITY 6.4 What do you understand about store retailing and non-store

retailing? Provide a few examples of store retailing and non-store

retailing in Malaysia.

6.10 AGENTS AND BROKERS Agents and brokers are traders who are involved in the agencyÊs business, which

is a form of business that does not take the title of goods. This means the agents

and brokers do not take the title of goods and donÊt bear any risk towards the

business transaction.

Agents and brokers have some similarities and differences. They are similar in

the sense of a business agency, which is a form of business where the

intermediary doesnÊt take title of goods and the agency only acts to brings buyers

and sellers together. Besides this, the similarities between agents and brokers are

based on revenues earned. Agents and brokers obtain revenues through

commissions and negotiation price markups.

But, the usage of the term agent to refer to the agencyÊs business is more

frequently and widely used by traders and consumers. The term broker is only

used for certain agency businesses like financial (shares), car sales and real estate.

But, according to Kotler (2002), the main difference between them is from the

aspect of organisation forms. Organisation agents have more permanent

characteristics compared to brokers. There are opinions that say, consumers and

sellers are more likely to use the term agents, or brokers are more suitable

because there are organisation brokers who are fixed like the security brokers.

ACTIVITY 6.5 What are the decisions that can be related to the marketing logistic

management or physical distribution?



92

6.11 MANAGING PHYSICAL DISTRIBUTION Physical distribution management or also known as marketing logistics

management is part of the important decision in the distribution channel

management. Physical distribution is important especially to ensure the product

reaches the consumer effectively.

The marketer needs to know a few concepts that are relevant to marketing

logistics management. Besides the marketing logistics component, the marketer

has to pay attention towards the logistic management process, especially from

the aspect of objective setting. Normally, every marketer has the same objective

towards marketing logistics management, which is to obtain raw materials and

market the products to the consumers at the bare minimum cost.

But, to reach this objective, the marketer has to implement a few actions like:

(a) Create an Integrated Logistics Management System

The marketing logistics system is supported by four components: order

processing, transportation, warehousing and inventory management. Thus,

the marketer has to use the best technology and has to have a systematic

management system to ensure all the four marketing logistics components

optimally complement each other. For example, the marketer uses

information technology to manage the marketing logistics system. The

usage of advanced information technology helps information channelling

between the marketing logistics component faster and more accurately.

(b) Implement Continuous Research on Marketing Logistics

The marketer has to research the needs and the marketing logistics

achievement based on the consumerÊs perception from time to time. The

research is done to control, monitor and access the achievement of

marketing in the marketing distribution system.

(c) Compare CompanyÊs Practice and Market Practice

The marketer needs to refer to the market practice especially by the

competitors to be made the basis or benchmark to measure how far the

marketer has succeeded in coming up with a distribution channel

management process that is competitive.

(d) Realistic Promises to the Market

The marketer has to look into the companyÊs internal ability before

promising the consumer to deliver products according to the consumerÊs

needs especially from the aspect of on-time delivery and quality

conformance. The marketer has to avoid from falling into the perception of

„what is promised is not the same as what is delivered‰.



93

6.11.1 Components of Physical Distribution Management There are four major components in the physical distribution management

system or marketing logistics. All the four components are shown in Figure 6.6. Figure 6.6: The components of physical distribution management

(a) Order Processing

It involves activities like order receipt, delivery and payment. This means,

order processing from the consumers or passed by the sales personnel,

order check, scheduling, invoice delivery and receipt preparation are all

products of this component. Consumer satisfaction is generally influenced

by the efficiency of the componentÊs operations. Delay in processing will

cause consumer dissatisfaction and consumers may switch to competitors.

(b) Transportation

The marketer has to decide on the best method or transportation mode to

ensure delivery smoothness and the cost of delivery is economical. The

marketer can choose whether to use the land transportation, water

transportation, air transportation or through the usage of pipes (for nonsolid

products). Consideration on whether to use the land, air or water

transportation mode depends on two issues, which are timely delivery and

cost.

Normally, both the issues are always at the opposite ends. This means, to

obtain a transportation mode that is cheap, the marketer has to choose a

transportation mode that is slow and vice versa. There are two issues that

have to be considered by the marketer in choosing a mode of

transportation, which is product suitability and consumer needs. Perishable

goods need to be delivered urgently. Luxury goods enable the marketer to

choose a transportation mode that is fast and expensive.



94 (c) Warehousing

Warehousing is needed to ensure raw materials and completed products

are stored in an appropriate place to be taken out or distributed to

consumers according to type and order. There are a few important

decisions in warehousing management, and they consist of inventory level,

location, number of warehouses and the management itself.

Warehousing inventory management will be discussed in the next section.

Marketers have to choose and prepare suitable warehouses according to the

needs of marketers and consumers especially based on time and cost

considerations. The marketer may also have to set up or choose a few

warehouses to be used in the material and finished goods distribution

process. The marketer will also have to evaluate the effectiveness of using

rented warehouses or their own warehouses based on the cost

consideration.

(d) Inventory Management

The marketer has to ensure that the inventory is managed at the lowest cost

and is capable of fulfilling the production operation needs and consumer

needs. There are four issues that have to be seriously considered by the

marketer during inventory management. The four issues are reserve or

back-up record systems, electronic reorder point, order cost processing and

inventory handling cost.

The marketer has to ensure that all the four issues are managed accurately

to ensure stock receipt and delivery is done systematically and efficiently.

The usage of information technology through the usage of certain computer

systems and barcode system can aid marketers in managing all the four

issues effectively.

There is a tendency for the manufacturers and consumers (business and

industrial users) to use the production operation system without inventory

or Just-in-Time Inventory Management. Through JIT Inventory

Management system, the marketers or consumers require accurate delivery

according to certain time and in appropriate quantities with the production

process which is being implemented. For example, if Modenas needs 1000

tyres a day, and the output shift is divided into four, the tyre suppliers have

to deliver 250 units for four deliveries a day to the manufacturerÊs factory.



95

6.11.2 Integrated Physical Distribution Management System The integrated physical distribution management system or the integrated logistics

system refers to a logistic management quality which is solid and they

complement each other. Although the marketing logistics management process

involves four different components, the marketer has succeeded in creating an effective and systematic logistic management system. Normally, the usage of

modern technology especially information technology using electronic

communication network and barcode systems are able to help marketers in

creating the best integrated logistics management system. Besides using

technology, the following formula will aid marketers in creating the best

integrated logistics management:

Where:

M = total market logistics cost

M = T + FW + VW + S

T = total transportation cost

FW = total fixed warehouse cost

VW = total variable warehouse cost

S = total cost of lost sales due to average

delivery delay



96 EXERCISE 6.4 Fill in the Blanks

1. __________________ retailing is a form of retailing that doesnÊt

involve physical business space.

2. RetailerÊs life cycle in the market can be explained thorough

_________________.

3. The main difference between agents or brokers with wholesalers

and retailers is from the aspect of ______________________.

4. The four components of physical distribution are

________________________.

Essay Questions

1. Explain briefly the five functions that are carried out by the

intermediaries in the distribution channel.

2. To what extent does the concept of warehousing and retailing

differ?

3. Explain briefly about the current trends that are happening in

wholesaling and retailing in Malaysia.

4. If you have the intentions of forming a logistics company or

physical distribution handling company, what are the

management decisions that the company has to handle during the

implementation of the integrated logistics management process?

The marketing channel is also known as the intermediary, merchant or

distributor channel, which performs part of the marketing activities on behalf

of the manufacturer.

There are two main channels, which are the direct marketing channel and the

indirect marketing channel.

The direct marketing channel doesnÊt involve intermediaries in the process of

carrying goods to consumers.



97

The indirect marketing channel involves intermediaries in the process of

carrying goods to consumers.

The marketing channelÊs design decision generally involves four main stages,

which are analysing customer needs, establishing channel objectives,

identifying major channel alternatives and evaluating major channel

alternatives.

There are three important elements that have to be considered by the

manufacturing firm. They are the types of marketing channel, the number of

marketing channels needed and the responsibilities of each channel member.

As the manufacturing firm, the marketing channel has to go through changes

either dynamically or continuously.

There are three trends or important transitions, which are the vertical

marketing system, horizontal marketing system, and multi-channel

marketing system.

This marketing system is often involved in conflicts, competition due to

unsuitable objectives, unclear roles and rights, difference in opinion, and

others.

The manufacturing firm has to manage this conflict to ensure co-operation

from the channel members.

Besides this, legal issues and ethical relations between firms and channels

have to be given importance in the arrangement of marketing channels.

The marketer has to create a distribution channel management process that is

good and effective.

To create the distribution channel management process mentioned, the

marketer has to ensure that each intermediary, who are agents or brokers,

wholesalers and retailers are able to carry out their responsibilities effectively

to create an efficient and effective distribution channel system together.



98 Bulk breaking Indirect distribution

Direct distribution Indirect marketing channel

Direct marketing channel Multi-channel marketing system

Horizontal marketing system Vertical marking system

INTRODUCTION In this topic, we will discuss the marketing communication mix, the

communication process, steps in developing effective communication,

promotional mix strategy and integrated communication.

Marketing communication or better known as marketing promotion is one of the

most important marketing mix elements. Products donÊt get sold on their own,

although they have features that are desired by consumers, attractively priced

and is easily obtainable without promotion. Consumers may not be aware of the

productÊs existence or the advantages of the product as compared to other

products that are readily available in the market.

Topic

7 Managing

Integrated

Marketing

Communications 4. Assess the methods in deciding the promotional budget; and

5. Appraise factors that influence the promotional mix strategy.


1. List five types of marketing communication mix;

2. Examine nine elements in the communication process;

3. Illustrate the steps in developing effective communication;

TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS

100

7.1 MARKETING COMMUNICATION MIX Marketing communication mix or promotional mix are forms of promotion or

communication insights that can be used by the marketer to promote their

products. Five main elements of the marketing communication mix are personal

selling, advertising, sales promotion, public relations and direct marketing.

(a) Advertising

Advertising is any form of non-personal presentation paid by a sponsor to

promote ideas, organisations or products, through various forms of media

such as television, radio, newspaper and magazines, advertising boards,

and the Internet.

(b) Sales Promotion

Sales promotion is a variety of short-term incentives to encourage trial or

purchase of a product or service. It is a promotion paid by a sponsor and is

normally used to encourage consumers to purchase the product for a

particular time period. Examples of sales promotions are samples, coupons,

cash rebates, premiums and discounts.

(c) Public Relations

Public relations is an activity or effort by a company to:

� Build a healthy and mutually beneficial relationship with the public.

� Obtain good publicity.

� Build a positive corporate image and keep negative stories, incidents or

rumours away from the media.

� Obtain opinions, behaviour, and the publicÊs perception towards the

company and its products.

The public includes customers, suppliers, government, employees and the

surrounding community. Public relations is a promotion that is often

believed by the general public because of the publicity obtained by the firm

or output in the form of news. For example, when a company introduces an

innovative new product in the market, the company can maximise its

coverage in newspapers and through radio as well as television channels.

Thus, public relation is one form of effective communication to introduce a

company and its products to the market at a lower cost.

(d) Personal Selling

Personal selling is a direct representation by the companyÊs sales force to

the customers to obtain sales and build relationships between each other. It

is focused on the end users and it is done either face-to-face or through the

TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS 101

telephone. Personal selling is able to persuade and influence buyers to

accept an opinion or to purchase a product. Now, personal selling is used to

build long-term relationships between the company and consumers or

future consumers.

(e) Direct Marketing

Direct marketing is a form of marketing communication that connects the

marketer with the target consumers to obtain instant feedback. It uses

telephone, mail, fax, e-mail, the Internet and other communication tools to

connect the marketer with a specific consumer base. Thus, the usage of

direct marketing creates a good relationship between the marketer and the

consumer.

7.2 THE COMMUNICATION PROCESS Communication is the delivery of information or exchange of ideas from the

sender to the receiver. Communication between two parties is important to aid

both parties in heading towards mutual agreement.

There are nine basic elements in the communication process. The marketer needs

to analyse each element to enable more effective delivery of message to the

customers. Figure 7.1 shows the main elements in the communication process. Figure 7.1: Elements in the communication process

Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th

ed.). New Jersey: Prentice Hall.

(a) Sender

The sender is a source of a message or the original message in the

communication process. It consists of individuals or organisations. For

example; family, friends or sales force. Companies can also use

spokespersons who are celebrities to advertise and promote their products.

The perception of receivers towards a source can influence their purchases,

so the company has to be careful in choosing their spokesperson.


102 (b) Encoding

Encoding is the process of transforming ideas, thoughts or the senderÊs

opinions in the form of words, symbols, pictures, signs or others so that it is

easier for the receiver to understand. The usage of these symbols will aid

the company in delivering a message more effectively. If a symbol is well

known, such as sports equipment brands like Adidas, Nike, Puma and

Reebok, then it is better for these companies to use these symbols in the

message delivery because these symbols are easily identifiable and well

known.

(c) Message

Message is an encoding process that transforms ideas to information in the

verbal, writing or symbolic form.

(d) Media

Media is a communication channel which is used to send messages from

the sender to the receiver. The communication channel consists of nonpersonal

or non-time sensitive media. Through mass media, messages can

be spread widely to more individuals at the same time. For example,

advertising on television, radio and in newspapers.

(e) Decoding

Decoding is a process when the receiver interprets or assigns meanings

toward certain messages which the sender is trying to communicate. That

message, may consist of symbols and will be interpreted by the receiver

according to his understanding. Thus, to guarantee communication

effectiveness, the sender needs to understand the receiver more closely in

terms of knowledge and character.

(f) Receiver

Receiver is the party which receives the message from the sending party.

The receiver may be the public who is viewing the advertisement for a

brand or product that the company is trying to communicate. Not all

receivers will be influenced with the message that is trying to be

communicated by the sender. Receiving depends on many factors like

knowledge, culture and the receiverÊs age.

(g) Response

Response is the receiverÊs reaction towards a particular message that is

communicated. For example, when a receiver views an advertisement on

television, he may be influenced to purchase the product that is being

advertised. Maybe the customer will not do anything or may not be

interested in the message that is being communicated through the

advertisement.


(h) Feedback

Feedback is part of the objective or receiverÊs reaction towards the message

received. The receiverÊs reaction differs from one to the other. For example,

when Proton launched its latest model Waja, much feedback was received.

Some gave positive feedback stating that the car was priced cheaper than

imported cars in the same class. But, some gave negative feedback. If

personal selling was used, the response received was faster as compared to

the other communication channels.

(i) Noise

Noise is an unplanned external factor that interrupts the communication

process. For example, noise from vehicles when the sales personnel are

communicating with customers at the road-side.

Understanding the communication process helps the company or the marketer

communicate with the users more efficiently. For example, in encoding, the

marketer has to know how to change ideas or opinions into symbols that are

easily accepted and understood by the receiver. The selection of media channels

is important to ensure the message that is going to be communicated is for the

accurate target market. The sender has to know the behaviour and other factors

that are able to influence the receipt of the message.

Finding out these factors enables the sender to send appropriate messages that

can leave an impact on the receiver and obtain a positive objective. The feedback

that is received, either positive or negative, has to be focused on by the sender so

that the next communication process can be improved according to the receiverÊs

preference. Finally, although noise cannot be controlled, the sender has to

analyse the forms of noise that may happen, so that this noise can be reduced or

eliminated.


1. List and explain the five elements of the marketing

communication mix or marketing promotion mix.

2. Discuss the elements in the communication process.


104

THE STEPS OF DEVELOPING EFFECTIVE COMMUNICATIONS 7.3 There are six important steps in an effective communication development. These

steps are:

(a) Identify the target audience

(b) Determine the communication objectives

(c) Design the message

(d) Media selection

(e) Message source selection

(f) Deedback collection

SELF-CHECK 7.1 After studying the elements in the communication process, what are

the steps that have to be followed in an efficient marketing

communication development?

7.3.1 Identify the Target Audience The target audience has a huge influence in the decision to determine the

appropriate promotional tools that the company will use. The target audience

may consist of end-users, existing consumers and the person deciding on

purchases or future customers. It may also consist of individuals, certain

consumers or watchdog groups or the general public.

Identifying the target audience is very important to the marketer because

different audience segments need different promotions. The existing customer

needs a promotional programme that is different from the potential customer.

For example, the promotional programme for end-users may require the

marketer to use advertising to create product awareness for the new product in

the market. To encourage retailers and wholesalers to buy the companyÊs

products, the marketer has to use other promotional elements like cash discounts

or sales promotion to encourage immediate purchase.


7.3.2 Determine the Communications Objective After identifying the target audience, the marketer has to determine the

communication objective. The final communication objective is purchasing by the

audience. Before the consumer purchases a product, the consumer may fit into

one of the six buyer-readiness level. These levels are awareness, knowledge,

liking, preference, conviction and then only purchase. Knowledge about the

characteristics of each level can aid the marketers in achieving their

communication objectives. Figure 7.2 shows the buyer-readiness level. Figure 7.2: Buyer-readiness level

(a) Awareness

The marketerÊs main objective at this level is to create awareness amongst

the potential target customers. If the future customers are not aware of the

existence of the product or know only a little about the existence of the

product, how are they going to purchase the product? For example, Susu

Asli Company wishes to introduce its new product brand CERDIK in the

market. This milk has a special formula for new born babies up until the

first year. But the consumers are unaware of its existence in the market

because no effort has been taken to create awareness to the consumers.

Thus, the promotional campaignÊs objective at this level will be to make

consumers aware about the productÊs existence in the market. This can be

done through advertising on television.


106 (b) Knowledge

Besides creating awareness, the marketer has to provide knowledge about

the product to the future customers. For example, after future customers are

aware of the existence of brand CERDIK in the market, the marketer has to

provide information about the contents of the product which will help the

babyÊs growth. Providing information to future customers does not stop at

providing knowledge about the content but covers all aspects that can help

the marketer get closer to consumers. For example, the productÊs quality,

tests conducted or services offered.

(c) Liking

If future customers know about the product, the marketer has to get to

know their preference level. The question at this stage is what will be the

potential customerÊs feelings after realising and finding out about the

product. Will they feel satisfied or dissatisfied with the company? If the

potential customer is still doubtful at this stage, the marketer has to

promote the product more intensively until they reach the liking level for

that product.

(d) Preference

If the future customers prefer a product, they need not necessarily choose

that brand or product. The selection of a brand depends on many factors.

Thus, the marketer needs to create differences between products and the

other alternatives that are in the market. One of the methods is by

developing creative advertisements to attract future customers to give

priority to a product in product selection.

(e) Conviction

Future customers will become more convinced to purchase a product if

efforts to convince them are carried out. At the conviction stage, the

marketer or the company has to use a combination of promotional methods

to create conviction and a positive feeling towards the product. For

example, letÊs have a look again at the CERDIK brand which was marketed.

Besides advertising, Susu Asli Company has to use sales promotions like

free samples for their potential customers to try the product. Besides, the

company can use public relations by introducing the product in the form of

news either through television or newspapers. A good combination of

promotional methods can aid the company in building conviction of the

future customers towards the product.

(f) Purchase

At the purchase stage, the possibility of a future customer purchasing is big.

But, the future customer may be convinced to purchase the product but

they have not actually purchased yet. Some of the factors that cause them


not to purchase are shortage of money, lack of desire to gather more

information and waiting for the appropriate time. The promotional effort at

this level is by using promotional tools that can help future customers to act

on buying. For example, reducing the price of the product, giving special

offers and other short-term incentives.

7.3.3 Design the Message Try to remember your experience while you were watching an

advertisement that was aired on television. Were you attracted to the

message that was trying to be communicated? If you were attracted to

it, what caught your attention?

ACTIVITY 7.1 After determining the communication objective at each of the buyerÊs readiness

level, you have to know about effective message development.

Normally, the design of an effective message will be able to attract the attention

of the audience. For example, a message that provides products benefits to

consumers and sustains the audienceÊs interest from the beginning till the end. If

the audience pays attention to the message from the beginning till the end, it

shows that the message has been well designed. Besides, the message has to

arouse desire or curiosity. A good message is a message that is able to make the

audience take action, such as wanting to know more, purchasing the product,

and giving feedback. In short, an effective message design has to take into

account a frame work known as the AIDA model.

A = Attention

I = Interest

D = Desire

A = Action

7.3.4 Media Selection After designing an effective message, the marketer has to choose an appropriate

media to channel the message. The communication channel selection depends on

many factors. For example, product features, and the type of consumer or

organisational market. The marketing channel chosen can be categorised into

two, which is the personal communication channel and the non-personal

communication channel.


108 Personal communication channel involves two or more persons communicating

directly with each other. This type of communication can be done face-to-face or

through telephone, mail, fax, and other methods. Generally, products for

organisation markets use this type of communication channel. This is because

organisational products are normally expensive, has high risk attached to them

and they are complex and need direct explanation from the sales force. This type

of communication enables the company to obtain immediate feedback. The

feedback received can be channelled to the companyÊs management for the next

action to be taken.

The use of non-personal communication channel is normally directed to the end

user market. The media that can be used includes:

(a) Printed media like newspapers, magazines and letters

(b) Broadcast media like radio and television

(c) Display media like posters and billboards

(d) Online media like websites and online services

The appropriate media selection is very important so that the message can be

communicated clearly to the target audience that have been identified. The main

objective of media selection is for the target audience to purchase the

organisationÊs product.

7.3.5 Message Source Selection The effectiveness of the message to the audience depends on how convinced the

audience is with the message source. ConsumersÊ perceptions and views are

based on the beliefs and the conviction that the message delivered is true.

Strategies that can be used to convince and gain consumerÊs trust are by using

credible message sources.

For example, professionals and celebrities are normally chosen as spokespersons

for a companyÊs product. Professionals like doctors are chosen to explain the

advantages of a health-based product. Celebrities are used because they have

their own fans. For example, singer Siti Nurhaliza promotes product brands like

Maybelline and Pepsi. While, other sportsmen like the countryÊs badminton

player, Rashid Sidek has been chosen as the spokesperson for energy drink

products like 100 Plus and Livita. The selection of a spokesperson in a product

promotion will add the audienceÊs conviction towards the message source

because of the credibility that is attached to the spokespersons.


7.3.6 Feedback Collection Finally, in effective communication development, the marketer has to obtain

feedback from the target audience. The questions that are normally used to

obtain feedback are:

(a) Do the audience remember the message?

(b) How many times did they watch it?

(c) What is the main content that they remember about the message?

(d) How do they feel towards the message?

(e) How is their behaviour now as compared to before towards the product

and the company?

These questions are important to the marketer because the feedback that is

received can help them in improving the promotional programme or the product

that is offered.


1. List all steps in an effective communication development.

2. Explain the buyerÊs readiness level in deciding the

communication reaction.

PROMOTIONAL BUDGET DECIDING METHOD 7.4 ACTIVITY 7.2 Do you know the positive and the negative effects of using wellknown

athletes to promote the companyÊs products?

Budget is used to plan and control the operations of an organisation for a specific

period of time. Deciding the budget for promotional purposes is one of the issues

that have to be given attention by the management. Detail planning and

promotional budget controlling can bring in profits for the company in the longterm

and at the same time it can avoid the failures of promotional programmes.


110 How do the management decide on an appropriate budgeting method to be used

by the company? Every company has its own method in deciding the most

appropriate method. There are many factors that can influence the promotional

budget decision. Some of the factors are financial position, company size,

product characteristics and company policies. There are four methods in

determining budgets that are used by companies and they are the affordable

method, percentage-of-sales method, competitive-parity method, and objectiveand-

task method.

7.4.1 Most Affordable Method The affordable method in determining the promotional budget follows what is

thought the most affordable by the company. This means that, if the company has a

good financial position, the allocation for promotion budget will be big. But, if the

company is going through financial problems, the allocation for promotional budget

will be small. Most small businesses will use this method to determine their

promotional budget. The balance of the money that is obtained after paying for all

the expenses will be used for as part of the promotional budget.

This method, however, has many weaknesses. This is due to the fact that it places

the promotional programme as the final expenses in the budget. If the company

cannot afford or they donÊt have sufficient finances, the promotional programme

cannot be carried out because there is no allocation. This method treats

promotion as not having an impact towards sales. Promotion should be thought

of as a long-term investment that can increase companyÊs profit and sales.

7.4.2 Percentage of Sales Method Another method that is normally used in businesses is the percentage-of-sales

method. Most companies set promotional expenditure at a specific percentage of

sales (either current or anticipated) or of the sales price. This method is popular

and it is easy to use because marketers only need to decide on a percentage of

sales that changes from time to time.

For example, ABC Untung Company determines 10% of its sales will go to

promotion. If the sales for ABC Untung Company are RM100,000, the allocation

for promotional budget will be RM10,000. This method has its weaknesses. Some

of its weaknesses are:

(a) The management perceives promotion as a product of sales or is caused by

sales. But in reality, promotion is the cause of sales or the determinant of sales.

(b) When a companyÊs sales declines or drops, the promotional budget

allocated will also decrease. Generally, when a company experiences


decline in sales, the promotional programme has to be developed further

for sales to increase again or be better than the previous sales.

7.4.3 Competitive-Parity Method There are companies that determine their promotional budget based on

competitors. This method is known as the competitive-parity method, where

marketers keep an eye on the competitorÊs promotional budget through

published sources. This method will help the company in allocating more

accurately for the promotion. It is normally used based on the assumption that

states competitors are skilled at determining promotional budgets. Budgeting

based on competitors will also decrease promotional wars.

But this assumption is less accurate because competitors need not be accurate in

determining the promotional budget. If competitors make a mistake, the

marketer who follows will also fail. The assumption that states this method

reduces promotional war is also not true because there isnÊt a strong basis that

states this method reduces promotional war.

7.4.4 Objective-and-Task-Based Method Before determining the promotional budget, the company will identify the

objectives that are to be achieved later as well as determine cost and task that are

appropriate to reach the objective that has been set. There are three main steps in

the objective and task based method:

(a) Identifying the objective;

(b) Determining task; and

(c) Determining cost.

For example, Casiola Company wishes to introduce and provide awareness

about their new watches in the market. Thus, Casiola Company has to determine

task, what is the appropriate media and message to use to reach the objective that

has been determined and what is the cost to be used for media advertising on

television, newspapers and others.

Because of the difficulties in determining task and cost to reach objectives, not

many companies use this method in determining their promotional budget. But

this method is among the best promotional budget method because the

management has to plan meticulously based on the companyÊs objectives before

doing the promotional budget.


112

7.5 PROMOTIONAL MIX STRATEGY After determining the appropriate budgeting method, the marketer has to think

of an appropriate strategy for the promotional purpose. There are two types of

strategies that can be chosen by the marketer, which is the pull and push

strategy.

(a) Push Strategy

Through this strategy, the product will be pushed through promotion in the

distribution channel to the final users. For example, the producer will

promote the product to the wholesaler. Then, the wholesaler will promote

the product to the retailers; the retailers will carry out promotional

activities to the users so that they purchase the product. Figure 7.3 explains

clearly the pull and push strategy. Figure 7.3: Push strategy

Source: Adapted from Kotler, P. & Amstrong, G. (2000). Principles of

marketing (9th ed.). New Jersey: Prentice Hall.

Normally the push strategy is used in the organisational markets. When a

company sells its products to another company, personal selling will be

used to provide explanation and user demonstration.

(b) Pull Strategy

In the pull strategy, the producer will carry out promotional activities direct

to the end users to encourage them to purchase the products in the market.

For example, the producer will carry out promotional activities like

advertising on the television or sales promotion to the final users. If this

strategy succeeds, the users will demand for products from the retailers and

retailers will demand for products from the wholesalers and wholesalers

from the producers. Thus, in the pull strategy, the users will pull the

product by demanding through the distribution channel. Figure 7.4

explains the pull strategy clearly.

TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS 113 Figure 7.4: Pull strategy



The pull strategy is normally used in the consumer markets. For example,

Coca-Cola the producers of soft drinks will advertise the products and its

brand on the television. Consumers will watch and get attracted to visit the

retail stores to get the product. Demand from the consumers will encourage

retailers to demand from the wholesalers and next from the producers.

The use of an appropriate promotional mix depends on the product life

cycle stage. At the introduction stage of the product life cycle, advertising is

effective to create awareness to consumers. Meanwhile sales promotion will

encourage consumers to try the products that are on promotion.

Advertising and public relations are used at the growth stage while sales

promotion is reduced because sales incentives is used less at this stage. At

the maturity stage, sales promotion is used widely as compared to

advertising. Finally during the decline stage, advertising is used to remind

consumers about the products and sales promotion is continued.

The conclusion for the use of the promotional mix strategy depends on

various factors like product type, organisation and the stage the product is

in the product life cycle.

INTEGRATED MARKETING COMMUNICATION 7.6 Generally, you have found out that marketing communication is used widely by

the marketer to communicate effectively with consumers by using the

appropriate promotional mix. But, there are many companies that fail in their

promotional activities. A promotional failure causes the company huge losses

and a negative image because of the ineffective communication delivery. Today,

organisations are starting to practice integrated marketing communication

concepts.


114 Through this concept, companies combine and meticulously realign all or as

many communication channels as possible to deliver messages clearly and

consistently about the organisation and the companyÊs products. The company

will realign and combine communication channels like personal selling,

advertising, sales promotion, public relations, and direct marketing in the same

message form to ensure delivery is more clear and consistent and reaches the

overall organisationÊs objectives. Figure 7.5 shows the marketing communication

integration that forms the integrated marketing communication. Figure 7.5: Integrated marketing communication



Examples of integrated marketing communication practices are: if public

relations state a message about a product or an organisation, the company can

use advertising and sales promotion in the same message form as communicated

in public relations. It will be easier for the sales force to explain about a product

or an organisation to their target markets because the same message has been

communicated to them. Using this method, messages will be communicated

more consistently. The combination of promotional tools will aid companies in

communicating the message more clearly.

ETHICAL AND SOCIAL ISSUES IN MARKETING COMMUNICATIONS 7.7 In developing a promotional programme, the company has to pay attention

towards social and ethical issues. A companyÊs promotional activity can cause a

major impact to the society. Among the issues that arise because of the breach of

ethics in marketing communication are:


(a) Disturbance

There are various promotional programmes like advertising and sales

promotion that harass customers to purchase a product.

(b) Unfairness and Fraud

There is a scam for products advertised on the mass media. For example,

product size differs from the actual size and products purchased donÊt

benefit the consumers. Customers are also deceived because the lack of

certain product features is not communicated to the customers. The

advertisement only shows the advantages of the product sold at a

confusing sales price.

Thus, if a company wishes to nurture its good name and image, ethical

issues like these have to be given attention. At the same time, social issues

in marketing communication can increase the companyÊs credibility.

Among the social issues that increase the image and the credibility of the

company include marketing communication in the form of education,

information source and becoming a model or moral development agent.

Besides that, the company has to implement direct marketing

communication towards the development of consumer communities who

have accurate information, have the opportunity to choose, able to plan

expenses and reduce risk.


1. List four methods that are used by the marketers in deciding the

promotional budget.

2. Define and explain all the marketing communication mix which

can be used by the marketer to market their products more

efficiently.

3. Discuss the existing methods in deciding the promotional budget

and suggest the best method and why you decided on it.

4. Explain clearly the promotional mix strategies.


116

Successful marketing management does not only depend on products,

pricing and distribution. Successful marketing management is marketing

management which combines all the four marketing mix elements like

products, price, distribution and promotion.

Promotion and marketing communication are communication insights that

are used by the marketer to promote the products.

Marketing communication mix like advertising, sales promotion, public

relations, personal selling and direct marketing has to be carried out at the

appropriate buyer readiness level.

Before carrying out any promotional programmes, the company has to

understand the communication process between the marketer and the user.

Besides that, the marketer has to follow certain steps to develop an effective

communication system.

Promotional budget has to be given importance by the marketer because the

promotional activities involve cost. This is to ensure the promotional

programme is carried out cost effectively.

AIDA model Pull strategy

Marketing promotional mix Push strategy

INTRODUCTION In this topic, the marketing communication tools will be discussed in detail. This

topic also discusses advertising, sales promotion and public relations. Some of

the advertising topics that will be discussed are objective setting, budgeting

decision making, message selection, determining the media, and campaign

evaluation. The sales promotion topic will discuss sales promotion objectives and

strategies, major decisions in sales promotion, and determining the major sales

promotion tools. Finally, public relations will discuss the functions of Public

Relations Department and the major decisions in public relations.

Topic

8 Managing

Advertising,

Sales Promotion

and Public

Relations 2. Propose sales promotion strategy development and major decisions

in sales promotion; and

3. Assess the importance of public relations and the major decisions in

public relations.


1. Explain advertising strategy development;

1 18 TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS

8.1 ADVERTISING ACTIVITY 8.1 We often watch advertisement on television, the Internet and bulletin

boards. Those advertisements differ from one another from various

aspects. The differences maybe from the aspect of the message that is

going to be delivered, and advertising time. What are the important

decisions that are involved in the development of an advertisement?

In the marketing communication topic, you have been introduced to the

definition of advertising. Advertising generally is a form of non-personal

communication sponsored by identified sponsors. When the word advertising is

mentioned, we may imagine the advertisements on the television. With or

without our knowledge, advertising has long existed in Malaysia and in other

countries in various forms. In the past, before television sets were introduced in

our country, announcements were made using mobile lorries and vans. Posters

will also be pasted on vans and other appropriate places. This is one form of

advertising. Thus, advertising which we understand is not about advertising on

television alone, but it covers various media channels like radio, newspapers,

posters, magazines and others.

Advertising management is not something that is easy. It involves many

activities and detailed planning. Meticulous planning can create effective

advertisements for the company and the viewers. Thus, we have to know four

important decisions that have to be made by the management in creating the

advertising programmes. The four advertising programmes are setting

advertising objectives, setting advertising budget, developing the advertising

strategy (making message decisions and media decisions) and evaluating

advertising campaigns. Figure 8.1 shows the major decisions in the management

process and in building advertising programmes. Figure 8.1: Major decisions in advertising



TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS 119

8.1.1 Setting the Advertising Objectives The first step in developing a programme or advertising campaign is advertising

objective setting. Advertising objective is a goal to be accomplished through that

advertisement. Setting objectives is very important because the activities and

initiatives of the parties involved in advertising are towards the accomplishments

of that objective. Objective setting will provide a guide to the company on the

strategies of decision making, budgeting, disseminating message and advertising

media. With that objective, a company gets to measure the results during

evaluation to see whether the objective that was set at the beginning got

accomplished. Thus, an advertising objective has to identify a special

communication task that needs to be communicated to the target viewers in a

predetermined time frame.

Examples of common objectives for advertising:

(a) Provide support to personal selling.

Advertising is used to help the sales force obtain sales from prospects. For

example, the advertisement on Noveaux Visages.

(b) Improve relationship with distributors.

Retailers and wholesalers need the producersÊ support to promote products

through advertising.

(c) Introduce new products.

(d) Widen product usage.

Advertising can be used to widen the product usage and increase the

multiple usages of products.

(e) Advertising is also used to create reaction towards competitorÊs

advertisements and to reduce the effect of consumers switching to

substitute products.

Advertising objectives can be divided into three major ones and they are to

inform, persuade or remind.

(a) Informative advertising is a form of advertising with the goal of providing

information to the target consumers. When a company wishes to introduce

a new product, it can use this type of advertising. Information on the

productÊs features and advantages as compared to the competitors for the

new product can be communicated to the target market. Informative

advertising is also appropriate to be used to inform the methods of using a

product. For example, in rubbish disposal advertisements certain categories

of rubbish are disposed according to the binÊs colour. For instance, bottles

are disposed in orange coloured bins while tins are disposed in green

coloured bins.


(b) Persuasive advertising is used when competition increases. When there are

too many competitors producing the same products, this kind of

advertising is appropriate to persuade consumers to choose the companyÊs

products. At this stage, the company has to state the advantages of the

product as compared to the competitorÊs.

For example, competition between companies that produces washing

detergent brands like Fab, Breeze, Trojan, Ekonomi Handalan, Harimau

Kuat, and others. These companies have to make use of the advantages that

they have in their products and develop a creative advertisement to

persuade consumers to choose their brands. Owing to the competition that

exists between the companies, companies start to compare between their

products and the competitors. For example, Trojan soap and Brand Z

indirectly compare products.

(c) Product advertising for the products that have reached the maturity stage.

The advertising objective at this stage is to remind the consumers that the

product still exists in the market and for the consumers to remember the

product all the time. For example, MiloÊs nutritious drink advertisement.

Although this brand is well known, the company still continuously

advertises in order for the consumer to remember its products and select

them in stores. Other examples are soft drinks like Pepsi and Coca-cola

advertise repetitively on the television all year long.

Figure 8.2 shows the Pepsi product which has been in the market for long, using

only short slogans like „Drink Pepsi Cola‰ because it doesnÊt need introduction

anymore.

Table 8.1 shows examples of advertising objectives according to purpose. Figure 8.2: Reminder advertising

Source: http://j4tb.com/mall/h20bury/pepsi.jpg


8.1.2 Setting the Advertising Budget Table 8.1: Examples of Advertising Objectives According to Purpose

To Inform

To inform the market about the new product.

To suggest new ways of using a product.

To inform the market about a price change.

To explain how the product is used.

To explain the existing services.

To correct the impression.

To reduce purchasers fears.

To build the companyÊs image.

To Persuade

To build the brandÊs strength.

To encourage brand switching.

To change consumerÊs perception about a productÊs attributes.

To persuade consumers to buy now.

To persuade consumers to accept a sales call.

To Remind

To remind consumers that the product may be needed in the near future.

To remind consumers where to purchase the product.

To remind consumers about the product during off-season.

To maintain high product awareness.

Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th

ed.). New Jersey: Prentice Hall.

After setting the objectives, the company has to set the budget to advertise its

products. An objective that has been decided upon cannot be carried out if there

isnÊt budget allocated for it. Thus, budgeting decisions need detailed or

meticulous planning as discussed in Topic 7. There are four methods in

determining the budget. Those methods are the affordable method, percentageof-

sales method, competitive-parity method and objective and task method.

These methods have been discussed in detail in Topic 7.


But in this topic, a few factors that have to be focused on in determining the

advertising budget will be discussed. Among the factors that have to be given

attention are product life-cycle stages, market share, competition and the number

of advertising and product differences.

In the product life-cycle stage, budget is allocated differently according to the

product stage. If the product is at the beginning stage of the product life cycle,

advertising expenses will be huge because the company needs to advertise

aggressively for the product to be well known. At the growth and the maturity

stage, budget for advertising can be reduced because the product is well known

by the prospects.

A company that wishes to obtain a large or high market share for its products

and brands needs a huge budget because advertising aggressively needs to be

done to persuade consumers to choose their products as compared to the

competitorÊs. A high allocation is also needed if the companyÊs product is in a

market with many competitors and numerous advertisements. Many competitors

means plenty of advertising until the consumers canÊt differentiate a product

anymore. Thus, an advertisement that is creative needs to be created to

differentiate it from the other advertisements. To develop an advertisement that

is creative either big or small, requires a big allocation.

Decisions regarding budgets depend on many factors. Thus, detailed planning

has to be done after researching factors that are involved, whether internal or

external factors, so that the budgeting decision is accurate. Internal factors that

have to be considered are the companyÊs financial sources and human resources.

ACTIVITY 8.2 In your opinion, are high sales promotion expenses a good strategy

for long-term profits? What are your reasons?

8.1.3 Choosing the Advertising Strategy After deciding the budget allocation, the company has to think of an effective

advertising strategy. Advertising strategy can be divided into two main

elements, which are advertising message creation and advertising message

selection. Both these strategies are equally important because they interrelate

with one another. For example, although an effective advertising message has

been developed, that message will not reach the target viewers effectively if the

media selection was not done carefully. On the contrary, a good media selection

will be meaningless if the message is not developed effectively. There are three


steps in the advertising strategy development: the message strategy, message

implementation and advertising media selection.

(a) Message Strategy

The first step in the development of an effective advertising message is the

decision on the general message that will be communicated to the target

viewers. Decisions can be made through planning of the message strategy.

Normally, consumers will watch a message if the message is beneficial to

them. Thus, message strategy development has to focus on the message

which will benefit the consumers. After that, the company needs to create a

creative concept for the message either in the form of visual or word.

Creative strategy in advertising is the development of a message that is able

to attract attention, has difference and it is easily remembered by the target

viewers. A creative advertisement can create differences among the other

cluttered advertisements. Advertising creativity can be shaped if the

advertising agency has the talent to generate new ideas, unique ideas, and

ideas that are related to the target market. Examples of well-known

companies that often develop creative advertisements are Procter &

Gamble, Coke, Pepsi, Celcom and Bumiputra Commerce Bank.

Advertisements by these companies often generate new ideas and attract

viewerÊs attention.

According to Kotler (2003), normally an advertiser will go through four

steps in developing the creative strategy and they are message generation,

message evaluation and selection, message execution and social

responsibility review.

Three main features of advertising that are able to attract attention are:

(i) First, the advertisement has to be meaningful; it has to show the

benefits that can be obtained from the product.

(ii) Second, the advertisement has to be trustworthy; the consumers have

to trust that the advertisement will be able to provide all the benefits

promised.

(iii) Third, the advertisement has to be different; it has to show that the

product is better than the competitorÊs product.

(b) Message Implementation

In implementing a message, the marketer has to change the creative ideas

into implementation of the actual advertisement that will be able to attract

attention and win over the target market. Some of the normal styles of

message implementation are:


(i) Slice of Life

This advertisementÊs implementation style gives importance to life

acting in normal situations. For example, the advertisement on Koko

Crunch cereals shows individuals eating breakfast everyday.

(ii) Lifestyles

This style shows how a product is adapted to a certain lifestyle. For

example, luxury lifestyle is shown in DunhillÊs advertisement or

challenging or dream lifestyles are shown in Benson & Hedges

(Golden Dreams) advertisement.

(iii) Fantasy

This style tries to create fantasy around the product and its usages.

For example, advertisements that depicts fun when the product is

used.

(iv) Feelings or Image

This style shows feelings or image associated to the product usage like

the feelings of affection. For example, advertisements that show

family affection and love between the father, mother and children.

(v) Musical

This advertisement shows the usage of background music or singing

in an advertisement that can attract the viewerÊs attention. For

example, the World Cup football advertisements.

(vi) Personality Symbol

It is an advertisement style that uses personality as a character to

represent the product. For example, the Garfield character as a cat and

Ronald in McDonaldÊs advertisement.

(vii) Technical Experts

This style shows the company displaying their expertise or technical

skills in producing a product. For example, advertisements that show

the production process of a product from the beginning till the end.

(viii) Scientific Evidence

This style shows research has been done, by proving that the product

advertised is better than the competitorÊs product. For example,

(gamatÊs) product advertisement where its contents are tested through

a scientific process and the advertisement Quantum Trim & Firm

which used to be known as Hollywood FB, shows consumers who use

the product are able to slim down.

(ix) Testimonials

This advertisement uses celebrities or professional members to

represent a company in introducing a product. For example, the

national squash player Ong Beng Hee in the Excel drinks

advertisement and singer Siti Nurhaliza in the Maybeline


advertisement. Besides that, there are many types of messages that

can be delivered like inserting elements of humour and jokes, positive

tones, fear and others. The advertiser or the company can insert any

message that will attract the viewersÊ attention to watch and act upon.

(c) Advertising Media Selection

Although message development is discussed before media selection, but in

actual fact both the decisions are made together to ensure advertising is

more effective. Steps in media selection that have to be given attention to

are:

(i) Deciding on Reach, Frequency and Impact

When media selection is done, the advertiser has to think about reach,

frequency and the mediaÊs impact to reach the advertising objectives.

Reach means the percentage of viewers from the target market who

are exposed to that media.

For example, 80% of the viewers from the target market will be

exposed to the advertising campaign in the first six months. The

media tools chosen will have their own characteristics in reaching out.

For example, the usage of national newspapers has a high rate of

spread. Thus, the probability of reaching the target viewers is quite

high as compared to the other media tools. Frequency refers to the

number of times within a specified time period that an average person

or household is exposed to the message.

For example, a company wants the advertisement or message to reach

each individual or for them to be exposed at least thrice a month.

Media impact refers to the enhancement of qualitative values or the

effectiveness of a media channel used.

For example, the effects of using a television to show moving actions

and actual product leave a larger impact as compared to using the

newspapers. Selection of reach, frequency and impact needs thorough

planning because it involves outputs to be reached through budget

allocation.

(ii) Choosing among Major Media Types

Choosing between major media types depends on the reach,

frequency and impact level of each major media. Here, the advertiser

needs to look at the advantages and disadvantages of each major

media. For example, if the target market is wide, has general

characteristics and the company doesnÊt want high cost to be

involved, the usage of newspapers will be appropriate.


But, if the advertiser needs to reach a specific target market with a

certain frequency and time period, magazines are more appropriate.

Table 8.2 shows the advantages and disadvantages of major types of

media. Table 8.2: Advantages and Disadvantages of Major Media Types

Media Advantages Disadvantages

Outdoor

Advertising

Flexibility in terms of

geography, low cost, easy to

identify and is remembered last

before purchase is done.

Cannot select audience, short

appearance time, hard to

measure viewerÊs size and

environmental problems.

Newspapers Good market coverage, flexible,

able to give detailed

explanation, high believability

and timeliness.

DoesnÊt reach the specific target

group, moderate reproduction

quality and short lifespan.

Magazines Specific target market, long

lifespan, high reproduction

quality, complete product

information and has credibility.

High cost and takes a long time

for an issue to be published.

Radio Reaches local target viewers,

able to cover a wide target

market and low cost.

Cluttered, no visual only audio,

low attention, difficult to

purchase radio advertising time.

Television Able to demonstrate, good

market coverage, combination

of audio and visual is able to

attract high attention.

Cluttered, high cost, audience

selectivity not specific.

(iii) Selecting Specific Media Channels

At this stage, the company or advertiser has to choose a specific media

channel from the general media chosen. For example, if a company

chooses the magazine as its advertising media channel, the company

has to choose a specific magazine channel for its target viewers.

Examples of specific magazine channels are Wanita, Ibu, Bola Sepak,

Roda-roda, Anjung Seri and other magazines. If the company chooses

television as its main media, it has to choose a specific segment like

Buletin Utama, comedy programmes, Majalah 3, sports programmes

and others.

Selecting a specific media channel depends on many factors. Some of

the major factors are target viewers like sports enthusiast,

entertainment enthusiast or documentary enthusiast. Product


characteristics influence media selection as well. For example, luxury

furniture is more appropriate to be displayed on coloured and high

quality magazines. Besides that, the advertiser or company has to

think about cost. For example, advertising cost in a popular and wellliked

programme like „Who Wants To Be A Millionaire‰ involves

high cost.

(iv) Deciding on Media Timing

The final step in media selection is deciding on the appropriate media

timing to air the advertisement. Planning can be done through

detailed media scheduling based on the companyÊs objectives. A

company can schedule the advertisement at the same frequency rate

all year long. For example, an advertisement can be aired once a week

or once a month in a year like advertisements for Coca-cola.

The company can schedule advertisements intensively within a

specified time period or reduce the frequency of the advertisements in

a specified time period. For example, the advertisement for YeoÊs soya

bean milk drink is aired on television at a high frequency rate during

the fasting month (Ramadan) but is aired less frequently during the

other months. Both types of scheduling have their own advantages.

Scheduling that concentrates on a specified time period will produce

an instant reaction from the viewers because they need the product at

that time. Evenly spread scheduling has the ability to reinforce

memory and brand loyalty.

8.1.4 Advertising Effectiveness Finally in the development of an advertising programme, a company needs to

evaluate the advertising effectiveness. A company can measure effectiveness by

reviewing the advertising objectives. A measurement can be made by evaluating

the communication and sales effects. The communication effects can be measured

with the users, before and after the advertisement is aired. For example,

measuring consumerÊs memory about the message communicated, consumerÊs

awareness level towards the brand advertised and their knowledge on the

product.

The effects on sales can be measured by researching on whether the

advertisement increased sales for the company. This can be done by comparing

sales before and after the advertising campaign. If there is an increase, it shows

that the advertisement was effective and is a major factor that influenced

consumers to purchase.


8.1.5 Advertising Management Advertising management differs between companies. In small companies, the

advertising activity may be managed by the sales department. Sales force at the

sales department will carry out advertising activities as one of their job

description besides selling. In larger companies, the advertising department will

be created. This department has its own workforce to carry out full-time

advertising activities and programmes.

But, there are many companies that use advertising agencies to carry out their

advertising activities. The advantage of using an advertising agency is that the

agency is highly skilled and knowledgeable in the advertising field. Besides that,

the company can save cost because they donÊt have to hire permanent employees

to carry out the advertising programme. The advertising agent can also help the

company to plan, prepare, implement, and evaluate the advertising programmes.

8.1.6 International Advertising Decisions Companies that market products at the international level need to decide

regarding advertising in specific related countries. International advertising

decisions are complex and complicated because the marketer has to think of

many factors before reaching a decision. The factors that need attention are

advertising cost, advertising media that is available in the countryÊs market, rules

and policies that govern the advertising industry as well as the language and

consumerÊs knowledge about the product in that particular country.

Advertising failures often happen because less attention is paid to these factors.

For example in Malaysia, advertising alcohol and cigarette products on television

is prohibited. While in Norway and Sweden, children below the age of 12 cannot

be used on television for advertisements.

Because advertising internationally is complex, the marketer has to study a

countryÊs market before launching their advertising programmes. Companies can

practise global advertising strategies, by adapting advertisements according to

the country.


SALES PROMOTION 8.2 Essay Questions

1. Explain briefly the importance of advertising objectives to the

marketer.

2. Explain briefly four message implementation styles that can be

used by the marketer in advertising.

EXERCISE 8.1 ACTIVITY 8.3 What is the difference between advertising and sales promotion?

The usage of sales promotion tools as a promotion method is increasing from

time to time. Among the factors that cause fast growth rate are desires to add

sales instantly. Sales promotion is perceived as the most effective promotional

tool for this purpose. The company will also have to face many competitors who

sell the same products. The usage of sales promotion helps differentiate the

competitorÊs products from the companyÊs.

Other factors that cause an increased usage in sales promotion are when users

want something that will bring instant benefits and the high increase in cost

caused by using advertising as a promotion method. Sales promotion contains

short-term incentives which encourages the purchasing or selling of a product or

service. For example, when you buy a big pack of Chipsmore cookies, you will be

given a small packet of Chipsmore cookies free. This is an example of a special

short-term offer to encourage sales. These offers can attract the consumerÊs

attention to respond and react because these offers are rare and they can benefit

the consumers.

8.2.1 Sales Promotion Objectives and Strategies Sales promotion differs from advertising, public relations and personal selling.

However, all three promotional methods are often used together to form a firm

tie-in reaching the marketing communication objectives. For example, if the

advertising objective is to provide awareness about the new product in the


market, sales promotion can be used by giving out free samples to the consumers

to try out the product.

There are two categories of sales promotion - trade promotion directed towards

members of the distribution channel and consumer promotion directed towards

the consumers. Trade promotion and consumer promotion has its own objectives

and strategies.

(a) Trade Promotion Objectives

(i) To introduce the new or modified product.

(ii) To increase the distributed size or new packaging.

(iii) To add or maintain producerÊs space at the store room or shop.

(iv) To reduce the excess inventory and increase sales.

(v) To encourage retailers to purchase early and to support the producer.

(b) Consumer Promotion Objectives

(i) Attract consumerÊs attention to try out new products.

(ii) Attract consumers to purchase the companyÊs products as compared

to the competitorÊs products.

(iii) To reward loyal consumers.

(iv) To maintain long-term relationship with customers.

Generally, the objectives and strategies of sales promotion are:

� To encourage demand for a product.

� To improve and smoothen the marketing performance of the middle men and

the sales force.

� To aid advertising and personal selling.

Sales promotion should try to build long-term relationships with consumers

because they can discourage consumers from switching brands. Sales

promotions, if done too often, can cause consumers to delay purchasing until the

next promotion takes place. This will cause the failure of the promotional

objective which is supposed to build long-term relationships, maintain existing

customers and be competitive.


8.2.2 Major Decisions in Sales Promotion When a company uses sales promotion as its promotional method, the

companyÊs management has to make certain major decisions in order for the

sales promotion to be more effective.

The first step in deciding is objective setting. Sales promotion objectives can be in

the form of initial marketing objectives that has been decided during the product

development. Setting of objectives will aid the company in planning more

effective sales promotion programmes to reach the objectives.

The next step is selecting the major sales promotion tools that are appropriate to

reach the companyÊs objectives. The major sales promotional tools include

coupons, samples, premiums and others.

After choosing the appropriate sales promotional tool, the next step is to develop

the sales promotion programme. The programmes that are to be developed have

to take into account a few factors. Some of them are decisions on the incentiveÊs

size because incentiveÊs size can determine total sales that are needed. The next

factor is deciding on the conditions that have to be in place before a consumer

purchase. For example, the consumer has to purchase the product first before he

is entitled for any incentives from the company. The other factor that has to be

considered is the promotionÊs timeframe. A sales promotion that is too long will

reduce sales and become ineffective because consumers will perceive it as a

norm.

Besides that, the marketer has to decide on the appropriate timing to carry out

promotions according to the companyÊs yearly schedule or certain seasons like

festive seasons, school holidays and others.

Finally, the marketer has to decide on the overall budget for the sales promotion.

The total budget will help the promotional activities to be carried out smoothly,

and achieve the objectives.

After the promotion programme is designed, the company has to test the

programme beforehand. Examples of testing that can be carried out are

determining whether the promotional tool selected is appropriate with the

incentiveÊs size. After testing is done, the company can plan implementation and

control of the sales promotion programme. Implementation planning has to take

into account the effects of promotion before and during the promotional

programmeÊs launch.

Finally, the company has to evaluate decisions after the promotional programme

has been implemented. Decisions can be evaluated through two major methods �


sales records and consumer surveys. Through sales records, a company can view

the promotionÊs impact before and after the programme is implemented. If sales

increases, does the increase in sales reach the objectives which is required

through survey done on consumers, and can the company collect various types

of information from the customers to evaluate the effectiveness of the sales

promotion programme? Some of the information that can be collected includes

consumer tendency to purchase the product when an incentive is given.

8.2.3 Deciding on Major Sales Promotion Tools There are various sales promotion tools that can be used by the marketer. The

usage of these sales promotion tools are according to the companyÊs objectives

and strategy. A sales promotional toolÊs advantages and disadvantages have to

be analysed to avoid the failure of a promotion. Some of the major sales

promotion tools that are normally used are:

(a) Coupons

A coupon is a promotional tool that saves money for the consumers. It is a

form of promotional tool that is frequently used by the producer. Normally,

coupons are given in the form of certificates and the consumers will obtain

savings when they purchase a specific product stated on the certificate.

Coupons are normally distributed through newspapers, magazines, direct

mail from the inside or the outside of a package. Coupons can give instant

rewards to the consumers and encourage trial purchases and repeat

purchases by loyal customers.

(b) Samples

Sales promotion tools that use samples are among the most popular tools

that are used to deliver products to potential consumers. Normally,

samples are products that are packaged in small packs for consumers to try

them. It is normally distributed through individuals inside or outside stores

and supermarkets. Samples are the most effective method to introduce new

products in the market. However, the cost to use it is quite high because

samples are normally given free to prospective customers who most

probably would be missed out if the sample is sent through mail.

(c) Premiums

Sales promotion tools that are known as premiums are products that are

offered free or at low cost as an incentive to the consumers to purchase

those products. Premiums can be included inside or be kept outside the

package or mailed. Example of premium is the offer of free sports bag to

customers for buying racquets manufactured by Jaguh Sports Company.


(d) Cash Refund Offers

Cash refund offers or rebates is a practice that gives cash refunds or cash

discounts to customers who show purchase evidence. Normally, this offer

is given after the customer purchases the product. For example, Astro gives

rebates or cash refund offers as much as RM300 when the customer

subscribes a programme or purchases its satellites.

(e) Price Packs

This promotional method offers price discounts to consumers through signs

that are pasted on the labels or on the productÊs packaging. Price discounts

are normally in the form of savings like two products are packaged

together and sold at a discounted price. For example, two pens that would

normally cost RM2 each, is packaged together and sold at RM 1 each.

Products offered need not necessarily be the same but they may be two

different products like a pen offered together with its refill.

(f) Advantage Specialties

Advantage specialties are sales promotional tools in the form of calendars,

pens, hats, T-shirts, umbrellas and others that are given as souvenirs to

customers. The companyÊs name or logo is normally printed on these

souvenirs. Through these souvenirs, the company gets to introduce its

name and image besides maintaining long-term relationship with

customers. The advantage of this promotional method is that the customer

remembers the company through the company name or logo that appears

on the souvenir.

(g) Trade Promotions

Besides sales promotional tools that are specific to consumers, there are

other sales promotional tools that are specific to trade. Trade promotional

tools are normally used by producers to attract more retailers to support the

producerÊs products. For example, discounts from the original price are

given to retailers. If the retailer buys in bulks, a larger discount will be

given.

There are more specific promotional tools for trade. Generally all these tools are

to attract the sellerÊs attention to react towards the producerÊs products.

Generally, besides specific sales promotional tools that can be used for trade sales

promotions, there are other sales promotion tools that are specific to trade like

conventions, trade exhibitions and business allowances.


8.3 PUBLIC RELATIONS One of the promotional tools which is not frequently used by organisations is

public relations. Besides customers and suppliers, the company has to pay

attention to the public who are interested in the companyÊs activities. A public is

any group that has an actual or potential interest in or impact on a companyÊs

ability to achieve its objectives.

Public relations involve a variety of programmes designed to promote or protect

a companyÊs image or its individual products (Kotler & Armstrong, 2001).

Programmes that involve product or company promotion are known as proactive

public relations. This is because the programmes are carried out according to the

marketing objectives that have been decided by the firm. Programmes that are

carried out always seek opportunities to introduce the company and its products

to the public. For example, when a company wishes to introduce a new product

or modify an existing product, the company can create publicity to spread

information about its products to the general public using the existing mass

media. Besides promoting a company and its products, public relations also

handles programmes that are able to safeguard images of the product and

company.

Reactive public relations are activities carried out to safeguard the companyÊs

image. For example, if there is a defect on a product, the company has to act fast

and react positively to overcome that situation. All the efforts that are

undertaken by public relations are for the purpose of building and maintaining

good relationships between the company and the public.

8.3.1 Public Relations Marketing Proactive public relations often tries to support the companyÊs promotion efforts

and tries to raise a positive or good image to the parties that have interests in the

company or the stakeholders. The major roles that are carried out by public

relations are:

(a) Aid in launching new products.

(b) Aid to reposition matured products.

(c) Influence specific target groups. For example, they sponsor events in

specific areas.

(d) Protect products that are problematic among the public. For example,

products that cause negative incidents to the public.

(e) Build corporate image that will build a good relationship between the

company and the companyÊs product among the public.


8.3.2 Functions of the Public Relations Department Normally, a large company will have a public relations department which is

responsible to carry out the public relations programme. Companies without

their own public relations department will carry out public relations

programmes through their marketing department. Some of the task and

programmes that are carried out by the public relations department specifically

are:

(a) To create publicity for the companyÊs product like launching of new

products or sponsoring a television show.

(b) Handle issues related to the public.

(c) Handle media relations like preparing information or news about the

organisation or product for the media to attract attention and create a

positive image among the public.

(d) To lobby in the effort to build and maintain long-term relationships that is

good with the government.

(e) Corporate communication through internal and external communication

will create a positive corporate image.

(f) To build relationships with investors.

(g) Counselling services to the management like advising on current and

public issue.

8.3.3 Making Major Decisions in Public Relations There are four major steps in decision making when the management wants to

use public relations as one of the promotional methods for marketing

communication. Those steps are creating marketing objectives, message and

channel selection, programme implementation and decision evaluation.

(a) Creating Marketing Objectives

Before message and channel selection is done, the first step that has to be

taken by a company in managing public relations is the setting of its

marketing objectives. The marketing objectives involve:

(i) Building Awareness

Public relations can build awareness by placing a story in the media to

attract attention towards the product, services, organisation or ideas.


(ii) Building Credibility

Credibility can be created by the marketer through messages that are

communicated in the form of short stories or editorials.

(iii) Providing Motivation to the Sales Force and Sales Representatives

Besides building awareness and credibility, public relations can be

used to stimulate the sales force and the sales representatives in an

effort to increase sales. News or stories about a new product before its

launch can help sales personnel in selling the product to the retailers.

The other objectives include cost reduction because public relations

cost is lower as compared to the other promotional methods like

advertising, sales promotion and personal selling.

(b) Message Selection

After the objective has been decided, the company has to identify an

attractive message to be passed on to the prospective customers. The storyÊs

content has to have high credibility and in a news form to take care of its

good name and increase the companyÊs image. Besides that, the company

has to create special events to catch the publicÊs eye. Some of the events that

can be carried out include collection through trust funds for the purpose of

attracting the communityÊs attention towards the companyÊs caring nature

for current issues.

The company can also announce new products in a product launching

ceremony which is officially opened by a dignitary. For example, Perodua

launched a new car model „Kelisa‰ which was officially unveiled by the

Deputy Prime Minister of Malaysia. Besides that, the company can release

news which is communicated through bulletins and magazines in business

columns from the Chief Executive Officer regarding the product, opinions

and remarks on current business issues.

(c) Programme Implementation

After the message has been selected and the delivery method has been

identified, the next step is the implementation of the public relations

programme. At times, media selection for public relations can be difficult

due to high demand. For example, assume that your company wishes to

inform the prospective purchasers about the advantages of your product in

WANITA magazine but the space in that magazine is limited. What has to

be done by the companyÊs public relations officer? To obtain space in the

WANITA magazine, the public relations officer has to have a close

relationship with the editors. The editors have to be perceived as the

companyÊs customers who have to be satisfied to obtain good cooperation

from them to implement the public relation programmes.


(d) Decision Evaluation

Finally, the company has to measure whether the public relations

programme that is carried out has reached the objectives. The measurement

has to take into account the level of exposure, awareness, behavioural

changes and contribution towards sales, and profits.

EXERCISE 8.2 Essay Question

1. Explain four main differences between sales promotion objectives

and trade promotion objectives?

2. Explain the meaning of public relations.

3. List four functions of the Public Relations Department.

4. Explain three forms of advertising objectives that can be used by the

marketers.

5. List and explain briefly four steps in selecting the advertising

media.

6. List the advantages and the disadvantages of the main media in

advertising.

7. Discuss the differences between coupons and samples in the context

of the companyÊs objectives and strategies.

8. Explain briefly four main steps in public relations that can be used

by management in aiding them to make a decisions.

Promotion is one of the important marketing mix elements.

After the product is introduced, price is set and the distribution channel is

decided.

The company has to inform users about its products. This can be done

through promotional programmes be such as advertising, sales promotion,

and public relations.

Advertising informs, persuades and reminds customers about the companyÊs

productsÊ.

Advertising management involves determining decision on advertising

objectives, budgeting, media and message, and evaluation towards the

effectiveness of the advertising programme.


Sales promotion is carried out to increase sales immediately.

Sales promotion management involves determining decisions about

strategies and objectives, promotional tools, promotional programmes,

promotional time, budgeting, and evaluation programmes.

Sales promotion which is too often and long will reduce sales because

consumers will perceive it as ineffective.

Public relations is a promotional tool which is rarely used by the marketer

although it has a huge potential to build consumerÊs awareness and interest

towards the companyÊs product.

Public relations can also be used to build the companyÊs credibility and

image. Public relations management covers activities that are similar to

advertising management.

Advertising message creation Informative advertising

Advertising message selection Objective and task method

Affordable advertising Percentage-of-sales method

Competitive-parity method Persuasive advertising

INTRODUCTION This topic will touch on another marketing communication element which is no

less important and it is personal selling. Besides personal selling, the method

used by a company to manage sales has to be known. Personal selling is a sales

promotional method which has been practiced for a long time. Sales

representative is an occupation which is popular from the past till today. Sales

personnel are also known as sales representatives, marketing representatives,

sales consultants, and others. A sales personnelÊs task requires him to interact

and communicate directly with the customers. It is not an easy job. It needs

sufficient preparation from the aspects of knowledge and appearance to

communicate with customers well. This topic will look at sales personnelÊs

process and roles and the planning of sales force management.

Topic

9 Managing

the Sales

Force and

Direct Selling 5. Apply the latest direct marketing channel and the advantages and

disadvantages of using it; and

6. Evaluate consumerÊs and marketerÊs database.


1. Explain strategy development and the structure of the sales force;

2. Assess how a company trains its sales personnel;

3. Examine how a company compensates, supervises, and evaluates its

sales personnel;

4. Illustrate the steps in the personal selling process;

1 40 TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING

9.1 ROLES OF PERSONAL SELLING Personal selling plays an important role in the company because it helps other

promotional activities. The use of advertisements as a promotional method has

its disadvantages because it consists of one way communication. The explanation

which is given through advertisements may not be sufficient or it is hard to

understand for the audience. Personal selling able explains a complex product

which is difficult to understand and has to be demonstrated by trained sales

personnel. Personal selling is mostly used in business and industrial markets.

Products for these markets are more complicated and expensive, requiring sales

personnel to explain in detail to the customers. The sales personnel are the

companyÊs representatives when they meet customers.

The duties of sales personnel are not confined to selling alone but it cover a wider

aspect. Sales personnel have to look for prospective customers, conduct

demonstration for the companyÊs products, answer questions, handle objections,

and deal with pricing and close sales.

Sales personnel also act as the customerÊs representative in the company. If there

is feedback and dissatisfaction from the customers, sales personnel have to pass

the message back to the company. They act as the middlemen between the

company and their customers.

The purpose of personal selling is to educate potential customers, explain the

productÊs usage and help in marketing. Personal selling also completes aftersales

service and encourages repeat purchases.

The advantages of personal selling are:

� Able to listen more attentively because the marketing method used is face-toface

sales from the sales personnel to the prospect.

� The message that is to be communicated can be modified according to the

customerÊs characteristics.

� Two-way communication between the marketer and the customer will be

able to obtain instant feedback from the customers.

� Easy to explain information and answer questions posed by the consumers

and customers.

� Able to demonstrate the product in front of the customers.

� Able to build long-term relationship with customers.

TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING 141

MANAGING THE SALES FORCE 9.2 Essay Question

Explain briefly the roles that are played by personal selling to a

company.

EXERCISE 9.1 ACT I V ITY 9.1 Why does a company set objectives for its sales force?

The sales and marketing department is the main department that needs to be

managed efficiently because this department produces business for the company.

Sales force management involves the efforts of analysing, planning,

implementing and controlling the activities of the sales force. The main steps in

sales force management are designing strategy, structure, recruitment and

selection, training, supervision and sales personnel evaluation.

9.2.1 Sales Force Objectives and Strategies Sales force is the companyÊs representatives in meeting customers. Thus, as the

companyÊs representatives, the sales force have to achieve the objectives that

have been determined by the company. The company has to set objectives for its

sales force to enable them to focus towards achieving it. For example, the

companyÊs objective is for its sales force to use 50% of their time to do sales and

another 50% to build relationship with customers in order for the customers to

stay with the company. Following are the activities that are normally carried out

by the sales force:

(a) Sales Functions

This includes planning for sales presentation and to increase sales.

(b) Receiving Orders

Most of the time this involves writing orders down, solving order-related

problems and controlling orders.

(c) Services

Providing after-sales services and technical services if the product is a

technical product.


(d) Information to the Management

Receiving feedback from customers and passing the information back to the

management.

Time duration or emphasis on time for these activities depends on the objectives

that have been set by the company.

Besides sales activities, the type of sales jobs can also influence the objectives and

strategies of the sales force. Types of sales jobs which are carried out by the sales

force are:

(a) Trade Sales

This sales activity promotes products for business sales and not for end

users.

(b) Technical Sales

Industrial sales activities like engineering, computer science and others.

Technical sales personnel have to know well about the products that are

produced by the company.

(c) Retailing Sales

It is a selling activity where the consumer or the customer will visit the

sales personnelÊs premise and not the other way round. Most of the retailers

and sales personnel know about the products and they should have

interpersonal skills.

(d) Telemarketing

Through telemarketing, the sales personnel does not have to meet with the

customer. Communication is done through the telephone for activities like

opening new accounts, receiving orders and others.

(e) New Business Sales

Sales activity that involves the opening of new accounts continuously and

getting new customers often.

9.2.2 Designing Sales Force Strategy and Structure An organisation has to arrange its sales force structure according to the strategies

that have been decided. A good arrangement of the sales force structure will help

the company to maximise the usage of their sales force to generate profits. The

sales force structure depends on many factors.

Product characteristics are one of the main factors. If a company has various

product characteristics, its sales force can be structured according to that product

category. Besides, if the product sold is single or only a few, but it is sold in many

locations, the sales force structure can be arranged according to territory or


certain areas. However, the sales force structure need not necessarily follow the

stated categories. If an organisation sells various products to their customers, the

company may need both structures.

(a) Territorial Sales Force Structure

This structure divides every sales personnel or a few sales personnel to a

geographical sales territory exclusive for them to sell and build

relationships. The advantage of this structure is that the sales personnel

gets to focus his energy on a territory and communicate only with the

customers from that particular territory. Thus, sales quality and

productivity and communication can be maximised because the sales force

get to concentrate on the customers at that particular location.

For example, Q&P Company that exports goods overseas has divided its

sales staff according to territories: South East Asia, Middle East, Europe and

North and South America. Thus, the sales staff have been assigned to

particular territories and they can concentrate on communicating and

generating sales from the customers in those territories.

(b) Product Sales Force Structure

Companies that have various products can use this structure in arranging

their sales personnel. Every sales personnel who is assigned to sell a

product has to be knowledgeable about the product. For example, Harum

Semerbak Company sells perfume, scented powder, shampoo and others.

Sales personnel who sell products like powder have to be knowledgeable

about the product, customers and the territory when they are going to sell

the products there.

The advantage of the product sales structure is that the sales personnel are

able to focus their skills on the product and they are able to sell to

customers regardless of territories, customer size and others. But, the

disadvantage of this structure is when the same company buys various

products from the seller. Two or more sales personnel will frequent the

same territory and they will meet the same customers. Besides incurring

high expenses, it will also cause confusion in the consumerÊs purchases.

(c) Customer Sales Force Structure

Arranging the sales force structure according to customers or industries can

be carried out through a few methods like:

(i) New and existing customers

(ii) Major and normal accounts

(iii) Different industries


A customer-based sales force structure enables the sales personnel to

concentrate on customers whom they are responsible for. Thus, the

company gets to build long-term relationship with the customers because

the sales personnel get to focus attention on them. However, this structure

involves high operations cost because not many customers can be visited

during a visit if they live in a few locations away from one and another.

(d) Complex Sales Force Structure

This structure is a combination between territorial, product and customer

sales force structure. This structure is suitable to be used when the

company has many products, various customers and they cover a wide

area. Sales personnel can concentrate their sales efforts according to

territories and customers, products and territories or the others that are

appropriate.

9.2.3 Recruiting and Selecting the Sales Force Recruitment and selection of sales personnel is important in managing sales force

because a good recruitment and selection process will provide long-term profits

to the company. Furthermore recruiting capable and quality sales force will

increase the companyÊs image and sales. The cost of firing an existing staff is high

because the company has to retrain a new staff. Recruiting experienced staff

involves high cost because a high compensation has to be given. Thus, a careful

selection has to be done for the staff to remain and be loyal to an organisation for

a long period of time.

(a) Recruitment Procedures

Before staff are recruited, the company has to determine the characteristics

and the quality a sales personnel should have. After that, the Human

Resource Department can carry out recruitment activities through a few

methods like obtaining names from existing sales personnel, using

recruitment agencies, advertising in the newspapers, radio or television,

and contacting higher learning institutions.

(b) Selection Procedures

After activities to obtain applications are carried out, the company has to go

through the selection process. Normally companies will carry out

interviews as a procedure to select employees. Interviews can be conducted

once or twice to select employees carefully. Besides, the company can use

tests to measure a personÊs attitude towards sales, analysing and

management skills, look at personality characteristics and others. This test

will help the company in choosing capable employees to carry out work for

the company.


9.2.4 Training Sales Force A I T Y CTIV 9.2 Why is training for sales personnel considered important to the

company? Do sales personnel need official training?

After obtaining the sales personnel, the company has to train the selected sales

personnel. Some companies donÊt pay attention to providing training for the staff.

The company assumes that the selected sales personnel have the ability to carry

out the job and the cost of providing training is very high. Thus, there is no formal

training provided. However, formal training has to be given to the sales personnel

because they may lack of skills on the product, procedures, and customers.

Through a comprehensive training programme, sales personnel will be more

exposed to that information. Besides, sales personnel need information regarding

the market, competitors, prospective purchasers, and on how sales presentations

should be done. Training on time management, reports, and methods of

communicating with the management has to be given to ensure that the sales

personnel are more skilled at handling their job. Providing good training will

leave an impact on the company from the aspect of obtaining new customers and

maintaining the existing ones, and maximising profits.

9.2.5 Sales Force Compensation Compensation for the sales personnel has to be attractive and has to follow the

current trends to help maintain the current sales personnel and attract new sales

personnel. Compensation is normally given based on skills and the experience of

the sales personnel. Compensation can be given in the form of fixed salary or

based on commission and bonus. Commission is normally given based on sales.

The higher the total sales, the higher the total commission obtained. Bonus can

also be given based on achievements. For example, if sales personnel exceed the

yearly target fixed, bonus will be given to that staff.

Besides, staff can also obtain other benefits like medical services, loans and

others. A good compensation will motivate the sales personnel to stay loyal with

the company and to excel.


9.2.6 Supervising Sales Force The supervision of sales personnel by the employers will help that staff to be

more productive and committed. Sales personnel supervision is also done to

guide and motivate them.

Methods that can be used by employers to help sales personnel are by identifying

the target customers. Identifying target customers will make it easy for the sales

personnel to concentrate their sales efforts on certain target customers that have

been defined by the company.

A company can help its sales personnel use time more effectively. For example,

in a week the company can allocate two days for the sales personnel to look for

prospective customers. The method or tool that can be used by a company to

help its sales staff use time more effectively is by coming up with a yearly

schedule, analysing time and task, and by using automated sales like the Internet

or computer system. A good computer system can help sales personnel to

analyse customer profiles more efficiently, for example, researching on customers

who place the most amount of orders or make payment fast. This profile can be

used by the sales personnel to provide efficient services.

9.2.7 Motivating Sales Force Besides compensation, the company can motivate its sales personnel by

preparing a good organisational environment. For example, promotion

opportunities and rewards will be given to employees who reach their sales

targets. The company can also decide on the sales quantity that has to be sold by

each sales personnel in a month or a year. Targets that are decided can motivate

sales personnel to work towards achieving them.

Besides, management has to schedule sessions or meetings with the sales teams.

In these sessions, all the problems and opinions can be voiced out to the

management in order for the sales process to be improved. The management can

also give positive sales incentives like sales competitions, honours and gifts like

vacations, cash and other goods. The company can also evaluate the sales

personnelÊs performance through talents like interests and personality

characteristics. Sales personnel can also be evaluated through skill levels like

communication skills and the ability to close sales. Sales personnel motivation

level can also be evaluated by looking at the confidence level in carrying out

work and sales activity.


9.2.8 Evaluating Sales Force After training, compensation and supervision services are given by management

to evaluate sales personnel performance. Sales reports are scrutinised and used

as an information source by the management to evaluate the work performance

of the sales personnel. Sales reports show sales performance that has been

achieved by a sales staff in a determined time period.

The company can also scrutinise the budget report to evaluate whether the

expenditure incurred brought in good returns. The company can analyse the

working plan of its sales personnel like their daily activities. Besides, visit reports

show visits done by the sales personnel to the existing and the prospective

customers. These entire information sources are examples of tools that can be

used by the companyÊs management to evaluate the ability of the sales personnel

to plan their work and work based on the planning that has been done.

9.3 THE PROCESS OF PERSONAL SELLING After getting to know about sales personnel management, we have to know the

steps that are involved in carrying out the sales activity. Stages in the personal

selling process are normally experienced by the sales personal in carrying out the

selling process. Main steps in the personal selling process are:

(a) Identifying prospective customer

(b) Pre-approach

(c) Approach

(d) Presentation and demonstration

(e) Identifying objections and questions and answers

(f) Closing

(g) Follow up

(a) Identifying Prospective Customer

The first step in the personal selling process is identifying prospective

customers. At this stage the sales person has to identify qualified

purchasers in order for the potential personal sales process to succeed. By

focusing on prospective potential customers, the sales person gets to save

time and expenses. This is because, not all potential purchasers have the

potential or are qualified to become the companyÊs customers. There are

some purchasers who donÊt fulfil criteria to become qualified purchasers

because of poor buying records. There are some purchasers who have fixed

and existing suppliers and they donÊt want to look for new ones. Through


proper identification, sales staff get to avoid themselves from wasting time,

energy, and spending money.

(b) Pre-approach

The second step in the personal selling process is learning about the

prospective customerÊs characteristics and buyer behaviour. If the

companyÊs customers are industrial customers, the sales person has to get

to know about the organisation, like their needs and who is involved in the

purchasing process. Getting to know as much as possible about the

prospective customer helps sales personnel to plan strategies to get closer to

the customer. A salesperson can obtain information about future customers

through an acquaintance in the organisation and through reading

secondary data like magazines, newspapers, and others.

(c) Approach

The next step is by getting closer to the customers. At this stage, the sales

personnel have to know how to face and greet to begin a conversation. This

stage is the most important stage because behaviour, mannerism and

appearance of the sales personnel are important aspects which will be

evaluated by the future customer for the next round of communication.

(d) Presentation and Demonstration

At this stage, the sales person will do presentation and product

demonstration. Explanation about the product and the companyÊs sales

personnel will be presented in detail. If necessary, demonstration regarding

the product usage that fulfils the customerÊs characteristics will be done to

simplify the selling process for the sales personnel.

(e) Identifying Objections and Questions and Answers

In the selling process, the sales person has to be prepared to face potential

purchasers who will object. Objections are done maybe because potential

purchasers wish to get more information about the product or because they

are not satisfied with the explanation which was provided. Customers will

normally do comparisons between one companyÊs products with another.

At this stage, the sales staff have to use their skills to handle objections and

question and answers with the potential purchasers. Sales staffs have to use

positive methods like, using the logical and psychological aspects to explain

the customerÊs doubt regarding quality, price of services and the product

warrantee. Sales staff have to be given exposure and training at this stage

because they face experienced purchasers who want the best.

(f) Closing

After passing the objection and the question and answer levels, a

salesperson will require skills to close the sales. Techniques that can be used


are by identifying signs that the purchaser is ready to purchase. Purchasers

will show positive reactions when they agree to the product. At this time

the sales person has to be clever in convincing the purchaser by acting

immediately and by offering attractive prices, providing after-sales services

or offering to take down orders and ensure terms will be discussed later.

This technique can close sales immediately and get the purchaser who was

purchasing the competitorÊs products before.

(g) Follow Up

Finally, a salesperson who has obtained sales for the company has to follow

up to get to know whether the customer is happy with the purchase done.

Follow ups are important in order for the customer to stay loyal and to

repurchase. Sales personnel also get to build long-term relationship with

the purchasers. Thus, a detailed schedule has to be planned by visiting and

making calls to these customers.

9.4 RELATIONSHIP MARKETING Personal selling had a short-term business dealing motive traditionally. The main

objective was to obtain customers and to close sales. However, personal selling

based on this dealing has its disadvantages. Among the disadvantages are that it

only emphasises on sales at that time without the presence of the long-term

relationship aspect. After sales, there isnÊt any form of communication and the

sales staff will have to look for new customers for the next sales. Looking for new

customers will involve high cost because sales staff have to contact the potential

customers all over again. Based on this disadvantage, companies have started to

emphasise on relationship marketing.

Relationship marketing emphasises on long-term relationships with the

customers by creating values and high satisfaction to the customers. The main

objective of relationship marketing is to maintain the existing customers.

Through continuous relationship with customers, the company gets to save the

cost of obtaining new customers. Thus, sales staffs have to emphasise long-term

and close relationships with customers. Customers will feel appreciated and this

will be profitable to the company in the long term.

9.5 BENEFITS OF DIRECT MARKETING Direct marketing is an interactive marketing system which uses one or more

advertising media to obtain reactions that can be measured or to enable

transactions to be done anywhere.


Reactions that can be measured are normally referred to orders that are placed by

consumers. Thus, direct marketing is also known as direct-order marketing.

9.5.1 The Advantages of Direct Marketing The advantages of direct marketing are:

(a) Able to save time.

(b) Introduces consumers to a larger selection of merchandise.

(c) Marketer is able to shape direct marketing relationship with customers.

(d) Ability and permission to conduct market testing through alternative media

via an efficient cost method.

(e) Marketer can measure reactions towards any campaign which is carried out

and the ability to determine campaigns that are profitable.

(f) Consumers can place orders for themselves or for others.

(g) Firms donÊt have to deal with the companyÊs sales personnel to obtain any

necessities or suppliers.

CONSUMER DATABASE AND MARKETING DATABASE 9.6 One of the direct marketing instrument that is most valuable is the customer

database. Customer database refers to a group of complete and organised data

regarding customers or potential customers of a company. The information in the

consumer database is the latest, easy to obtain or reach, and can be used for the

purpose of marketing, either as a guide or from the aspect of generation,

qualification and suitability, product sales or communication between

consumers.

Marketing database refers to the development process, maintaining and using

the database, and other databases (including products, suppliers, and sellers) for

the purpose of communicating and business.

Consumer database not only contains consumer information list (like name,

address or telephone number) but it also contains other information regarding

products that are bought, units purchased before, price, practical buying

practices, demographic information and others.

Effective database management is capable of becoming a valuable asset because

of its ability to compete with the other competitors.


Companies use database to:

(a) Identify potential customers for the company.

(b) Determine which customers have the rights to accept certain offers from the

company.

(c) Enhance customer loyalty.

(d) Attract consumerÊs attention to purchase. This is because a database is

capable of helping a company from the angle of preparing the companyÊs

best services for the consumers like the delivery of appreciation cards,

reminders, promotions, and others, especially to the companyÊs own

customers.

MAJOR CHANNELS OF DIRECT MARKETING 9.7 Some of the major direct marketing channels that can be used by direct marketers

are:

(a) Face-to-face Selling

Face-to-face selling refers to the personal selling source that is professional

and reacts for the company by placing and moulding potential customers

and directing them towards the business.

(b) Direct Mail

Direct mail involves delivery of an offer, announcement, reminder or other

items to the companyÊs customers. Before this, direct mail was generally

based on the concept of paper and was delivered through the help of the

government post office or profit-oriented private companies such as

Nationwide Express, Federal Express, DHL and also UPS. But now,

through the advancement of technology, three forms of new direct mail has

been created, which is the fax machine, e-mail and delivery through voice

mail like telephone.

Direct mail is the most popular mediator because it allows media selection

by the target market, is more flexible, allows trial and reactions to be

measured.

(c) Catalogue Marketing

Catalogue marketing refers to marketing outputs through catalogues. There

are a few types of catalogues. Some of them are:

(i) Full-Line Merchandise Catalogues


(ii) Specialty Consumer Catalogues

(iii) Business Catalogues

All these catalogues are printed, in the form of CDÊs, videos or on-line.

(d) Telemarketing

Telemarketing refers to the use of telephone operators to attract new

consumers, current consumers or to take purchase orders. An effective

telemarketing depends on the right and accurate selection of the

telemarketer at the beginning stage, providing training to them and

providing performance incentives for the purpose of motivating them.

(e) Other Media for Direct Response Marketing

It involves the use of all major media types by the marketer in offering

directly to the potential customer. Major media include newspapers and

magazines and they are used by the marketers in advertising their

products. Through the direct marketing concept, consumers who are

interested towards the products that are advertised can phone the marketer

directly on a toll-free line. This form of advertising type can be done

through the television using three main methods:

(i) Direct Response Advertising

The latest example of direct response advertising is the toll-free line

which appears on the television screen for the purpose of placing

orders and also obtaining more information regarding the products

advertised.

(ii) At-home Shopping Channel

At-home shopping channel is a specific shopping channel reserved for

the sales of goods.

(iii) Videotext and Interactive Television

Through videotext and interactive television, television is connected

to the sellersÊ catalogues through cable lines or telephone. Consumers

are able to place orders through certain equipments which are

connected to modified systems. Research done recently points out

that most companies are in an effort to combine television, telephone

and computers towards creating an interactive television.

(f) Kiosk Marketing

Kiosk marketing refers to the customer-order-placing machines or better

known as kiosks. Kiosks are normally placed in warehouses, airports or at

other suitable locations. For example, The Florsheim Shoe Company uses

the kiosk method where the usage of it is able to make it easier for

consumers who wish to place orders for the shoes that they like. Various


types of shoes will appear on the screen. If the shoes that the customer is

interested in are not in that particular warehouse, the purchaser can contact

Florsheim by leaving his address or telephone number in order for the

shoes to be delivered.

The selection of various effective and successful direct marketing channels

requires each direct marketer to determine the objectives of using that

particular channel, target market and accurate potential customers,

important element strategies that involves (output, offer, middleman,

creative strategy and distribution method), campaign test, and

development measurements in deciding the success of a campaign.

9.8 ONLINE MARKETING Electronic channel is the latest direct marketing method. The word e-commerce

explains the meaning of multiple electronic platforms like message delivery to

the supplier through EDI (Electronic Data Interchange), usage of fax machines

and e-mails in carrying out various business dealings, the usage of ATM, smart

cards to ease payments, and the usage of the Internet or other telemarketing

services.

These electronic channels are network systems that involve two phenomenas,

namely digitalisation and connectivity. It is known as intranet if it involves

communication networks between departments or between employees in a firm.

Extranets involve communication networks between firms and their suppliers or

the firmÊs customers. Internet refers to the connection of the consumerÊs network

channels to the wide and amazing information corridor.

The e-commerce channel consists of two forms and they are:

(a) Commercial Channels

Commercial channels are on-line information or marketing services that are

created by most firms today for the purpose of making it easier for the

consumers to obtain specific information regarding the firm. Besides that, it

is for the purpose of making monthly payment easier, especially for

payment in the form of fees. Those channels normally provide information

in the form of news, references, sports and learning, entertainment, buying

services, opportunities to interact through bulletin boards, forums or chat

sites and e-mails.

(b) Internet

Internet is a global computer web network which is capable of shaping

global communication, fast and instantly. Through the Internet, users can


send e-mails, exchange and share opinions, purchase outputs, obtain and

receive news or obtain business information fast and quickly.

9.8.1 Advantages and Disadvantages of Online Marketing The main objective of online marketing is to look, get near, deliver and sell. The

advantages of using online marketing are:

(a) Big, medium and small-sized firms are capable of using this method of

marketing.

(b) Unlimited space for advertising.

(c) Able to look for and deliver information at a fast rate.

(d) The web sites can be visited by anyone who is interested.

(e) The buying concept is fast and has privacy.

From the angle of a potential purchaser, online service usage is convenient,

resourceful and reduces noise like persuasion and emotions that occurs when the

sales personnel meets the customers face-to-face. This is because they donÊt have

to meet the sales personnel.

From the marketerÊs angle, the benefits are listed below:

(a) Able to do adjustments fast especially when it comes to increasing the

outputs of the company, price changes, and output description.

(b) Reduce cost like insurance cost, rental or usage cost. The marketer is able to

produce digital catalogues which is able to reduce delivery and printing

cost.

(c) Able to have business relationships with customers or the other consumers.

(d) Online marketing is able to share information with a large number of

consumers.

The online marketing concept is not appropriate for all the companies or outputs.

The Internet is unsuitable to be used as an advertising media if an output needs

to be touched and checked immediately. However, there are large firms that use

this sales concept although they are aware that the output offered has to be

evaluated closely by the consumer. For example, computer companies and

florists practice online order concepts.


Although there are many benefit of using online marketing (the latest direct

marketing method), the marketer has to avoid campaigns that would create

elements of noise, unfairness, fraud and trespassing.

ACTIVITY 9.3 In your opinion, how far does online marketing influence the

community especially the younger generation like children?

9.8.2 Managing Online Marketing Online marketing can be handled through four methods and they are:

(a) Creating websites using the Internet.

(b) Online advertising.

(c) Joining forums, news groups and community-based websites.

(d) E-mails and web releases.

(a) Creating Websites Using the Internet

The marketer can place orders online through websites on the Internet.

There are two forms of websites on the Internet and they are:

(i) Corporate Websites

Corporate websites are formed by firms that wish to communicate

basic information regarding the firm. The information that is normally

found on websites are regarding the companyÊs history, mission and

philosophy, firmÊs outputs and also its location.

(ii) Marketing Websites

Marketing websites are formed to provide exposure and insights to

the consumers from the aspect of purchasing or other marketing

outputs. This includes catalogues, shopping guides, promotions,

competitions and others.

(b) Online Advertising

Online advertising can be done through three methods, and they are:

(i) Placing selected advertisements through certain sections that are

offered by the main online service provider.

(ii) Placing advertisements in news groups on the Internet for commercial

reasons.


(iii) Paying for online advertisements that appear when consumers or

customers survey services online or on the web.

(c) Joining Forums, News Groups, and Community-based Websites

Through this method, the firm can join or sponsor Internet forums, Internet

news groups and through Internet bulletin boards which focus on certain

consumer groups.

Internet forums are online discussion groups which are placed

commercially for the purpose of exchanging messages spontaneously. The

forum can operate in the form of a library, chat space or advertisement

directories.

News group is a version of internet forum. What differs here is, the group is

limited to those who send and read messages for certain topics only.

Internet users can join the news groups without having to subscribe. There

are various news group topics like healthy eating, methods of caring for a

bonsai tree, exchange of opinions regarding operas, stories and others.

The bulletin board system, on the other hand, refers to certain online

services that focus on particular topics or groups.

(d) E-Mails and Web Releases

Firms can encourage potential customers and the companyÊs customers to

send in questions, suggestions or comments to the company through the

usage of e-mails. By using e-mails, customer service is able to react fast and

instantly to them. Firms are also able to form Internet-based electronic

mailing list. By using e-mails, the marketer can send the companyÊs latest

news to the customers or the can send promotion offers on the company

special products, reminders, warranty renewals and the companyÊs

announcements.

Firms can also enter into agreements with any web casting service provider

such as Pointcast or Ifusion, that will automatically send information that is

needed by the consumers to their computers. For a paid monthly fee,

customers can decide on the channel and topics that are needed, either in

the form of news, company information or entertainment. The web casters

will be responsible in sending the information. It is better known by the

name Âpush programmingÊ. The online marketer looks at this matter as an

opportunity to send information or advertisements to the parties who

subscribe to this service without requiring the customer to demand for it.


ACTIVITY 9.4 Visit Pointcast at www.pointcast.com and Infusion at

www.ifusion.com to understand how web casting is done.

Essay Questions

1. Provide the meaning of direct marketing and explain the

advantages of direct marketing.

2. State the main channels of direct marketing. Explain clearly each of

the channel forms.

3. Discuss four sales force structures which can be used by the

management in designing sales force strategies and structures.

4. Explain briefly seven steps in the personal selling process that is

used in carrying out sales activities.

5. Explain the importance of direct marketing to the company in

businesses today.

6. Explain the differences between the consumerÊs database and the

marketerÊs database.

7. Explain the latest forms of direct marketing.

8. Explain briefly the benefits of using online marketing from the

purchaserÊs and marketerÊs perspective. Please state the elements

that have to be avoided in using this channel to keep away any

disaster that will occur.

EXERCISE 9.2


Direct marketing is an interactive marketing system that uses one or more

advertising media to obtain reactions that can be measured or to enable

business dealings to be done anywhere.

According to the latest trends, the world stresses widely on the usage of

direct marketing in the consumer market, business markets and donation and

contribution markets.

One of the most important direct marketing instruments is the ability to

create consumer databases that are used by the company (especially large

companies) in identifying potential customers, determining customers who

are most eligible to receive any form of the companyÊs offer, increase

customer loyalty, and also increase purchases among the consumers.

There are various forms of major direct marketing channels. The oldest form

of direct marketing channel introduced is face-to-face sales, followed by

direct delivery, catalogues, telemarketing, direct marketing through the usage

of other media, and kiosk marketing.

Online marketing is the latest direct marketing channel. It consists of two

types of direct marketing channels, namely the commercial channels and the

Internet.

The marketer can choose to handle online advertisements through the

development of websites using the Internet, online advertising, participation

in forums, news groups and community webs and through the usage of emails,

and web casting.

Direct marketing Electronic channel

INTRODUCTION Control is the last step in the marketing management process. However, its

implementation is together with the marketing tactic and strategy

implementation process. The control process is important in ensuring that all

marketing implementation strategies and techniques are as planned. The

marketing control process generally can be classified into three major sections,

and they are control mechanisms, surveillance and performance evaluation.

Control mechanisms refer to the usage of internal controls in the marketing

control process, while surveillance is the control step that is carried out together

with the marketing tactics and strategy implementation process. Performance

evaluation is marketing control implementation after all the marketing strategies

and techniques are implemented. The main reason for performance evaluation is

to measure how far the marketing tactics and strategy implementation reaches

the objectives that have been decided in the beginning process of marketing

management.

Topic Marketing

10 Control

2. Discuss the marketing control methods; and

3. Explore the marketing audit concept.


1. Explain the marketing control process;

1 60 TOPIC 10 MARKETING CONTROL

10.1 CONTROL PROCESS The marketing control process covers five important activities, like deciding on

performance standards, deciding on types of feedback, obtaining feedback,

evaluating feedback and implementing corrective actions. Figure 10.1 shows the

big picture of the implementation mechanism for the marketing control process.

10.1.1 Deciding on Performance Standards This step requires the marketer to select performance measurement standards.

Standards that are selected should be achievable and measurable. If the

standards selected involve rewards, the marketer has to take into account time

factor like monthly, quarterly or yearly. The marketer can use control methods

like profit analysis and sales as a performance benchmark or use consumer

satisfaction index as the basis for evaluation. Figure 10.1: Marketing control process

There are two methods to measure consumer satisfaction index: consumer

expectation measure and performance measure. Consumer expectation measure

refers to the act of understanding and measuring criteria that are used by

consumers to evaluate their satisfaction levels toward the product. Performance

measure on the other hand refers to measuring how far the marketer has

succeeded in fulfilling the consumerÊs expectations.

TOPIC 10 MARKETING CONTROL 161

10.1.2 Deciding on Types of Feedback There are various feedback data that can be selected by the marketer to be used

in deciding the types of feedback. Among the feedback data that can be used by

the marketer are the purchaserÊs feedback, intermediary, supplier, product

performance and business dealings.

10.1.3 Obtaining Feedback After deciding on the feedback type that will be used in the control process, the

marketer has to obtain that information. Feedback can be obtained from two

main sources, and they are:

� Internal sources such as sales records, purchase records and staff.

� External sources such as marketing research findings regarding consumer

behaviour, competitors and market trends.

All the feedback obtained has to be focused towards the evaluated unitÊs

performance, such as the achievement of sales groups or strategic business units.

10.1.4 Evaluating Feedback Every feedback has to be scrutinised and analysed in depth to help the marketer

in making accurate conclusions regarding the unitÊs performance that is being

evaluated. Marketers normally use various types of information to evaluate

performance, especially from the aspect of identifying weaknesses and

shortcomings of the evaluated unit.

10.1.5 Implementing Corrective Action ACTIVITY 10.1 Why does the manager has to carry out corrective actions?

If the evaluation results uncover that the unit analysed has succeeded in

exceeding the performance standards, motivational actions such as giving out

rewards, promotions, and salary hikes have to be implemented. If the evaluation

results discover that the unitÊs actual performance achievement is below or does

not meet performance standards that have been decided, then corrective actions

have to be carried out.


Based on the control process that is shown in Figure 10.1, the marketer has to

correct the performance standards. However, this action need not be carried out

by the marketer. The inability to reach performance standards that has been

decided may be due to the staffÊs incapability or inappropriate marketing tactics

or strategies. This means the marketer has to repeat certain steps in the

marketing management process. If the marketer finds the pricing strategy

ineffective, thus corrective action has to be taken towards that strategy.


1. List and explain briefly all the steps that have to be implemented

by the marketer in the marketing control.

2. Why does a marketer obtain feedback regarding staff achievement

and marketing activities?

10.2 CONTROL MECHANISM There are four methods or mechanisms that the marketer can choose from to

implement the marketing control process. Those methods are:

(a) Annual-plan control

(b) Profitability control

(c) Efficiency control

(d) Strategic control

10.2.1 Annual-plan Control Most business organisations prepare plans or annual-planning control systems.

This method is provided to make it easier to achieve all the objectives that have

been decided in the marketing management process, especially from the aspect

of target sales, profitability or market share dominance. There are five evaluation

methods that can be used by the marketer to come up with annual plan methods.

Those methods are sales analysis, market-share analysis, sales expenses analysis,

financial analysis and market analysis.


(a) Sales Analysis

Sales analysis is done to evaluate sales outcomes based on the relationship

between inputs and outputs. This means, sales analysis covers

measurement and evaluation of actual sales as compared to the sales

objectives that have been decided by the marketer. There are four forms of

sales analysis that can be chosen by the marketer, which are the territorial

sales analysis, product sales analysis, sales analysis based on the order size

and sales analysis based on purchasers. (According to purchasersÊ

categories, namely individual or organisational consumers or specialised

purchasers).

(b) Market-share Analysis

Market-share dominance analysis is an important indicator towards the

actual performance of the company as compared to its competitors. There

are four methods of measuring market share which can be chosen by the

marketer, which is the overall market share, served market share, relative

market share as compared to two largest competitors and relative market

share as compared to the largest competitor.

(i) Overall Market Share

Overall market share analysis compares the companyÊs total sales

with the markets overall sales.

(ii) Served Market Share

Through the served market-share analysis, the marketer compares

sales with the total sales of the overall served market.

(iii) Relative Market Share Comparing Two Largest Competitors

Relative market-share analysis compares the market shares of two

largest competitors in the market. If the comparison ratio value

exceeds one third (1/3), the marketerÊs market share is stable. The

reverse is true if the comparison ratio value is less than one third

(1/3).

(iv) Relative Market Share as Compared to the Largest Competitor

This method is similar to the market-share analysis comparing two

largest competitors. However, the marketer only compares the

companyÊs market share with the largest competitor in the market.

(c) Sales Expenses Analysis

This analysis is for the purpose of ensuring the marketer spends smartly or

wisely to reach the objectives that have been decided in the marketing

management process. Through this method, total sales expenditure will be

compared with sales outcomes obtained. The larger the ratio value, the

lower the performance achievement for the marketing strategy

implementation.


(d) Financial Analysis

This method helps the marketer identify factors that influence net return

rates. Some of the factors evaluated are profit contributions, asset turnover,

return on asset and financial leverage. This means, the marketer has to

analyse asset composition like cash flow, accounts receivables, inventories

and equipment.

(e) Market Analysis

Different from the other four market share analysis methods that have been

discussed before this. This method doesnÊt count the financial factor in

analysing the companyÊs performance. Through this method, the marketer

evaluates factors like the total number of new purchasers, purchasers who

are not satisfied and the target consumerÊs awareness level before a

conclusion regarding the marketÊs performance is made.

10.2.2 Profitability Control Through these control mechanisms, the marketer has to determine cost that is

required for each marketing activity that is to be carried out as stated in the

marketing plan. This indirectly acts as a guide for profit levels that will be

obtained. The marketer can use the full costing or the direct costing method.

Through the full costing method, the marketer has to determine direct cost,

variable cost and indirect cost in the cost calculation. In the direct costing

method, the marketer will use the contribution accounting method to calculate

costs that will be incurred during the marketing activities. Besides using the

contribution accounting method to calculate costs and profits, the marketer can

also use the activity-based cost accounting method, which is a detailed

accounting method for each marketing activities costing like advertising, sales

and production.

10.2.3 Efficiency Control Efficiency control is a control method which is used to complete the other control

mechanisms especially the profitability control method. Through this method,

the marketer will evaluate each unitÊs performance or special activities like the

sales teams effectiveness, advertising activities and distribution.

10.2.4 Strategic Control Strategic control is a comprehensive and systematic control system for the entire

performance attainment by all the units and activities. This control method is

often used by marketers in the strategic business unitÊs control process.


ACTIV I T Y 10.2 If you are a marketer, how will you control the smoothness of your

marketing control activities? What are the control steps that you will

undertake?

Strategic control normally involves analysis on strengths, weaknesses, threats,

and opportunities (SWOT analysis which was discussed in Topic 2). This

strategic control method is capable of answering a few important questions in the

marketing management process, especially from the aspect of competitorÊs

environmental changes, objectives and strategies of competitors, changes in the

industryÊs trends, opportunities and threats in the market, and the influence of

technological environmental changes. Normally, marketers will use marketing

audit to implement strategic control.

10.3 MARKETING AUDIT The concept of marketing audit was introduced by Kotler, Gregor and Rogers in

1977. The implementation process of marketing audit is similar to the

implementation process of marketing control as shown in Figure 10.1. However,

the steps that are involved in marketing audit are briefer and more

comprehensive. Figure 10.2 shows the marketing audit process.

Same as the marketing control process, marketing audit starts with the setting of

objective and scope determination (control standards) and marketing control

measurement methods. The next step is the marketer has to obtain data on

feedback. There is obvious difference between marketing audit and the feedback

process, from the aspect of need to evaluate feedback data. Through marketing

audit, the marketer has to collect and prepare reports about the findings. Figure 10.2: Marketing audit process


EXERCISE 10.2 Fill in the Blanks

1. Marketing control is the __________________ step in the

marketing management process.

2. The marketing control process is divided into

_________________steps and it starts with the

_________________step.

3. Steps to scrutinise and research in depth every piece of

information on the organisationÊs achievement is done in the

______________ step.

4. _______________________ step has to be carried out if the

marketer finds that implementation does not meet planning.

5. _______________________ analysis uses the companyÊs sales

achievements as compared to the marketÊs overall sales as a

performance evaluation measure.

6. __________________ control has similarities with marketing

audit.

Essay Questions

1. List and explain briefly all the control mechanisms that can

be used by the marketer.

2. List and explain all methods that can be used by a company

through the annual plan control mechanisms.

3. How far does marketing audit differ from the traditional

marketing control process?


Marketing control is an important step in the marketing management process

to ensure all marketing activities and strategies are implemented as planned.

Marketing control can be divided into three sections that always complement

each other; control mechanisms, supervision, and performance evaluation.

Marketing audit is the latest tool that is comprehensive and can be chosen by

the marketer in order to create a control process that is systematic and

meticulous.

Annual-plan control Profitability control

Efficiency control Strategic control

Marketing audit

ANSWERS

168

Answers TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE CYCLE Exercise 1.1 Essay Questions

1. Market positioning is a process that creates differences in the consumerÊs

mind about the products that are offered or about the business.

2. This basic difference is present in a business due to the tough competition

in business. Every business will compete with the other to obtain sales or its

own markets by differentiating its business from the others. It will

differentiate its business based on multiple perspectives known as the basis

for differentiating. Therefore, principles of business in businesses exist.

Exercise 1.2 Essay Questions

1. A high quality product generally has the following characteristics:

(a) A famous brand and a well-known reputation in quality

(b) Looks firm

(c) Does not have any defects or repairs

(d) Good performance

(e) Long lasting

(f) Features look interesting and unique

2. Generally product life cycles consists of four stages as follows:

(a) Introduction Stage

The product is newly introduced in the market. Consumers are

ignorant and they are not aware of the introduction of the product

and profits are very low or negative at the moment. This is caused by

the heavy expenses incurred during the product introduction stage

and low sales volume.

ANSWERS

169

(b) Growth Stage

At the growth stage, sales increases tremendously. Consumers are

aware of the existence of the product in the market and they have

purchased the product for the first time. Profit increases and is at a

profit-making level. Competitors start entering the market and offer

the same or similar products.

(c) Maturity Stage

At the maturity stage, profits and sales start to reach the maximum

level. The other companies start to offer similar or identical products.

Therefore, consumers have options. At this moment, competition is

tough and there are many competitors in the market.

(d) Decline Stage

At the decline stage, sales and profits decline until there arenÊt any

sales or profits anymore. When this happens, that particular product

will disappear from the market.

TOPIC 2 NEW PRODUCT DEVELOPMENT Exercise 2.1 Essay Questions

1. There are a few reasons why a product can fail in the market and they are:

(a) The new product is not distinctively different from the other products

in the market and it is not unique

(b) Insufficient advertising support and other promotions

(c) Market research was not done in advance

(d) Insufficient budget allocation

(e) Insufficient support from the top management

(f) New product idea was not very efficient or rational, but it was still

continued by management because it was their idea

(g) CompetitorsÊ strength and strategy was not evaluated in advance. In

the end, the company is unable to compete with the other competitors

(h) Selling price is too high as compared to the product quality

2. Sources that can be referred to obtain ideas for new products are as follows:

(a) Personnel or employees

(b) CompanyÊs customers

(c) Competitors and suppliers

(d) Through research conducted

ANSWERS

170

TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS Exercise 3.1 Essay Questions

1. Convenience goods consist of:

(a) Emergency Goods

Emergency goods are purchased when a need is present, such as

umbrellas when it is raining and candles when there is a power

failure.

(b) Staple Goods

Staples are basically food stuff used daily, such as eggs, rice and fish.

(c) Spontaneous Goods

These are products bought spontaneously when we look at them. The

products are priced low and consumers donÊt think much when they

purchase them. Spontaneous goods are products bought at the spur of

the moment, like newspapers, chocolate, magazines and other

products displayed at the supermarketÊs payment counter.

2. The various functions of packaging are:

(a) As a container to contain and protect the product.

(b) Makes it easier for the distributor to store, arrange and display

products at their stores. It also makes it easier for the consumers to

store the products that are purchased.

(c) Packaging can be used as the basis for segmentation as well. Small

packages for the singles and large packages for family consumption.

(d) As a communication and promotion tool directed to the consumers.

(e) As an element that can be used in the new product development.

There are companies that change packaging shapes and promote them

as a new product although the basic product doesnÊt change.

ANSWERS

171

TOPIC 4 MANAGING SERVICES MARKETING Exercise 4.1 Essay Questions

1. Services are seen as a series of actions, processes and implementation that

cannot be viewed. A service is any act or performance that one party can

offer to another that is essentially intangible and does not result in the

ownership of anything.

The main forms of services are:

(a) Pure Tangible Goods

This consists primarily of a tangible good such as soap, toothpaste, or

salt. No services accompany the product.

(b) Tangible Goods with Accompanying Services

This consists of tangible goods accompanied by one or more services.

For example, Proton and Perodua offer cars and after-sales-service.

(c) Hybrid

The offering consists of equal parts of goods and services. For

example, people patronise restaurants for both food and services like

good treatment from the restaurantÊs waiters.

(d) Major Service with Accompanying Minor Goods and Services

For example, Malaysian Airlines SystemÊs (MAS) basic product is

transportation and the supporting services include in-flight food and

baggage service to the consumers.

(e) Pure Services

The offering consists primarily of a service. Examples include babysitting,

psychotherapy, and massage.

2. Three service mix categories that are normally experienced or referred to as

assessment factors while purchasing services are:

(i) People

Human management refers to the involvement of individuals either

personnel, firms, users or other consumers in conveying and

influencing buyerÊs perceptions.

ANSWERS

172

(ii) Physical Evidence

Physical evidence refers to the surroundings where the service is

offered, the firm and consumers interact and any tangible component

that enables communication to take place.

(iii) Process

Processes involve actual procedures, mechanisms and activity flows

where services are offered including the offer process and service

operations.

3. The characteristics that differentiate services intangible elements from the

tangible elements of physical products are:

(a) Unlike physical products that can be felt, smelled and tasted, services

cannot be seen, tasted, felt or smelled.

(b) Compared to a physical product, the existence of intangible elements

in services causes a need to create elements that are more tangible or

seen. For example, like a companyÊs employees, equipment, facilities,

or symbol.

4. Characteristics cannot be separated means doing the sales first, and then

followed by producing and using simultaneously. To minimise this element,

the suppliers of services can offer services towards large groups or create an

efficient waiting line system to avoid congestion or encourage group visits.


1. (a) Intangibility:

Services cannot be seen, tasted, felt or smelled.

Effects:

There is a need to create elements that are more tangible or seen as

compared to intangible elements. For example like, companyÊs

employees, equipment, facilities or symbol.

(b) Inseparability:

This characteristic means doing the sales first, and then followed by

producing and using simultaneously.

Effects:

The suppliers of services can offer services towards large groups or

create an efficient waiting line system to avoid congestion or encourage

group visits.

ANSWERS

173

(c) Variability:

Variability is described as different service delivery processes.

Effects:

Recruiting the right employees or monitoring customer satisfaction

through suggestions, positive criticisms and research directed towards

consumers. Standardising that particular service.

(d) Perishable:

It refers to the statement that services canÊt be stored, saved, resold or

returned.

Effects:

Pricing differently for peak hour demand and non-peak hour demand.

Creating a booking system or using additional temporary employees

during peak hours or encouraging self-service.

2. (a) People

Human management refers to the involvement of individuals either

personnel, firms, users or other consumers in conveying and

influencing buyerÊs perceptions.

(b) Physical Evidence

Physical evidence refers to the surroundings where the service is

offered, the firm and consumers interact and any tangible component

that enables communication to take place. For example, business cards,

formal reports, catalogues, equipment, and buildings.

(c) Process

Processes involve actual procedures, mechanisms and activity flows

where services are offered including the offer processes and service

operations. Service firms can afford to vary their processes in delivering

their services to consumers. For example, a restaurant with a cafeteria

concept, fast food, buffet and romantic candlelight services.

3. (a) External Marketing

External marketing refers to external communication and market

expansion from the suppliers to the users that involve marketing mix

like advertising, sales promotion, public relations, direct selling or online

selling.

ANSWERS

174

(b) Interactive/Relationship Marketing

Interactive or relationship marketing involves an interpersonal

relationship which is carried out by an employee with a consumer

through channels like personal selling, customer service centres, service

encounters and servicescapes. It involves utilising an employeeÊs skills

and knowledge in managing consumers.

(c) Internal Marketing

Explain methods of training and motivating employees in making sure

customers are satisfied with the services that they receive. To ensure the

company reaches its objectives successfully, internal marketing

communication has to be managed meticulously so that communication

between the employees are accurate, clear and consistent with what is

seen and heard by the consumers.

TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING Exercise 5.1 Essay Question

1. Internal factors:

Marketing Objectives.

Strategy.

Cost.

Organisation.

2. External Factors

Market and Demand.

CompetitorÊs Price and Offer.

Other Factors (economy, sales personnel, government).


1. Step 1: Selecting the pricing objective

Step 2: Determining demand curve

Step 3: Estimating costs

Step 4: Analysing competitorsÊ costs, prices, and offer

Step 5: Selecting a pricing method

Step 6: Selecting the final price

ANSWERS

175

2. (a) Step 1: Selecting the Pricing Objective

The major objectives that are normally used by firms are survival,

maximise current profits, market share leadership, and product

quality leadership.

(b) Step 2: Determining Demand Curve

The firm needs to estimate the quantity that can be sold at each

alternative price.

(c) Step 3: Estimating Costs

A firmÊs costs refer to output cost, distribution cost and output sales

cost. Cost estimation has to be done to look at how the firmÊs cost

differs at different output levels, increases in outputs and market

offers which is done by a firm to satisfy consumer needs.

(d) Step 4: Analysing CompetitorsÊ Costs, Prices, and Offer

A firm has to take into account the cost, price and the possibility of

price changes that are done by the competitors in setting their prices.

From the perspective of the output offered, if the firm offers

something that is similar to its competitors, the price set has to be

more or less than its competitors. If not, the firm will lose its market.

(e) Step 5: Selecting a Pricing Method

Some of the pricing methods are:

Markup pricing

Target-return pricing

Perceived-value pricing

Going-rate pricing

Auction-type pricing

(f) Step 6: Selecting the Final Price

Before the final price is decided, the firm has to take into account

additional factors including psychological pricing factors besides the

influence from other marketing mix elements on pricing, the firmÊs

pricing policy and the effects of pricing on others.

3. The four main objectives of pricing are:

(a) Survival: Survival refers to low price setting for the purpose of

generating high demands. In this situation, the survival concept is

more important than profit.

(b) Maximising Current Profits: Pricing is based on the difference

between cost and demand at different prices that is able to produce

current profits, cash flow and maximum return on investment.

ANSWERS

176

(c) Market Share Leadership: Price is set at the lowest level to enjoy low

cost and high profits for the long run.

(d) Product Quality Leadership: Normally, the company sets a high

prices because it involves high quality and research and development

cost.

4. The total break even for the output is:

Variable cost = RM20

Fixed cost = RM400, 000

Expected sales = 50,000 units

Cost per unit for the output is:

Baju Kurung Cost =

Variable Cost + Fixed Cost

Total Sales

=

RM20 + RM400,000

50,000

= RM8

If the seller wants to earn a 20% markup on sales, the sellerÊs markup price

will be:

Markup Price =

Unit cost

(1-% of Markup or desired return on sales)

=

RM8

RM9.10

1-0.12

Breakeven point (unit) =

Fixed Cost

(Price - Variable cost)

=

RM400, 000

(RM 30 - RM 20)

= RM40 000


1. (a) Countertrade refers to business transactions that involve nonmonetary

payment or payment that does not involve money.

(b) The following are the forms of countertrades and its explanation:

(i) Barter System

The direct exchange of goods, with no money and no third party

involved. For example in 1993, Eminence S.A., one of FranceÊs major

ANSWERS

177

clothing makers, launched a five-year deal to barter $25 million worth

of U.S. produced underwear and sportswear to customers in eastern

Europe, in exchange for a variety of goods and services, including

global transportation and advertising space in eastern European

magazines.

(ii) Compensation Deal

The seller receives a big portion of the payment percentage in cash

and a small portion of the reminder in products. A British aircraft

manufacturer sold planes to Brazil for 70 percent cash and the rest in

the form of coffee.

(iii) Buyback Arrangement

The seller sells a plant, equipment or technology to another country

and agrees to accept as partial payment products manufactured with

the supplied equipment. The other half of the payment is made in

cash.

(iv) Offset

The seller receives full payment in cash but agrees to spend a

substantial amount of the money in that country for a fixed time

period.

2. The types of pricing discrimination that is normally done by a firm in the

pricing strategy is as explained below: (any of the four types below is

sufficient to answer the question)

(a) Segment Pricing

Different customer groups are charged different prices for the same

products or services. For example, museums often charge a lower

admission fee to students as compared to the adults.

(b) Product-Form Pricing

Different versions of the product are priced differently but not

proportionately to their respective costs. For example, the canned

Coke is cheaper than the bottled Coke although the quantity is the

same in both.

(c) Image Pricing

Pricing is decided based on the image of the products or services.

(d) Location Pricing

The same product is priced differently at different locations.

(e) Time Pricing

Prices are varied by season, month, day or hour.

ANSWERS

178

3. Suitable discounts and allowances pricing strategy is used in the following

situations:

(a) The firm wants to encourage buyers to make early payment

(b) Purchases involving large volumes

(c) Off-season buying

Some of the forms of discounts and allowances are:

(a) Cash Discounts

Cash discount is a price reduction to buyers who pay promptly or pay

in cash.

(b) Functional Discounts

Functional discount, also known as trade discount, is a reduction in

list price offered to middlemen for performing certain functions.

(c) Quantity Discount

Quantity discount is a price reduction to those who buy in large

volumes.

(d) Seasonal Discount

Seasonal discount is a price reduction to those who buy merchandise

and services out of season.

(e) Trade-in Allowances

Trade-in allowances are granted for turning in an old item when

buying a new one.

(f) Promotional Allowances

Promotional allowances are allowances that are given to dealers for

participating in advertising and sales support programmes.

4. If the firm wishes to maximise profits for the entire total output line, the

appropriate pricing strategy is the output mix pricing strategy. Five

determinants involved in this strategy are:

(a) Product-line Pricing

This strategy is adopted when the firm has a few product lines. Each

product line is priced differently. Through this strategy, the firm has

to look at the overall product lines to ensure that the new modelÊs

price is in the price range of the current products. The setting of prices

has to take into account cost differences between the product lines,

consumer evaluation on varying elements and competitorÊs pricing.

(b) Optional-feature Pricing

Many companies offer optional products, features and services along

with their main products. For example, a person who purchases a

ANSWERS

179

computer may purchase additional accessories like modem, speakers

and other accessories.

(c) Captive-product Pricing

This strategy is used by firms that offer products that have to be used

with a main product. Take for example, the price of a box of film with

a camera. For services, this strategy is known as two-part pricing.

Telephone users pay a minimum monthly fee plus charges for calls

made.

(d) By-product Pricing

If the by-products have value to a customer group, they should be

priced on their value. For example, chicken farmers use this strategy

in valuing their manure, setting prices and informing interested

potential customers.

(e) Product-bundling Pricing

Sellers often bundle products and features. For example, a special

package that is offered by a hotel supplier or software supplied for

personal computers. The seller normally charges less for the bundle

than if the items were purchased separately.

TOPIC 6 MANAGING MARKETING CHANNELS, INTERMEDIARIES AND PHYSICAL DISTRIBUTION

Exercise 6.1 Essay Question

1. The marketing channel refers to an organisation group that is

interdependent and is involved in processes to ensure the firmÊs products

are able to be delivered, purchased and consumed by the customers.

2. The four marketing channels are:

(a) Zero-level Channel

A zero-level channel also called a direct marketing channel consists of

a manufacturer selling directly to the final consumer. Examples of

direct marketing are personal selling like Avon, Amway and

Tupperware, telemarketing, internet selling, manufacturer-owned

stores and TV selling.

ANSWERS

180

(b) One-level Channel

A one-level channel involves the usage of retailers as middlemen.

(c) Two-level Channel

A two-level channel involves the usage of two intermediaries,

normally wholesalers and retailers. This marketing channel normally

takes place in consumer markets.

(d) Three-level-Channel

A three-level channel involves the usage of three intermediaries, like

wholesalers, jobbers and retailers. This normally happens in industrial

markets like the meat packaging industry.

3. The major elements that become reference points for firms in a channel

design system are:

(a) Analysing customer needs;

(b) Establishing channel objectives,

(c) Identifying major channel alternatives, and

(d) Evaluating major channel alternatives.

4. The three important elements are:

(a) Types of Business Channel or Appropriate Intermediaries:

It involves the firmÊs knowledge about the appropriate channel types

to perform channel related work on the firmÊs behalf. Some types of

intermediaries who are normally appointed are companyÊs sales force,

agents and industry distributors.

(b) Number of Channel/Intermediaries Needed:

It involves three main strategies, namely:

(i) Exclusive distribution

(ii) Intensive distribution

(iii) Selective distribution

(c) Rules and Responsibilities for Every Channel Member:

The roles and responsibilities of every channel member refers to

pricing policy, terms and conditions of sales, territorial rights, and

certain services that have to be carried out by every appointed

channel member.

5. The difference between the three are:

(a) Exclusive Distribution

Exclusive distribution means severely limiting the number of

intermediaries. It is used when the producer wants to maintain

control over the service level and output offered by the resellers.

ANSWERS

181

Granting of exclusive rights is normally evident in distribution of new

automobiles and a few prestige goods.

(b) Selective Distribution

Selective distribution involves the use of more than a few but less than

all of the intermediaries who are willing to carry a particular product.

Most products like television, furniture and some of the electrical

appliances normally involve retailers or selected agents only.

(c) Intensive Distribution

Intensive distribution consists of the manufacturer placing the goods

or services in as many outlets as possible. This strategy is generally

used for items such as tobacco products, gas, snack food, soap and

others.


1. (a) Exclusive Dealings

Exclusive dealings refer to the arrangements done between the firm

and the intermediary. For example, the dealers cannot handle

competitorsÊ products; dealers can only handle the firmÊs products.

Exclusive arrangements are legal as long as they do not substantially

lessen competition or tend to create a monopoly, and as long as both

parties enter into the agreement voluntarily.

(b) Exclusive Territories

Exclusive territories refer to certain areas of intermediaries. It is legal

as long as the intermediary does not sell the products outside the

predetermined territory.

(c) Tying Agreements

Producers of a strong brand sometimes sell it to dealers only if they

will take some or all of the rest of the line. This practice is called fullline

forcing. Such tying agreements are not necessarily illegal but it

will become a violation if the elements of market monopoly exist.

(d) DealersÊ Rights

Producers are free to select their dealers, but their right to terminate

dealers is somewhat restricted. In general, sellers can drop dealers

„for cause‰ or for reasons stated in the agreement.

ANSWERS

182

2. Forms of power that are normally implemented to elicit cooperation are:

(a) Coercive Power

A manufacturer threatens to withdraw a resource or terminate a

relationship if intermediaries fail to co-operate.

(b) Reward Power

The manufacturer offers intermediaries and extra benefit for

performing specific acts or functions.

(c) Legitimate Power

The manufacturer requests a behaviour that is warranted under the

contract. For example, Proton requests its agents to carry a certain

amount of stock in their area as part of the agreement done.

(d) Expert Power

The manufacturer has special knowledge that the intermediaries

value. Normally, it refers to the technology which is owned by the

manufacturer. The manufacturer permits the agent to use the

technology if without using it, the agents cannot increase their

performance level and they will be left behind.

(e) Referent Power

The manufacturer is so highly respected that intermediaries are proud

to be associated with it. For example, companies like IBM,

McDonaldÊs and Rolex have high referent power, and intermediaries

are normally willing to cooperate in all ways desired by the firm.

3. The differences are:

(a) Channel Dynamics of a Vertical Marketing System: Comprises the

producers, wholesalers, and retailers acting as a unified system. Each

channel member co-operates under one entity and is capable of

forming a big power of influencing the market.

(b) Traditional Marketing Channel System: Comprises an independent

producer, wholesalers and retailers. Each is a separate business

seeking to maximise its own profits. There is no complete control over

the appointed channel members.

ANSWERS

183 Figure 6.2: Dynamic vertical marketing system

Figure 6.4: Multi-channel marketing system

Explanation:

Channel dynamics of a vertical marketing system comprises the producers,

wholesalers, and retailers acting as a unified system. Each channel member

co-operates under one entity and is capable of forming a bigger influence

on the market. While the multi-channel marketing system involves a single

firm, using two or more marketing channels to reach one or more customer

segments. Through the diagram, the firm sells consumer segment 1 direct

through catalogues, telephone and other forms of telemarketing. Then, the

firm sells its outputs to consumer segment 2 through retailers. For the

industrial consumers, the firm sells indirectly to industrial segment 1 using

distributors and agents. For industrial segment 2, firms use their own sales

force.

ANSWERS

184

4. The vertical marketing channel consists of:

(a) Corporate Vertical Management System

A corporate vertical management system combines successive stages

of production and distribution under single ownership. Vertical

integration is a system that is needed by a company that needs a high

control level for each channel that exist. For example, Toyota owns

equity in most of its major suppliers in the world and this makes it

one of the giant companies that are still surviving till today.

(b) Contractual Vertical Management System

A contractual vertical management system consists of independent

firms at different levels of production and distribution integrating

their programmes on a contractual basis to obtain more economic or

sales impact than they could achieve alone. Contractual vertical

management system consists of three forms:

(a) Wholesaler-sponsored voluntary chain

(b) Retailer co-operatives

(c) Franchise organisations

(c) Administered Vertical Management System

An administered vertical management system co-ordinates successive

stages of production and distribution through the size and power of

one of the members, and not through normal ownership or

contractual ties. Famous brand producers like P&G, Kraft and

Campbell Soup are able to command high levels of co-operation from

their resellers in connection with displays, shelf space, promotions

and price policies.

The difference between manufacturer-sponsored, retailer cooperatives and

franchise organisations are listed below:

(a) Wholesaler-Sponsored Voluntary Chains

Wholesalers organise voluntary chains of independent retailers to

help them compete with large chain organisations. The wholesaler

develops a programme in which independent retailers standardise

their selling practices and achieve economies of scale that enable the

group to compete effectively with other chain organisations.

(b) Retailing Cooperatives

Retailers take the initiative and organise a new business entity to carry

on wholesaling and possibly some production. Members concentrate

their purchases through the retailer co-operation and plan their

advertising jointly. Profits are passed back to members in proportion

to their purchases.

ANSWERS

185

(c) Franchise Organisations

A channel member called a franchisor might link several successive

stages in the production-distribution process. There are three types of

franchise organisations:

Manufacturer-Sponsored Retailer Franchise System

Manufacturer-Sponsored Wholesaler Franchise System

Service Firm-Sponsored Retailer Franchise System

Exercise 6.3 Fill in the Blanks

1. Individual

2. Limited-service


1. Non-store

2. Retailing Wheel

3. do not take title to goods and do not bear any risk towards the business

transaction

4. order processing, transportation, warehousing and inventory management

Essay Questions

1. (a) Bulk Breaking

The manufacturer faces problems in marketing products to end-users

(individual or organisation) because of the problem in the quantity

offered. Thus, the presence of intermediaries especially wholesalers

help manufacturers in marketing their products in smaller quantities

according to the consumersÊ needs.

(b) Product Promotion

Besides distributing products, intermediaries play an important role

in the promotion of the product to the consumers either individually

or in collaboration with the manufacturer. For example, the

wholesaler gives trade discounts to retailers or retailers have sales

promotion for the consumers.

ANSWERS

186

(c) Transportation

Intermediaries especially wholesalers provide efficient transportation

services in the physical distribution of products for the manufacturers.

Normally, the intermediary is liable for the transportation cost of the


(d) Risk Bearing

The wholesaler or retailer purchases the product from the

manufacturer. This means, the intermediary has transferred the

financial risk from the manufacturer onto itself. Besides that, there are

wholesalers who grant credit payment to their retailers or retailers

who grant credit sales to the customers. This means, besides helping

the manufacturer to avoid losses, the intermediary also assumes risk

through the granting of credit services to the other intermediaries or

consumers.

(e) Market Information

Intermediaries especially retailers are known to understand better the

needs and wants of consumers as compared to the manufacturer.

Normally, the intermediary will pass the latest information regarding

customerÊs taste and preference to the manufacturer for them to act

upon.

(f) Warehousing Services

Besides providing transportation services, there are a few

intermediaries especially wholesalers who provide warehousing

services for the manufacturers in the physical distribution of their


(g) Consultation Services

Some of the intermediaries like wholesalers or agents (brokers)

provide business consultation services to the organisational users

from the aspects of materials and financial management. Besides that,

some retailers also provide consultation services to the consumer,

especially from the aspect of product usage and financial consultation

to their customers.

2. Wholesalers and distributors can be differentiated based on the

involvement of wholesalers and retailers with individual consumers. Most

writers state that the main difference between wholesalers and retailers is

from the aspect of purchase volume, which is wholesalers buy in bulk while

retailers buy in smaller order sizes. There are writers who see the difference

between wholesalers and retailers from the aspect of volume of sales to the

consumers, which means the wholesaler sells in bulk while the retailer sells

in smaller quantities.

ANSWERS

187

Based from the question in ÂYour IdeaÊ, you cannot differentiate The Store

supermarket network with the rice wholesaler at your place based only on

the purchase or sales quantity of both the organisations. This is because the

purchase quantity by The Store network is far larger than the rice

wholesaler. Thus, opinions that state wholesalers and retailers can be

differentiated through business transactions are more accurate.

Wholesalers and retailers can be differentiated based on statements that

says that wholesalers donÊt have business transactions with individual

users. This means that if Din Borong supermarket or the retailer at

SelangorÊs Wholesale Market have business transactions with individual

users, that particular trader cannot be categorised as a wholesaler. If

attention is given towards the business transaction that is done by that

trader, a mixed business transaction is being carried out, part retailing and

part wholesaling. Wholesaling only affects transactions with organisational

users especially retailers while most business transactions are retailing

(individual or mass).

3. As stated in the beginning, wholesaling activities have shown a relatively

huge increase from the 1990Ês. Although the number of wholesalers is

decreasing by the day caused by the changes in consumerÊs taste and

preference and the influence of technology, the volume of business through

wholesaling is increasing steadily. Besides that, wholesalers are more

aggressive in carrying out marketing activities to be noticed in the product

distribution system, especially from the aspect of sales, transportation and

product promotion.

Thus, it is of no surprise that there are certain brands that are owned by

wholesalers through the private brand strategy. Through the private brand

strategy, wholesalers will support that particular brand in the market

through distribution, pricing and integrated promotion.

4. The integrated physical distribution management system or the integrated

logistics system refers to a logistic management quality that is solid and

complement aspects of the distribution system. Although the marketing

logistics management process involves four different components, the

marketer has succeeded in creating and effective and systematic logistic

management system. Normally, the usage of modern technology especially

information technology using electronic communication network and barcode

systems are able to help marketers in creating the best integrated

logistics management system. Besides using technology, the following

formula will aid marketers in creating the best integrated logistics

management:

ANSWERS

188

M = T + FW + VW + S

Where:

M = total market logistics cost

T = total transportation cost

FW = total fixed warehouse cost

VW = total variable warehouse cost

S = total cost of lost sales due to average delivery delay

TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS Exercise 7.1 Essay Questions

1. (a) Advertising

Advertising is any form of non-personal presentation paid by a

sponsor to promote ideas, organisations or products. The media that

are normally used are the television, radio, newspaper and

magazines, advertising boards and the latest is the Internet.

(b) Sales Promotion

Sales promotion is a variety of short-term incentives to encourage

trial or purchase of a product or service. It is a promotion paid by a

sponsor and normally it is used to encourage consumers for a

particular time period. Examples of sales promotion are samples,

coupons, cash rebates, premiums and discounts.


Public relation is an activity or effort by a company to:

build good relationship with the public

obtain good publicity

build a positive corporate image and keep away negative stories,

incidents or rumours

obtain opinions, behaviour, and the publicÊs perception towards

the company and its products

ANSWERS

189

The public includes customers, suppliers, government, employees

and the surrounding community. Public relation is a promotion that

is often believed by the general public because of the publicity

obtained by the firm or output in the form of news. For example,

when a company introduces an innovative new product in the

market, the company can attempt newspaper coverage, news

coverage on the television and radio. Thus, public relation is one form

of effective communication to introduce a company and its products

to the market at a lower cost.


Personal selling is a direct presentation by the companyÊs sales force

to the customers to obtain sales and build relationships between each

other. It is directed straight to the end users and it is done either

through face-to-face or through the telephone. Personal selling is able

to persuade and influence buyers to accept an opinion or to purchase

a product. Now, personal selling is used to build long-term

relationship between the company and consumers or future

consumers.


Direct marketing is a form of marketing communication that connects

the marketer with the target consumers to obtain instant feedback. It

uses telephone, mail, fax, e-mail, the Internet and other

communication tools to connect the marketer with a specific

consumer. Thus, the usage of direct marketing creates a good

relationship between the marketer and the consumer.

2. There are nine basic elements in the communication process. The marketer

needs to analyse each element to enable more effective delivery of message

to the customers. The main elements in the communication process are:

(a) Sender

The sender is a source of a message or the original message in the

communication process. It consists of individuals or organisations.

For example; family, friends, or sales force. Companies can also use

spokespersons who are celebrities to advertise and promote their

products. The perception of receivers towards a source can influence

their purchase, so the company has to be careful in choosing their

spokesperson.

(b) Encoding

Encoding is the process of transforming ideas, thought or the senderÊs

opinion in the form of words, symbols, pictures, signs or others so

that it is easier for the receiver to understand. The usage of these

ANSWERS

190

symbols will aid the company in delivering a message more

effectively. If a symbol is well-known such as sports equipment

brands like Adidas, Nike, Puma and Reebok, then it is better for these

companies to use these symbols in the message delivery because

these symbols are easily identified and well-known.

(c) Message

Message is an encoding process that transforms ideas to information

in the verbal, writing or symbol form.

(d) Media

Media are communication channels which are used to send messages

from the sender to the receiver. Message moves through the

communication channel that is choosen by the sender.

Communication channel consists of non-personal or non-time

sensitive media. Through mass media messages can be spread widely

to more individuals at the same time. For example, advertising on the

television, radio and newspapers.

(e) Decoding

Decoding is a process when the receiver interprets or assigns

meanings towards certain messages which the sender is trying to

communicate. That message, may consist of symbols, and will be

interpreted by the receiver according to their understanding. Thus, to

guarantee communication effectiveness, the sender needs to

understand the receiver more closely in terms of knowledge and

character.

(f) Receiver

Receiver is the party which receives the message from the sending

party. The receiver may consist of the public who are viewing the

advertisement for a brand or product that the company is trying to

communicate. Not all the receivers will be influenced with the

message that is trying to be communicated by the sender. Receiving

depends on many factors like knowledge, culture and the receiverÊs

age.

(g) Response

Response is the receiverÊs reaction towards a particular message that

is communicated. For example, when a receiver views an

advertisement on the television, he be influenced to purchase the

product that is being advertised. Maybe the customer will not do

anything or may not be interested in the message that is being

communicated through the advertisement.

ANSWERS

191

(h) Feedback

Feedback is part of the objective or receiverÊs reaction towards the

message received. ReceiverÊs reaction differs from one and another.

For example, when Proton launched its latest model Waja, many

feedbacks were received. Some gave positive feedbacks stating that

the car was priced cheaper than the imported cars in the same class.

But, some gave negative feedback. If personal selling was used, the

response received would be faster as compared to the other

communication channels.

(i) Noise

Noise is an external factor that interrupts the communication process.

These are unplanned external factors. For example, noise from

vehicles when the sales personnel are communicating with customers

at the roadside.


1. There are six important steps in an effective communication development.

Those steps are:

(a) Identify the target audience

(b) Determine the communication objectives

(c) Design the message

(d) Media selection

(e) Message source selection

(f) Feedback collection

2. The levels of buyer readiness in deciding the communication reaction is

awareness, knowledge, liking, preference, conviction and purchase.

(a) Awareness

The marketerÊs main objective at this level is to create awareness

among the future target customers. If the future customers are not

aware of the existence of the product or only know a little about the

existence of the product, how are they going to purchase the product?

For example, Susu Asli Company wishes to introduce their new

product brand CERDIK in the market. This milk has a special formula

for new born babies until one year. But the consumers are unaware of

its existence in the market because no effort has been taken to spread

the awareness to the consumers. Thus, the promotional campaignÊs

objective at this level will be to make consumers aware about the

ANSWERS

192

productÊs existence in the market. This can be done through

advertising on television.

(b) Knowledge

Besides giving awareness, the marketer has to provide knowledge

about the product to the future customers. For example, after future

customers are aware of the existence of brand CERDIK in the market,

the marketer has to provide information about the contents of the

product which will help the babyÊs growth. Providing information to

future customers does not stop at providing knowledge about the

content but covers all aspects that can help the marketer get closer to

consumers. For example, the productÊs quality, test conducted or

services offered.

(c) Liking

If future customers know about the product, the marketer has to get

to know their preference level. The question at this level is what will

be the future customerÊs feelings after realising and finding out about

the product. Will they like, or feel dissatisfied with the company? If

the future customer is still doubtful at this stage, the marketer has to

promote the output more intensively until they reach the liking level

for that product.

(d) Preference

If the future customers prefer a product, they need not necessarily

choose that brand or product. The selection of a brand depends on

many factors. Thus, the marketer needs to create differences between

products and the other alternatives that are in the market. One of the

methods is by developing creative advertisements to attract future

customers to give priority to a product in product selection.

(e) Conviction

Future customers will become more convinced to purchase a product

if efforts to convince them are carried out. At the conviction stage, the

marketer or the company has to use a combination of promotional

methods to create conviction and a positive feeling towards the

product. For example, letÊs have a look again at the CERDIK brand

which was marketed. Besides advertising, Susu Asli Company has to

use sales promotion like free samples for its future customers to try

the product. Besides that, the company can use public relations by

introducing that product in the form of news either through

television or newspapers. A good combination of promotion methods

can aid the company in building conviction of the future customers

towards the product.

ANSWERS

193

(f) Purchase

At the purchase stage, the possibility of a future customer purchasing

is big. But, the future customer may be convinced to purchase the

product but they have not actually purchased yet. Some of the factors

that cause future customers not to purchase are shortage of money,

desire to gather more information and waiting for the appropriate

time. The promotional effort at this level is by using the promotional

tools that can help future customers to act on buying. An example

would be reducing the pricing of the product, giving special offer

prices and other short-term incentives.


1. Methods used by marketers in determining promotional budgets are the

affordable method, percentage-of-sales method, competitive-parity method

and objective-and-task method.

2. Definition and explanation for all the marketing communication mix

elements that can be used by marketing to market products more

efficiently are:

(a) Advertising

Advertising is any form of non-personal presentation paid by a

sponsor to promote ideas, organisations or products. The media that

is normally used is the television, radio, newspaper and magazines,

advertising boards and the latest is the Internet.

(b) Sales Promotion

Sales promotion is a variety of short-term incentives to encourage

trial or purchase of a product or service. It is a promotion paid by a

sponsor and normally it is used to encourage consumers for a

particular time period. Examples of sales promotion are samples,

coupons, cash rebates, premiums and discounts.


Public relation is an activity or effort by a company to:

Build good relationship with the public

Obtain good publicity

Build a positive corporate image and keep away negative stories,

incidents or rumours

Obtain opinions, behaviour, and the publicÊs perception towards

the company and its products

ANSWERS

194

The public includes customers, suppliers, government, employees

and the surrounding community. Public relation is a promotion that

is often believed by the general public because of the publicity

obtained by the firm or output in the form of news. For example,

when a company introduces an innovative new product in the

market, the company can attempt newspaper coverage, news

coverage on the television and radio. Thus, public relation is one form

of effective communication to introduce a company and its products

to the market at a lower cost.


Personal selling is a direct presentation by the companyÊs sales force

to the customers to obtain sales and build relationships between each

other. It is directed straight to the end users and it is done either

through face-to-face or through the telephone. Personal selling is able

to persuade and influence buyers to accept an opinion or to purchase

a product. Now, personal selling is used to build long-term

relationship between the company and consumers or future

consumers.


Direct marketing is a form of marketing communication that connects

the marketer with the target consumers to obtain instant feedback. It

uses telephone, mail, fax, e-mail, the Internet and other

communication tools to connect the marketer with a specific

consumer. Thus, the usage of direct marketing creates a good

relationship between the marketer and the consumer.

3. There are four methods in determining budgets that are used by companies

and they are the most affordable method, percentage-of-sales method,

competitive-parity method, and objective-and-task method.

(a) The Most Affordable Method

The affordable method in determining the promotional budget

follows what is thought most affordable by the company. This means

that, if the company has a good financial position, the allocation for

promotion budget will be big. But, if the company is going through

financial problems, the allocation for promotional budget will be

small. Most small businesses will use this method to determine their

promotional budget. The balance of the money that is obtained after

paying for all the expenses will be used for as part of the promotional

budget.

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(b) Percentage-of-Sales Method

Another method that is normally used in businesses is percentage-ofsales

method. Most companies set promotional expenditure at a

specific percentage of sales (either current or anticipated) or of the

sales price. This method is popular and it is easy to be used because

marketers only need to decide on a percentage of sales that changes

from time to time.

(c) Competitive-Parity Method

There are companies that determine their promotional budget based

on competitors. This method is known as the competitive-parity

method, where marketers keep an eye on the competitorÊs

promotional budget through published sources. This method will

help the company in allocating more accurately for the promotion. It

is normally used based on the assumption that states competitors are

skilled at determining promotional budgets. Budgeting based on

competitors will also decrease promotional wars.

But, this assumption is less accurate because competitors need not be

accurate in determining the promotional budget. If competitors make

a mistake, the marketer who follows will also fail. The assumption

that states this method reduces promotional war is also not true

because there isnÊt a strong basis that states this method reduces

promotional war.

(d) Objective-and-Task-based Method

Before determining the promotional budget, the company will

identify the objectives that are to be achieved later, determine cost

and task that are appropriate to reach the objective that has been set.

There are three main steps in the objective and task based method

and they are:

(i) Identifying the objective

(ii) Determining task

(iii) Determining cost

Because of the difficulties in determining task and cost to reach

objectives, not many companies use this method in determining their

promotional budget. But, this method is among the best promotional

budget method because the management has to plan meticulously

based on the companyÊs objectives before doing the promotional

budget.

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4. There are two types of promotional mix strategy, which is the pull and

push strategy.

(a) Push Strategy

Through the push strategy, the product will be pushed through

promotion in the distribution channel to the final users. For example,

the producer will promote the product to the wholesaler. Then, the

wholesaler will promote the product to the retailers; the retailers will

carry out promotional activities to the users so that they purchase the

product. Normally the push strategy is used in the organisational

markets. When a company sells its products to another company,

personal selling will be used to provide explanation, and user

demonstration.

(b) Pull Strategy

In the pull strategy, the producer will carry out promotional activities

direct to the final users to encourage them to purchase the products in

the market. For example, the producer will carry out promotional

activities like advertising on the television or sales promotion to the

final users. If this strategy succeeds, the users will demand for

products from the retailers and retailers will demand for products

from the wholesalers and wholesalers from the producers. Thus, in

the pull strategy, the users will pull the product by demanding

through the distribution channel.

The pull strategy is normally used in the consumer markets. For

example, Coca-Cola the producer of soft drinks will advertise its

products and brand on the television. Consumers will watch and get

attracted to visit the retail stores to get the product. Demand from the

consumers will encourage retailers to demand from the wholesalers

and next from the producers.

TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS Exercise 8.1 Essay Questions

1. The advantages of the advertising objectives to marketing are:

(a) It ensures activities and initiatives of the parties involved in

advertising are towards the accomplishments of that objective

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(b) It will be a guide to the company on the strategies of decisionmaking,

budgeting, message and advertising media

(c) It helps a company in its effort to conduct evaluation for its

marketing actions and to check whether the objectives set at the

beginning is achievable

2. Any four of the message implementation styles can be made into your

answers. Some of the message implementation styles are:

(a) Slice of Life

This advertisementÊs implementation style gives importance to life

acting in normal situations. For example, the advertisement on Koko

Crunch cereals shows individuals eating breakfast everyday.

(b) Lifestyles

This style shows how a product is adapted to a certain lifestyle. For

example, luxury lifestyle is shown in DunhillÊs advertisement or

challenging or dream lifestyles are shown in Benson & Hedges

(Golden Dreams) advertisement.

(c) Fantasy

This style tries to create fantasy around the product and its usages.

For example, advertisements that depicts fun when the product is

used.

(d) Feelings or Image

This style shows feelings or image associated to the product usage

like the feelings of affection. For example, advertisements that shows

family affection and love between the father, mother and children.

(e) Musical

This advertisement shows the usage of background music or singing

in an advertisement that can attract the viewerÊs attention. For

example, the World Cup football advertisement.

(f) Personality Symbol

It is an advertisement style that uses personality as a character to

represent the product. For example, the Garfield character as a cat

and Ronald in McDonaldÊs advertisement.

(g) Technical Experts

This style shows the company displaying their expertise or technical

skills in producing a product. For example, advertisements that show

the production process of a product from the beginning to the end.

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(h) Scientific Evidence

This style shows research has been done, by proving that the product

advertised is better than the competitorÊs product. For example, in a

ÂgamatÊ or sea herb product advertisement, its contents are tested

through a scientific process and the advertisement Quantum Trim &

Firm which used to be known as Hollywood FB, shows consumers

who use the product are able to slim down.

(i) Testimonials

This advertisement uses celebrities or professional members to

represent a company in introducing a product. For example, the

national squash player Ong Beng Hee in the Excel drinks

advertisement and singer Siti Nurhaliza in the Maybeline

advertisement. Besides that, there are many types of messages that

can be delivered like inserting elements of humour and jokes, positive

tones, fear and others. The advertiser or the company can insert any

message that will attract the viewersÊ attention to watch and act upon.


1. Trade promotion is directed towards the members of the distribution

channel, and consumer promotion directed towards the consumers.

(a) Trade Promotion Objectives

(i) To introduce the new or the modified product.

(ii) To increase the distributed size or new packaging.

(iii) To add or maintain producerÊs space at the store room or shop.

(iv) To reduce the excess inventory and increase sales.

(v) To encourage retailers to purchase early and to support the

producer.

(b) Consumer Promotion Objectives

(i) Attract consumerÊs attention to try out new products.

(ii) Attract consumers to purchase the companyÊs products as

compared to the competitorÊs products.

(iii) To reward loyal consumers.

(iv) To maintain long-term relationship with customers.

2. Public relations involve a variety of programmes designed to promote or

protect a companyÊs image or its individual products.

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3. Public relations involve a variety of programmes designed to promote or

protect a companyÊs image or its individual products. The four functions

are:

(a) To create publicity for the companyÊs product like launching of new

products or sponsoring a television show.

(b) Handle issues related to the public.

(c) Handle media relations like preparing information or news about the

organisation or product for the media to attract attention and create a

positive image among the public.

(d) To lobby in the effort to build and maintain long-term relationships

that is good with the government.

4. Three forms of advertising objectives that can be used by the marketers are:

(a) Informative advertising is a form of advertising with the goal of

passing information to the target consumers. When a company

wishes to introduce a new product, it can use this type of advertising.

Information on the productÊs features and advantages as compared to

the competitors for the new product can be communicated to the

target market. Informative advertising is also appropriate to be used

to inform the methods of using a product. For example, in rubbish

disposal advertisements certain categories of rubbish are disposed

according to the binÊs colour. For example, bottles are disposed in

orange coloured bins while tins are disposed in green coloured bins.

(b) Persuasive advertising is used when competition increases. When

there are too many competitors producing the same products, this

kind of advertising is appropriate to persuade consumers to choose

the companyÊs products. At this stage, the company has to state the

advantages of the product as compared to the competitorÊs.

For example, competition between companies that produces washing

detergent brands like Fab, Breeze, Trojan, Ekonomi Handalan,

Harimau Kuat, and others. These companies have to make use of the

advantages that they have in their products and develop a creative

advertisement to persuade consumers to choose their brands. Due to

the competition, this causes the companies to compare their products

and those of the competitors. For example, Trojan soap and Brand Z

indirectly compare products.

(c) Product advertising for the products that have reached the maturity

stage. The advertising objective at this stage is to remind the

consumers that the product still exist in the market and for the

consumers to remember the product all the time. For example, MiloÊs

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nutritious drink advertisement. Although this brand is well known,

the company still continuously advertises in order for the consumer

to remember its products and select them in stores. Other examples

are soft drinks like Pepsi and Coca-cola advertise repetitively on the

television all year long.

5. There are four steps in media selection and they are:

(a) Deciding on Reach, Frequency and Impact

When media selection is done, the advertiser has to think about reach,

frequency, and the mediaÊs impact to reach the advertising objectives.

Reach means the percentage of viewers from the target market who

are exposed to that media.

For example, 80% of the viewers from the target market will be

exposed to the advertising campaign in the first six months. The

media tools chosen will have their own characteristics in reaching

out.

For example, the usage of national newspapers has a high rate of

spread. Thus, the probability of reaching the target viewers is quite

high as compared to the other media tools. Frequency refers to the

number of times within a specified time period that an average

person or household is exposed to the message.

For example, a company wants the advertisement or message to reach

each individual or for it to be exposed at least thrice a month. Media

impact refers to the enhancement of qualitative values or the

effectiveness of a media channel used.

For example, the effects of using a television to show moving actions

and actual product leave a larger impact as compared to using the

newspapers. Selection of reach, frequency and impact needs thorough

planning because it involves outputs to be reached through budget

allocation.

(b) Choosing among Major Media Types

Choosing between major media types depends on the reach,

frequency and impact level of each major media. The advertiser needs

to look at the advantages and disadvantages of each major media. For

example, if the target market is wide, has general characteristics and

the company doesnÊt want high cost to be involved, the usage of

newspapers will be appropriate.

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But, if the advertiser needs to reach a specific target market with a

certain frequency and time period, the usage of magazines are more

appropriate.

(c) Selecting Specific Media Channels

At this stage, the company or advertiser has to choose a specific

media channel from the general media chosen. For example, if a

company chooses the magazine as its advertising media channel, the

company has to choose a specific magazine channel for its target

viewers. Examples of specific magazine channels are Wanita, Ibu,

Bola Sepak, Roda-roda, Anjung Seri and other magazines. If the

company chooses television as its main media, it has to choose a

specific segment like Buletin Utama, comedy programmes, Majalah 3,

sports programmes and others.

Selecting a specific media channel depends on many factors. Some of

the major factors are target viewers like sports enthusiast,

entertainment enthusiast or documentary enthusiast. Product

characteristics influence media selection as well. For example, luxury

furniture is more appropriate to be displayed on coloured and high

quality magazines. Besides that, the advertiser or company has to

think about cost. For example, advertising cost in a popular and well

liked programme like Who Wants To Be A Millionaire involves high

cost.

(d) Deciding on Media Timing

The final step in media selection is deciding on the appropriate media

timing to air the advertisement. Planning can be done through

detailed media scheduling based on the companyÊs objectives. A

company can schedule the advertisement at the same frequency rate

all year long. For example, an advertisement can be aired once a week

or once a month in a year like advertisements for Coca-cola.

The company can schedule advertisements intensively in a specified

time period or reduce the frequency of the advertisements in a

specified time period. For example, the advertisement for YeoÊs soya

bean milk drink is aired on the television at a high frequency rate

during the fasting month (Ramadan) but is aired less frequently

during the other months. Both types of scheduling have their own

advantages.

Scheduling that concentrates on a specified time period will produce

an instant reaction from viewers because they need the products at

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that time. Evenly spread scheduling has the ability to reinforce

memory and brand loyalty.

6. The advantages and disadvantages of major media types are explained in

Table 8.2 below. Table 8.2: The Advantages and Disadvantages of Major Media Types

Media Advantages Disadvantages

Outdoor

Advertising

Flexibility in terms of

geography, low cost, easy to

identify, and is remembered

last before purchase is done.

Cannot select audience,

short appearance time, hard

to measure viewerÊs size

and environmental

problems.

Newspapers Good market coverage,

flexible, able to give detailed

explanation, high

believability and timeliness.

DoesnÊt reach the specific

target group, moderate

reproduction quality and

short life span.

Magazines Specific target market, long

life span, high reproduction

quality, completes product

information, and has

credibility.

High cost and takes a long

time for an issue to be

published.

Radio Reaches local target viewers,

able to cover a wide target

market and low cost.

Cluttered, no visual only

audio, low attention,

difficult to purchase radio

advertising time.

Television Able to demonstrate, good

market coverage, combination

of audio and visual is able to

attract high attention.

Cluttered, high cost,

audience selectivity not

specific.

7. A coupon is a promotional tool that saves money for the consumers. It is a

form of promotional tool that is frequently used by the producer.

Normally, coupons are given in the form of certificates and the consumers

will obtain savings when they purchase a specific product which is stated

on the certificate. Coupons are normally distributed through newspapers,

magazines, direct mail from the inside or the outside of a package.

Coupons can give instant rewards to the consumers and encourage trial

purchases and repeat purchases by loyal customers.

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Sales promotion tools that use samples are among the most popular tools

that are used to deliver products to potential consumers. Normally,

samples are products that are packaged in small packs for consumers to try

them. It is normally distributed through individuals inside or outside

stores and supermarkets. Samples are the most effective method to

introduce new products in the market. However, the cost to use it is quite

high because samples are normally given free to prospective customers

who most probably would be missed out if the sample is sent thorough

mail.

8. There are four main steps in decision making when the management wants

to use public relations as one of the promotional methods for marketing

communication are creating marketing objectives, message and channel

selection, programme implementation and decision evaluation.

TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING Exercise 9.1 Essay Questions

1. Personal selling plays an important role in the company because it helps

other promotional activities. The usage of advertisements as a promotional

method has its disadvantages because it consists of a one-way

communication. The explanation which is given through advertisements

may not be sufficient or it is hard to understand for the audience. Personal

selling explains a complex product which is difficult to understand and has

to be demonstrated by trained sales personnel. Personal selling is mostly

used in business and industrial markets. Products for these markets are

more complicated and expensive, requiring sales personnel to explain in

detail to the customers. Sales personnel are the companyÊs representatives

when they meet customers.


1. Direct marketing is an interactive marketing system which uses one or

more advertising media to obtain reactions that can be measured or to

enable transactions to be done anywhere.

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The advantages of direct marketing are:

Able to save time

Introduces consumers to a larger selection of merchandise

Marketer is able to shape direct marketing relationship with customers.

Ability and permission to conduct market testing through alternative

media using a cost efficient method

Marketer can measure reactions towards any campaign which is carried

out and the ability to determine campaigns that are profitable

Consumers can place orders for themselves or for others

Firms donÊt have to deal with the companyÊs sales personnel to obtain

any necessity or stock

2. Some of the major direct marketing channel forms that can be used by

direct marketers and the explanations for them are:

(a) Face-to-face Selling

Face-to-face selling refers to the personal selling source that is

professionally conducted for the company by placing and moulding

potential customers and directing them towards the business.

(b) Direct Mail

Direct mail involves delivery of an offer, announcement, reminder or

other items to the companyÊs customers. Before this, direct mail was

generally based on the concept of paper and was delivered through

the help of the government post office or private companies based on

the concept of profit such as Nationwide Express, Federal Express,

DHL and UPS. But now, through the advancement of technology,

three forms of new direct mail has been created, which are the fax

machine, e-mail and delivery through voice mail like telephone.

(c) Catalogue Marketing

Catalogue marketing refers to marketing outputs through catalogues.

There are a few types of catalogues. Some of them are:

(i) Full-Line Merchandise Catalogues

(ii) Specialty Consumer Catalogues

(iii) Business Catalogues

(iv) Telemarketing

Telemarketing refers to the usage of telephone operators to attract

new consumers, current consumers or to take purchase orders. An

effective telemarketing depends on the right and accurate selection of

the telemarketer at the beginning stage, providing training to them

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and providing performance incentives for the purpose of motivating

them.

(v) Other Media for Direct Response Marketing

It involves the usage of all major media types by the marketer in

offering directly to the potential customer. Major media includes

newspapers and magazines and they are used by the marketer in

advertising its products. Through the direct marketing concept,

consumers who are interested towards the products that are

advertised can phone the marketer directly through a toll free line.

This form of advertising type can be done through the television

using three main methods:

Direct Response Advertising

At-Home Shopping Channel

Videotext and Interactive Television

(vi) Kiosk Marketing

Kiosk marketing refers to the customer-order-placing machines or

better known as kiosks. Kiosks are normally placed in warehouses,

airports or at other suitable locations.

3. A good arrangement of the sales force structure will help the company to

maximise the usage of their sales force to generate profits. There are four

sales force structure that can be used by the management in designing the

sales force structure and strategy and they are sales force structure

according to territory, products, customers and complexity.

(a) Territorial Sales Force Structure

This structure divides every sales personnel or a few sales personnel

to a geographical sales territory exclusive for them to sell and build

relationships. The advantage of this structure is the sales personnel

gets to focus their energy on a territory and communicate only with

the customers from that particular territory alone. Thus, sales quality

and productivity and communication can be maximised because time

and sales force get to concentrate on the customers at that particular

location. For example, SS Company that exports goods divided its

sales staff according to territories, South East Asia, Middle East,

Europe and North and South America.

(b) Product Sales Force Structure

Companies that have various products can use this structure in

arranging their sales personnel. Every sales personnel who is

assigned to sell a product has to be knowledgeable about the product.

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For example, Harum Semerbak Company sells perfume, scented

powder, shampoo and others. Sales personnel who sell products like

powder have to be knowledgeable about the product, customers and

the territory when they are going to sell the products there.

The advantage of the product sales structure is that the sales

personnel are able to focus their skills on the product and they are

able to sell to customers regardless of territories, customer size and

others. But, the disadvantage of this structure is when the same

company buys various products from the seller. Two or more sales

personnel will frequent the same territory and they will meet the

same customers. Besides incurring high expenses, it will also cause

confusion in the consumerÊs purchases.

(c) Customer Sales Force Structure

Arranging the sales force structure according to customers or

industries can be divided into a few situations. Companies can divide

them according to:

(i) New and existing customers

(ii) Major and normal accounts

(iii) Different industries

The advantage of this structure is it enables the sales personnel to

concentrate on customers whom they are responsible for. Thus, the

company gets to build long-term relationship with the consumers

because the sales personnel can focus on them. However, this

structure involves high operation costs because not many customers

can be visited during a visit if they live in a few locations away from

one and another.

(d) Complex Sales Force Structure

This structure is a combination between territorial, product and

customer sales force structure. This structure is suitable to be used

when the company has many products, various customers and they

cover a wide area. Sales personnel can concentrate their sales efforts

according to territories and customers, products and territories or the

others that are appropriate.

4. There are seven steps in the personal selling process which is normally

experienced by the sales staff in carrying out the sales process but it they

may not happen in sequence. The seven steps are:

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(a) Identifying prospective customer

(b) Pre-approach

(c) Approach

(d) Presentation and demonstration

(e) Identifying objectives and question and answers

(f) Closing

(g) Follow-up

5. Personal selling had a short-term business dealing motive traditionally.

The main objective was to obtain customers and to close sales. However,

marketing based on this dealing has its disadvantages. Among the

disadvantages is that it only emphasises on sales at that time without the

presence of the long-term relationship aspect. After sales, there isnÊt any

form of communication and the sales staff will have to look for new

customers for the next sales. Looking for new customers will involve high

cost because sales staff have to contact the customers all over again. Based

on this disadvantage, companies have started to emphasise on relationship

marketing. Relationship marketing emphasises on long-term relationships

with the customers by creating values and high satisfaction to the

customers.

The main objective of relationship marketing is to maintain the existing

customers. Through continuous relationship with customers, the company

gets to save the cost of obtaining new customers. Thus, sales staffs have to

emphasise long-term and close relationships with customers. Customers

will feel appreciated and this will be profitable to the company in the longterm.

6. Customer database refers to a group of complete and organised data

regarding customers or potential customers of a company. In addition,

consumer database also contains other information regarding outputs that

are bought, units purchased before, price, practical buying practices,

demographic information and others. What is more important is, the

information in the consumer database is the latest, easy to obtain or reach,

and can be used for the purpose of marketing, either as a guide or from the

aspect of generation, qualification and suitability, output sales or

communication between consumers.

Marketing database refers to the development process, maintaining and

using the database, and other databases (including output, suppliers, and

sellers) for the purpose to communicating and also business.

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7. Electronic channel is the latest direct marketing method. The word ecommerce

explains the meaning of multiple electronic platforms like

message delivery to the supplier through EDI (Electronic Data

Interchange), usage of fax machines and e-mails in carrying out various

business dealings, the usage of ATM, smart card to ease payments, and the

usage of the Internet or other telemarketing services.

The e-commerce channel consists of two forms and they are:

(i) Commercial Channels

Commercial channels are online information or marketing services

that are created by most firms today for the purpose of making it

easier for the consumers to obtain specific information regarding the

firm. Besides that, it is for the purpose of making monthly payment

easier, especially for payment in the form of fees. Those channels

normally provide information in the form of news, references, sports

and learning, entertainment, buying services, opportunities to

interact through bulletin boards, forums or chat sites and e-mails.

(ii) Internet

The Internet is a global computer web network which is capable of

shaping global communication, fast and instant. Through the

Internet, users can send e-mails, exchange and share opinions,

purchase outputs, obtain and receive news, or obtain business

information fast and quickly.

8. From the angle of a potential purchaser, online service usage is convenient,

resourceful and reduces noise like persuasion and emotions that occurs

when the sales personnel meets the customers face-to-face. This is because

they donÊt have to meet the sales personnel.

From the marketerÊs angle, the benefits are listed below:

(a) The ability to do adjustments fast especially when it comes to

increasing the outputs of the company, price changes and output

description

(b) Reduce costs such as insurance, rental or usage costs. The marketer is

able to produce digital catalogues which is able to reduce delivery

and printing cost

(c) The ability to have business relationships with customers or market

share, analyse sales expenditure, analyse financial positions and

analyse the market to carry out yearly planning control

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TOPIC 10 MARKETING CONTROL Exercise 10.1 Essay Questions

1. Steps that have to be taken by the marketer in marketing control are:

(a) Deciding on Performance Standards

This step requires the marketer to select performance measurement

standards. Standards that are selected should be achievable and

measurable.

(b) Deciding on Types of Feedback

There are various feedback data that can be selected by the marketer

to be used in deciding the types of feedback. Among the feedback

data that can be used by the marketer is purchaserÊs feedback,

intermediary, supplier, product performance and business dealings.

(c) Obtaining Feedback

Feedback can be obtained from two main sources, and they are:

Internal sources like sales records, purchase records and staff

External sources like marketing research findings regarding

consumer behaviour, competitors and market trends

All the feedback obtained has to be focused towards the evaluated

unitÊs performance like the achievements of sales groups or strategic

business units.

(d) Evaluating Feedback

Every feedback has to be scrutinised and analysed in depth to help

the marketer in making accurate conclusions regarding the unitÊs

performance that is evaluated. Marketers normally use various types

of information to evaluate performance, especially from the aspect of

identifying weaknesses and the evaluated unitÊs shortcomings.

(e) Implementing Corrective Action

If the evaluation results discover the unit that is analysed has

succeeded in exceeding the performance standards, motivational

actions like giving out rewards, promotions and salary raise has to be

implemented. If the evaluation results discover that the unitÊs actual

performance achievement is below or does not meet performance

standards that have been decided, then corrective actions have to be

carried out.

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2. The marketer has to obtain feedback regarding the staff performance and

marketing activities to carry out corrections towards the performance

standards. The inability to reach performance standards that has been

decided may be caused by the staffÊs incapability or inappropriate

marketing techniques or strategies.


1. final

2. five, deciding on performance standards

3. evaluating feedback

4. Implementing corrective actions

5. Market share

6. Strategic

Essay Questions

1. There are four methods or mechanisms that the marketer can choose from

to implement the marketing control process. Those methods are:

(a) Annual-Plan Control

This method is provided to make it easier to achieve all the objectives

that have been decided in the marketing management process,

especially from the aspect of target sales, profitability or market share

dominance. There are five evaluation methods that can be used by the

marketer to come up with annual plan methods. Those methods are

sales analysis, market-share analysis, sales expenses analysis,

financial analysis and market analysis.

(b) Profitability Control

Through these control mechanisms, the marketer has to determine

cost that is required for each marketing activities that are to be carried

out as stated in the marketing plan. This indirectly acts as a guide for

profit levels that will be obtained.

(c) Efficiency Control

Efficiency control is a control method which is used to complete the

other control mechanisms especially the profitability control method.

Through this method, the marketer will evaluate each unitÊs

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performance or special activities like the sales teams effectiveness,

advertising activities and distribution.

(d) Strategic Control

Strategic control is a comprehensive and systematic control system

for the entire performance attainment by all the units and activities.

This control method is often used by marketers in the strategic

business unit control process. Strategic control normally involves

analysis on strength weaknesses, threats and opportunities.

2. There are five evaluation methods that can be used by the marketer to

come up with the annual plan and they are:

(a) Sales Analysis

Sales analysis is done to evaluate sales outcomes based on the

relationship between inputs and outputs. This means, sales analysis

covers measurement and evaluation of actual sales as compared to

the sales objectives that have been decided by the marketer. There are

four forms of sales analysis that can be chosen by the marketer, which

are the territorial sales analysis (according to sales area), product

sales analysis (every product or according to the product line

marketed), sales analysis based on the order size and sales analysis

based on purchasers (according to purchasers, who are individual

consumers and organisations or special purchasers).

(b) Market-share Analysis

Market-share dominance analysis is an important indicator towards

the actual performance of the company as compared to its

competitors. There are four methods of measuring market share

which can be chosen by the marketer, which are the overall market

share, served market share, relative market share as compared to two

largest competitors and relative market share as compared to the

largest competitor.

(c) Sales Expenses Analysis

This analysis is for the purpose of ensuring the marketer spends

smartly or wisely to reach the objectives that have been decided in the

marketing management process. Through this method, total sales

expenditure will be compared with sales outcomes obtained. The

larger the ratio value, the lower the performance achievement for the

marketing strategy implementation.

(d) Financial Analysis

This method helps the marketer identify factors that influence net

return rates. Some of the factors evaluated are profit contributions,

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asset turnover, return on asset and financial leverage. This means, the

marketer has to analyse asset composition like cash flow, accounts

receivables, inventories and equipment.

(e) Market Analysis

Different from the other four market share analysis methods that

have been discussed before this, this method doesnÊt count the

financial factor in analysing the companyÊs performance. Through

this method, the marketer evaluates factors like the total number of

new purchasers, purchasers who are not satisfied and the target

consumerÊs awareness level before a conclusion regarding the

marketÊs performance is made.

3. The implementation process of marketing audit is similar to the

implementation process of marketing control. However, the steps that are

involved in marketing audit are briefer and more comprehensive.

Same as the marketing control process, marketing audit starts with the

objective setting effort and scope determination (control standards) and

marketing control measurement methods. The next step is the marketer has

to obtain data on feedback. There is obvious difference between marketing

audit and the feedback process, from the aspect of need to evaluate

feedback data. Through marketing audit, the marketer has to collect and

prepare reports about the revenue.

MODULE FEEDBACK MAKLUM BALAS MODUL Should you have any comment or feedback, you are welcomed to:

1. E-mail your comment or feedback to [email protected]

OR

2. Download and fill up the feedback questionnaire from

URL: http://lms.oum.edu.my/ via myVLE

and

e-mail to [email protected]

Thank you.

Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi) Tel No.: 03-27732273

Fax No.: 03-26978702

Documents

Marketing management two