1. Marketing & Marketing Concept
1.1 Definitions of Marketing
There are many definitions of marketing. The better definitions are focused upon customer orientation and satisfaction of customer needs.
Kotler: Marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.
The Chartered Institute of Marketing: Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably.
The CIM definition (in common with Barwell’s definition of the marketing concept) looks not only at identifying customer needs, but also satisfying them (short-term) and anticipating them in the future (long-term retention).
Adcock et al: The right product, in the right place, at the right time, at the right price.
This is a snappy and realistic definition that uses McCarthy’s Four Ps.
Palmer: Marketing is essentially about marshaling the resources of an organization so that they meet the changing needs of the customer on whom the organization depends.
This is a more recent and very realistic definition that looks at matching capabilities with needs.
Bartles: Marketing is the process whereby society, to supply its consumption needs, evolves distributive systems composed of participants, who, interacting under constraints – technical (economic) and ethical (social) – create the transactions or flows, which resolve market separations and result in exchange and consumption.
This definition considers the economic and social aspects of marketing.
1.2 The Philosophy Marketing and the Marketing Concept.
The marketing concept is a philosophy. It makes the customer, and the satisfaction of his or her needs, the focal point of all business activities. It is driven by senior managers, passionate about delighting their customers.
Drucker: Marketing is not only much broader than selling, it is not a specialized activity at all It encompasses the entire business. It is the whole business seen from the point of view of the final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.
Barwell: This customer-focused philosophy is known as the ‘marketing concept’. The marketing concept is a philosophy, not a system of marketing or an organizational structure. It is founded on the belief that profitable sales and satisfactory returns on investment can only be achieved by identifying, anticipating and satisfying customer needs and desires.
Cohen: The achievement of corporate goals through meeting and exceeding customer needs better than the competition. Jobber. Implementation of the marketing concept [in the 1990’s] requires attention to three basic elements of the marketing concept. These are: Customer orientation; an organization to implement a customer orientation; Long-range customer and societal welfare.
2. Environment
2.1 The Marketing Environment
The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the 'macro-environment,' the 'micro-environment' and the 'internal environment'.
2.1.1 the macro-environment
This includes all factors that can influence an organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.
2.1.2 the micro-environment
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence.
?2.1.3 the internal environment
All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms’, which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external. As marketers we call the process of managing internal change 'internal marketing.' Essentially we use marketing approaches to aid communication and change management.
The external environment can be audited in more detail using other approaches such as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.?
2.2 SWOT Analysis
SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues.
Once key issues have been identified, they feed into marketing objectives. It can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is a very popular tool with marketing students because it is quick and easy to learn.
SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. For example, strength could be your specialist marketing expertise. A weakness could be the lack of a new product. Opportunities and threats are external factors. For example, an opportunity could be a developing market such as the Internet. A threat could be a new competitor in your home market. During the SWOT exercise, list factors in the relevant boxes. It's that simple.
A word of caution, SWOT analysis can be very subjective. Do not rely on it too much. Two people rarely come-up with the same final version of SWOT. TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use it as guide and not a prescription. Adding and weighting criteria to each factor increase validity, but that's another lesson!
SWOT Analysis - Exercise: Highly Brill Leisure Center.
Perform SWOT analysis based upon the following points:
The Center is located within a two-minute walk of the main bus station, and is a fifteen-minute ride away from the local railway station.
There is a competition standard swimming pool; although it has no wave machines or whirlpool equipment as do competing local facilities.
It is located next to one of the largest shopping centers in Britain.
It is one of the oldest centers in the area and needs some cosmetic attention.
Due to an increase in disposable income over the last six years, local residents have more money to spend on leisure activities.
There has been a substantial decrease in the birth rate over the last ten years.
In general people are living longer and there are more local residents aged over fifty-five now than ever before.
After a heated argument with the manager of a competing leisure center, the leader of a respected local scuba club is looking for a new venue.
The local authority is considering privatizing all local leisure centers by the year 2000.
2.3 Five Forces Analysis
Five forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyze the market for Business Computers i.e. one of its SBUs.
Five forces looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
2.3.1 the threat of entry
Economies of scale e.g. the benefits associated with bulk purchasing.
The high or low cost of entry e.g. how much will it cost for the latest technology?
Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?
Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects.
Will competitors retaliate?
Government action e.g. will new laws be introduced that will weaken our competitive position?
How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitizes the influence of the environment.
2.3.2 the power of buyers
This is high where there a few, large players in a market e.g. the large grocery chains.
If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains.
The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.
2.3.3 the power of suppliers
The power of suppliers tends to be a reversal of the power of buyers.
Where the switching costs are high e.g. switching from one software supplier to another.
Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.
2.3.4 the threat of substitutes
Where there is product-for-product substitution e.g. email for fax where there is substitution of need e.g. better toothpaste reduces the need for dentists.
Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies.
We could always do without e.g. cigarettes.
2.3.5 competitive rivalry
This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.
Exercise: 'The market for on-line education'
Place the following eight points onto the five forces model
Start up costs is very low
Students have access to books, videos, and paper-based distance learning packs
Companies, governments, and self-funding students invest huge amounts in their education
There are very few high quality web sites available.
Traditional colleges and universities are adapting their products for on-line learning.
Government legislation in the US and Europe encourages on-line learning.
The more innovative learning sites give lesson for free just for the love of it.
More people with access to the web every second.
2.4 PEST Analysis
It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up from:
1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The microenvironment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Socio-cultural forces, and Technological forces. These are known as PEST factors.
2.4.1 political factors
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
2.4.2 economic factors
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:
1. Interest rates
2. The level of inflation Employment level per capita
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on
2.4.3 socio-cultural factors
The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
2.4.4 technological factors
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
?Malaysia - Exercise PEST Analysis
Source: www.odci.gov/ October 2000
Consider the following ODCI information and conduct a PEST analysis.
Government type: constitutional monarchy note: Malaya (what is now Peninsular Malaysia) formed 31 August 1957; Federation of Malaysia (Malaya, Sabah, Sarawak, and Singapore) formed 9 July 1963 (Singapore left the federation on 9 August 1965); nominally headed by the paramount ruler and a bicameral Parliament consisting of a nonelected upper house and an elected lower house; Peninsular Malaysian states - hereditary rulers in all but Melaka, Penang, Sabah, and Sarawak, where governors are appointed by the Malaysian Government; powers of state governments are limited by the federal constitution; under terms of the federation, Sabah and Sarawak retain certain constitutional prerogatives (e.g., the right to maintain their own immigration controls); Sabah - holds 20 seats in House of Representatives, with foreign affairs, defense, internal security, and other powers delegated to federal government; Sarawak - holds 28 seats in House of Representatives, with foreign affairs, defense, internal security, and other powers delegated to federal government
Economy - overview: Malaysia made a quick economic recovery in 1999 from its worst recession since independence in 1957. GDP grew 5%, responding to a dynamic export sector, which grew over 10% and fiscal stimulus from higher government spending. The large export surplus has enabled the country to build up its already substantial financial reserves, to $31 billion at yearend 1999. This stable macroeconomic environment, in which both inflation and unemployment stand at 3% or less, has made possible the relaxation of most of the capital controls imposed by the government in 1998 to counter the impact of the Asian financial crisis. Government and private forecasters expect Malaysia to continue this trend in 2000, predicting GDP to grow another 5% to 6%. While Malaysia's immediate economic horizon looks bright, its long-term prospects are clouded by the lack of reforms in the corporate sector, particularly those dealing with competitiveness and high corporate debt.
Ethnic groups: Malay and other indigenous 58%, Chinese 26%, Indian 7%, others 9%
Religions: Islam, Buddhism, Daoism, Hinduism, Christianity, Sikhism; note - in addition, Shamanism is practiced in East Malaysia
Languages: Bahasa Melayu (official), English, Chinese dialects (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai; note - in addition, in East Malaysia several indigenous languages are spoken, the largest of which are Iban and Kadazan
Literacy: definition: age 15 and over can read and write total population: 83.5% male: 89.1% female: 78.1% (1995 est.)
Telephones: main lines in use: 4.4 million (1998) Telephones - mobile cellular: 2.17 million (1998) Telephone system: international service good domestic: good intercity service provided on Peninsular Malaysia mainly by microwave radio relay; adequate intercity microwave radio relay network between Sabah and Sarawak via Brunei; domestic satellite system with 2 earth stations international: submarine cables to India, Hong Kong, and Singapore; satellite earth stations - 2 Intelsat (1 Indian Ocean and 1 Pacific Ocean)
Radio broadcast stations: AM 56, FM 31 (plus 13 repeater stations), shortwave 5 (1999) Radios: 9.1 million (1997) Television broadcast stations: 27 (plus 15 high-power repeaters) (1999) Televisions: 3.6 million (1997) Internet Service Providers (ISPs): 8 (1999) Merchant marine: total: 361 ships (1,000 GRT or over) totaling 5,000,706 GRT/7,393,915 DWT ships by type: bulk 61, cargo 119, chemical tanker 34, container 55, liquified gas 19, livestock carrier 1, passenger 2, petroleum tanker 57, refrigerated cargo 1, roll-on/roll-off 6, specialized tanker 1, vehicle carrier 5 (1999 est.) Airports: 115 (1999 est.) Airports - with paved runways: total: 32 over 3,047 m: 5 2,438 to 3,047 m: 4 1,524 to 2,437 m: 11 914 to 1,523 m: 6 under 914 m: 6 (1999 est.)
2.5 Marketing Research
Market research and marketing research are often confused. 'Market' research is simply research into a specific market. It is a very narrow concept. 'Marketing' research is much broader. It not only includes 'market' research, but also areas such as research into new products, or modes of distribution such as via the Internet. Here are a couple of definitions:
American Marketing association - Official Definition of Marketing Research:
Marketing research is the function that links the consumer, customer, and public to the marketer through information - information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the methods for collecting information, manages and implements the data collection process, analyzes, and communicates the findings and their implications.
Obviously, this is a very long and involved definition of marketing research.
Palmer (2000): Marketing research is about researching the whole of a company's marketing process
This explanation is far more straightforward i.e. marketing research into the elements of the marketing mix, competitors, markets, and everything to do with the customers.
2.5.1 the marketing research process
Marketing research is gathered using a systematic approach. An example of one follows:
1. Define the problem. Never conduct research for things that you would 'like' to know. Make sure that you really 'need' to know something. The problem then becomes the focus of the research. For example, why are sales falling in New Zealand?
2. How will you collect the data that you will analyze to solve your problem? Do we conduct a telephone survey, or do we arrange a focus group? The methods of data collection will be discussed in more detail later.
3. Select a sampling method. Do we us a random sample, stratified sample, or cluster sample?
4. How will we analyze any data collected? What software will we use? What degree of accuracy is required?
5. Decide upon a budget and a timeframe.
6. Go back and speak to the managers or clients requesting the research. Make sure that you agree on the problem! If you gain approval, then move on to step seven. 7. Go ahead and collect the data.
8. Conduct the analysis of the data.
9. Check for errors. It is not uncommon to find errors in sampling, data collection method, or analytic mistakes.
10. Write your final report. This will contain charts, tables, and diagrams that will communicate the results of the research, and hopefully lead to a solution to your problem. Watch out for errors in interpretation.
2.5.2 sources of data - primary and secondary
There are two main sources of data - primary and secondary. Primary research is conducted from scratch. It is original and collected to solve the problem in hand. Secondary research, also known as desk research, already exists since it has been collected for other purposes.
2.5.3 primary research
There are many was to conduct primary research. We consider some of them:
1. Interviews
2. Mystery shopping
3. Focus groups
4. Projective techniques
5. Product tests
6. Diaries
7. Omnibus Studies
2.5.3.1 Interviews
This is the technique most associated with marketing research. Interviews can be telephone, face-to-face, or over the Internet.
2.5.3.1.1 Telephone Interviews
Telephone ownership is very common in developed countries. It is ideal for collecting data from a geographically dispersed sample. The interviews tend to be very structured and tend to lack depth. Telephone interviews are cheaper to conduct than face-to-face interviews (on a per person basis).
Advantages of telephone interviews
Can be geographically spread
Can be set up and conducted relatively cheaply
Random samples can be selected
Cheaper than face-to-face interviews
Disadvantages of telephone interviews
Respondents can simply hang up
Interviews tend to be a lot shorter
Visual aids cannot be used
Researchers cannot behavior or body language
2.5.3.1.2 Face-to-face Interviews
Face-to face interviews are conducted between a market researcher and a respondent. Data is collected on a survey. Some surveys are very rigid or 'structured' and use closed questions. Data is easily compared. Other face-to-face interviews are more 'in depth,' and depend upon more open forms of questioning. The research will probe and develop points of interest.
Advantages of face-to-face interviews
They allow more 'depth'
Physical prompts such as products and pictures can be used
Body language can emphasize responses
Respondents can be 'observed' at the same time
Disadvantages of face-to-face interviews
Interviews can be expensive
It can take a long period of time to arrange and conduct.
Some respondents will give biased responses when face-to-face with a researcher.
2.5.3.1.3 The Internet
The Internet can be used in a number of ways to collect primary data. Visitors to sites can be asked to complete electronic questionnaires. However responses will increase if an incentive is offered such as a free newsletter, or free membership. Other important data is collected when visitors sign up for membership.
Advantages of the Internet
Relatively inexpensive
Uses graphics and visual aids
Random samples can be selected
Visitors tend to be loyal to particular sites and are willing to give up time to complete the forms
Disadvantages of the Internet
Only surveys current, not potential customers.
Needs knowledge of software to set up questionnaires and methods of processing data
May deter visitors from your website.
2.5.3.1.4 Mail Survey
In many countries, the mail survey is the most appropriate way to gather primary data. Lists are collated, or purchased, and a predesigned questionnaire is mailed to a sample of respondents. Mail surveys do not tend to generate more than a 5-10% response rate. However, a second mailing to prompt or remind respondents tends to improve response rates. Mail surveys are less popular with the advent of technologies such as the Internet and telephones, especially call centers.
2.5.3.2 Mystery Shopping
Companies will set up mystery shopping campaigns on an organizations behalf. Often used in banking, retailing, travel, cafes and restaurants, and many other customer focused organizations, mystery shoppers will enter, posing as real customers. They collect data on customer service and the customer experience. Findings are reported back to the commissioning organization. There are many issues surrounding the ethics of such an approach to research.
2.5.3.3 Focus Groups
Focus groups are made up from a number of selected respondents based together in the same room. Highly experienced researchers work with the focus group to gather in depth qualitative feedback. Groups tend to be made up from 10 to 18 participants. Discussion, opinion, and beliefs are encouraged, and the research will probe into specific areas that are of interest to the company commissioning the research.
Advantages of focus groups
Commissioning marketers often observe the group from behind a one-way screen
Visual aids and tangible products can be circulated and opinions taken
All participants and the research interact
Areas of specific interest can be covered in greater depth
Disadvantages of focus groups
Highly experienced researchers are needed. The are rare.
Complex to organize
Can be very expensive in comparison to other methods
2.5.3.4 Projective techniques
Projective techniques are borrowed from the field of psychology. They will generate highly subjective qualitative data. There are many examples of such approaches including: Inkblot tests - look for images in a series of inkblots Cartoons - complete the 'bubbles' on a cartoon series Sentence or story completion Word association - depends on very quick (subconscious) responses to words Psychodrama - Imagine that you are a product and describe what it is like to be operated, warn, or used.
2.5.3.5 Product tests
Product tests are often completed as part of the 'test' marketing process. Products are displayed in a mall of shopping center. Potential customers are asked to visit the store and their purchase behavior is observed. Observers will contemplate how the product is handled, how the packing is read, how much time the consumer spends with the product, and so on.
2.5.3.6 Diaries
Diaries are used by a number of specially recruited consumers. They are asked to complete a diary that lists and records their purchasing behavior of a period of time (weeks, months, or years). It demands a substantial commitment on the part of the respondent. However, by collecting a series of diaries with a number of entries, the researcher has a reasonable picture of purchasing behavior.
2.5.3.7 Omnibus Studies
An omnibus study is where an organization purchases a single or a few questions on a 'hybrid' interview (either face-to-face or by telephone). The organization will be one of many that simply want to a straightforward answer to a simple question. An omnibus survey could include questions from companies in sectors as diverse as heath care and tobacco. The research is far cheaper, and commits less time and effort than conducting your own research.
2.5.4 Secondary Research
Secondary (or desk) research uses data that has been collected for other objectives than your own i.e. it already exists. There are a number of such sources available to the marketer, and the following list is by no means conclusive:
Trade associations
National and local press Industry magazines
National/ international governments
Web sites
Informal contacts
Trade directories
Published company accounts
Business libraries
Professional institutes and organizations
Omnibus surveys
Previously gathered marketing research
Census data
Public records
We have given a general introduction to marketing research. Marketing research is a huge topic area and has many processes, procedures, and terminologies that build upon the points above.
Marketing Research: Puerto Vallarta Autos
?
Puerto Vallarta Autos has been in business since 1967. It has always been a successful, professional organization. Since the locality has an economy based mainly upon agriculture, their traditional customer has been the aspiring Mexican consumer, usually business or professional people.
Recently they have noticed that their local market has changed considerably. Puerto Vallarta has become a center for tourism and recreation for Mexicans from Guadalajara and Mexico City, as well as North Americans and Europeans. There are many beach clubs, hotels, apartments, and holiday condos.
Doreteo Dominguez, the sales manager at Puerto Vallarta Autos, feels that the company may have a problem. They do not know who their customer is and hence cannot target advertising.
You are the Account Representative for Punta Mita Marketing Research Associates. Advise Doreteo Dominguez on an appropriate method of marketing research, and describe any advantages and disadvantages of such a method.
3. MARKETING PLANNING
3.1 Segmentation
This is the first of three lessons based upon SEGMENT - TARGET - POSITION. To get a product or service to the right person or company, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment(s). .
Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and who demonstrate similar buyer behavior. The world is made up from billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. Such a group is known as a 'segment'.
Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation:
Is the segment viable? Can we make a profit from it?
Is the segment accessible? How easy is it for us to get into the segment?
Is the segment measurable? Can we obtain realistic data to consider its potential?
There are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. However the more general bases include:
By geography - such as where in the world was the product bought
By psychographics - such as lifestyle or beliefs
By socio-cultural factors - such as class
By demography - such as age, sex, and so on.
A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.
The Segmentation Matrix Business Battlemap is a useful segmentation tool. There are two bases for segmentation. Here we use beer brand versus age’s groups. The various products are then plotted on the matrix. The result is a 'battlemap'.
Segmentation Exercise: Music industry
Construct a battlemap for the music industry. 'Age group' is one basis for segmentation; you need to select the other. Plot the recordings onto the battlemap.
?
Nigel Kennedy
Craig David
Robbie Williams
All Saints
Paul Simon
Phantom Menace Soundtrack
Britney Spears
INXS
Madonna
Shirley Bassey
Westlife
Genisis
The Corrs
George Michael
Mick Jagger
Boston Symphony
American Beauty Soundtrack
Marilyn Manson
Titanic Soundtrack
3.2 Targeting
Targeting is the second stage of the SEGMENT target POSITION process. After the market has been separated into its segments, the marketer will select a segment or series of segments and 'target' it/them. Resources and effort will be targeted at the segment. It's like looking at a dartboard or a shooting target. You see that it has areas with different scores - these are your segments. Aiming the dart or the bullet at a specific scoring area is 'targeting'. There are three main types of targeting. They are considered below.
The first is the single segment with a single product. In other word, the marketer targets a single product offering at a single segment in a market with many segments. For example, British Airway's Concorde is a high value product aimed specifically at business people and tourists willing to pay more for speed.
Secondly the marketer could ignore the differences in the segments, and choose to aim a single product at all segments i.e. the whole market. This is typical in 'mass marketing' or where differentiation is less important than cost. An example of this is the approach taken by budget airlines such as Go/Easyjet in the UK and Ryan Air in Eire.
Finally there is a multi-segment approach. Here a marketer will target a variety of different segments with a series of differentiated products. This is typical in the motor industry. Here there are a variety of products such as diesel, four-wheel-drive, sports saloons, and so on.
Now have a look at the final stage, positioning.
3.3 Positioning
The third and final part of the SEGMENT - TARGET - POSTION process is 'positioning.' Positioning is undoubtedly one of the simplest and most useful tools to marketers. After segmenting a market and then targeting a consumer, you would proceed to position a product within that market.
Remember this important point. Positioning is all about 'perception'. As perception differs from person to person, so do the results of the positioning map e.g. what you perceive as quality, value for money, etc, is different to my perception. However, there will be similarities.
Products or services are 'mapped' together on a 'positioning map'. This allows them to be compared and contrasted in relation to each other. This is the main strength of this tool. Marketers decide upon a competitive position, which enables them to distinguish their own products from the offerings of their competition (hence the term 'positioning strategy').
Take a look at the basic positioning map template below.
The marketer would draw out the map and decide upon a label for each axis. They could be price (variable one) and quality (variable two), or Comfort (variable one) and price (variable two). The individual products are then mapped out next to each other any gaps could be regarded as possible areas for new products.
The term 'positioning' refers to the consumer's perception of a product or service in relation to its competitors. You need to ask yourself, what is the position of the product in the mind of the consumer?
Trout and Ries suggest a six-step question framework for successful positioning:
1. What position do you currently own?
2. What position do you want to own?
3. Whom you have to defeat to own the position you want.
4. Do you have the resources to do it?
5. Can you persist until you get there?
6. Are your tactics supporting the positioning objective you set?
Look at the example below using the auto market
Product: Ferrari, BMW, Proton, Mercury Cougar, Hyundai, Daewoo.
Positioning Map for Cars
The seven products are plotted upon the positioning map. It can be concluded that products tend to bunch in the high price/low economy (fast) sector and also in the low price/high economy sector. There is an opportunity in the low price/ low economy (fast) sector. Maybe Hyundai or Daewoo could consider introducing a low cost sport saloon. However, remember that it is all down to the perception of the individual.
Exercise - Positioning - UK Grocery Retail
?Plot the following organization onto a positioning map. UK grocery retailers have been chosen for the purpose of this exercise. If you have no knowledge of them, list eight grocery retailers of whom you have some knowledge or opinion.
1.Tesco
2 Sainsburys
3.Asda (Wall-Mart)
4.Aldi
5. Spar
6. Marks and Spencer
7. Fortnum and Mason
8. Harrods
?
The two variables are price and quality
3.4 Objective Setting
The objective is the starting point of the marketing plan. Once environmental analyses (such as SWOT, Five Forces Analysis, and PEST) and marketing audit have been conducted, their results will inform objectives. Objectives should seek to answer the question 'Where do we want to go?’ The purposes of objectives include:
To enable a company to control its marketing plan.
To help to motivate individuals and teams to reach a common goal.
To provide an agreed, consistent focus for all functions of an organization.
All objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and Timed.
Specific - Be precise about what you are going to achieve
Measurable - Quantify you objectives
Achievable - Are you attempting too much?
Realistic - Do you have the resource to make the objective happen (men, money, machines, materials, minutes)?
Timed - State when you will achieve the objective (within a month? By February 2010?)
Some examples of SMART objectives follow:
1. Profitability Objectives
To achieve a 20% return on capital employed by August 2007
2. Market Share Objectives
To gain 25% of the market for sports shoes by September 2006
3. Promotional Objectives
To increase awareness of the dangers of AIDS in France from 12% to 25% by June 2004
To increase trail of X washing powder from 2% to 5% of our target group by January 2005
4. Objectives for Survival
To survive the current double-dip recession
5. Objectives for Growth
To increase the size of our German Brazilian operation from $200,000 in 2002 to $400,000 in 2003
6. Objectives for Branding
To make Y brand of bottled beer the preferred brand of 21-28 year old females in North America by February 2006
There are many examples of objectives. Be careful not to confuse objectives with goals and aims. Goals and aims tend to be more vague and focus on the longer-term. They will not be SMART. However, many objectives start off as aims or goals and therefore they are of equal importance.
3.5 Strategies
Generally speaking, the strategies often used are Ansoff's Matrix, Boston Matrix, Bowman's Strategy Clock and Porter's Generic Srategies. We will talk about them later.
3.6 Marketing plans
Marketing plans are vital to marketing success. They help to focus the mind of companies and marketing teams on the process of marketing i.e. what is going to be achieved and how we intend to do it.
There are many approaches to marketing plan. Marketing Teacher has focused upon the key stages of the plan. It is contained under the popular acronym AOSTC
1. Analysis
2. Objectives
3. Strategies
4. Tactics
5. Control.
Stage One - Situation Analysis
Marketing environment
Laws and regulations
Politics
The current state of technology
Economic conditions
Socio-cultural aspects
Demand trends
Media availability
Stakeholder interests
Marketing plans and campaigns of competitors
Internal factors such as your own experience and resource availability
Also see tools for internal/external audit:
SWOT
PEST
Porter's Five Forces
Marketing Environment
Stage Two - Set marketing SMART objectives
Specific - Be precise about what you are going to achieve
Measurable - Quantify you objectives
Achievable - Are you attempting too much?
Realistic - Do you have the resource to make the objective happen (men, money, machines, materials, minutes)?
Timed - State when you will achieve the objective (within a month? By February 2010?)
If you don't make your objective SMART, it will be too vague and will not be realized. Remember that the rest of the plan hinges on the objective. If it is not correct, the plan will fail.
Stage Three - Describe your target market.
Which segment? How will we target the segment? How should we position within the segment?
Why this segment and not a different one? (This will focus the mind).
Define the segment in terms of demographics and lifestyle. Show how you intend to 'position' your product or service within that segment. Use other tools to assist in strategic marketing decisions such as Boston Matrix , Ansoff's Matrix , Bowmans Strategy Clock, Porter's Competitive Strategies, etc.
Stage Four - Marketing Tactics
Convert the strategy into the marketing mix (also known as the 4Ps). These are your marketing tactics.
Price Will you cost plus, skim, match the competition or penetrate the market?
Place Will you market direct, use agents or distributors, etc?
Product Sold individually, as part of a bundle, in bulk, etc?
Promotion Which media will you use? e.g. sponsorship, radio advertising, sales force, point-of-sale, etc? Think of the mix elements as the ingredients of a 'cake mix'. You have eggs, milk, butter, and flour. However, if you alter the amount of each ingredient, you will influence the type of cake that you finish with.
Stage Five - Control
Remember that there is no planning without control. Control is vital.
Start-up costs
Monthly budgets
Sales figure
Market share data
Consider the cycle of control
Finally, write a short summary (or synopsis), which is placed at the front of the plan. This will help others to get acquainted with the plan without having to spend time reading it all. Place all supporting information into an appendix at the back of the plan.
Exercise: Case Study - Counseling on the Internet. A new innovation
Cannon Counseling is amongst the most highly regarded counseling practices in Western Australia. It employs three full-time, and17 part-time, counselors. All are qualified and experienced. They work with all types of clients, both directly and via referral from doctors. It is a successful company. However, it is not growing and is looking for an innovative way to expand its enterprise.
The Australian government is offering substantial sums of money to organizations that want support in marketing their products or services via the Internet. This is called the 'E-commerce for the Millennium Project'. The owner of Cannon Counseling, Steve Bull, is very interested in this opportunity to expand his business in such a progressive way.
Your brief
You work for the E-commerce for the Millennium Project. Steve Bull has asked you to help him prepare a marketing plan for Cannon Counseling’s expansion onto the Internet. Use the AOSTC to write an outline-marketing plan.
3.7 Marketing Control
‘The process of monitoring the proposed plans as they proceed and adjusting where necessary.’ Lynch (1997)
There is no planning without control. If an objective states where you want to be and the plan sets out a road map to your destination, then control tells you if you are on the right route or if you have arrived at your destination.
Control involves measurement, evaluation, and monitoring. Resources are scarce and costly so it is important to control marketing plans. Control involves setting standards. The marketing manager will than compare actual progress against the standards. Corrective action (if any) is then taken. If corrective action is taken, an investigation will also need to be undertaken to establish precisely why the difference occurred.
There are many approaches to control:
Market share analysis
Sales analysis
Quality controls,
Budgets
Ratio analysis
Marketing research
Marketing information systems (MkIS)
Feedback from customers satisfaction surveys
Cash flow statements
Customer Relationship Management (CRM) systems
Sales per thousand customers, per factory, by segment
Location of buyers and potential buyers
Activities of competitors to aspects of your plan
Distributor support
Performance of any promotional activities.
Market reaction/acceptance to pricing polices
Service levels
And many other methods of monitoring and measurement.
3.8 Internal Marketing
Internal marketing is an important 'implementation' tool. It aids communication and helps us to overcome any resistance to change. It informs, ands involves all staff in new initiatives and strategies. It is simple to construct, especially if you are familiar with traditional principles of marketing. If not, it would be valuable to spend some time considering marketing plans. Internal marketing obeys the same rules as, and has a similar structure to, external marketing. The main differences are that your customers are staff and colleagues from your own organization.
In previous lessons, you will have seen that the process of marketing follows a familiar pattern for which we use the acronym AOSTC - Analysis, Objectives, Strategies, Tactics, and Control. In the diagram above, Jobber (1995) uses a similar approach as a structure for the implementation of internal marketing. The process is straightforward.
Set objectives for internal marketing e.g. to persuade 100 staff to join a new Performance Related Pay (PRP) scheme.
Your strategy is 'internal marketing.'
Managing the implementation of internal marketing (Jobber 1995)
Tactics would include an internal application of the marketing mix, and could include staff forums, presentations, an intranet, away days, videos; personal visits by company directors or newsletters.
Evaluation would consider the take up of PRP against your objectives, attendees at away days, visits to an intranet page, and so on.
Let's have a look a closer look at the practicalities of internal marketing.
Internal Marketing (Jobber 1995)
At this stage internal marketing meets traditional 'change management.' Firstly you should identify your internal customers. As with your external customers, they will have their own buyer behavior, or way of 'buying into' the changes, which you are charged to implement. The similarities in differing groups of internal customers allow you to segment them. As Jobber (1995) explains, you can target three different segments namely 'supporters,' neutral,' and finally 'opposers.' Each group requires a slightly different internal marketing mix in order that your internal marketing objectives can be achieved.
For example, if the change was that a company was to relocate closer to its market, you could target 'supporters' with a tailor-made relocation video explaining about the lower property prices in the new location; 'neutral' internal customers could be targeted with incentives such as pay increases; and 'opposers' could be coerced, or forced to accept the change regardless.
How do we plan for a change program?
Always make sure that you have thought through your approach before starting the implementation.
Make sure that you have created a cultural climate that is willing to accept change.
Appoint a change agent, or champion for change that will help to ease your changes through.
Audit the skills and capabilities of your team. Train and develop as necessary.
Your team must be built around you with the objective as the focus for you all.
The change must be correctly marketed to your target audience using an approach such as Jobbers.'
Decide what the change will be. Give it boundaries.
Decide upon the plan.
Work out a realistic budget and stick to it.
Try to anticipate the arguments against change, and decide how to counteract them positively
Exercise: Casey Brothers Insurance (CBI) goes to Las Vegas
Casey Brothers Insurance (CBI) was created in 1870 by Orville and Wilbur Casey as a service to the Texas oil industry, specializing in life assurance policies to workers in dangerous occupations. Over the last century its business has expanded massively. It now has over 200 small branches all over the US.
Recently the insurance business has changed tremendously. Customers work in a variety of industries, in many different locations. They tend to shop around for the best quotations and prices. They do not rely upon the convenience of local companies. Many consumers use the Internet to search for appropriate policies at the right price. Andew and Paul Casey, the current Directors of the business, have decided to radically restructure their organization. They have decided to close down all of the 200 small branches. They will be replaced by a Las Vegas based head office with a purpose built call center. The company hopes that many employees will take early retirement, with others accepting the offer to retrain and to move to Las Vegas, a prosperous and expanding city.
Your role is to draw up an internal marketing plan to implement the proposed relocation and call Center.
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4. MARKETING STRATEGY
4.1 Ansoff's Matrix - Planning for Growth
This well-known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth.
Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection.
Ansoff's Product/Market Matrix
Market Penetration
Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.
Market Development
Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, is examples of market development.
Product Development
This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.
Diversification
This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have neither previous industry nor market experience. For example a soup manufacturer invests in the rail business.
Ansoff’s matrix is one of the most well know frameworks for deciding upon strategies for growth.
Ansoff’s Matrix Exercise: Colorado Ricardo Mountain Bikes.
Colorado Ricardo Mountain Bikes was founded by Ricardo Francisco in 1992. He was a keen cyclist who spent his weekends with many friends cycling and having fun in the mountains of Colorado. He was very competitive and loved to take his bike off-road to test his strength and endurance. However he found that the bikes themselves kept on breaking-down under the strain. So Ricardo designed and built a number of bikes to overcome this problem. Many failed but eventually he came up with the ultimate in off-road bike, which he called the 'Colorado Ricardo’. People liked Ricardo’s bike and he was asked to build and sell them to other cyclists in the Colorado region. It went so well that soon he was able to give up his own job as a DJ to focus on the construction of the bikes. As the mountain bike sport took off, Ricardo’s business grew to produce 10,000 units in 1996. However sales have fallen annually since then and forecasted sales for 2000 are only 4,000 units. Ricardo’s company needs strategies for growth before it is too late. Use Ansoff’s matrix to examine the options for Colorado Ricardo.
4.2 The Boston Matrix
The Boston Consulting Group's Product Portfolio Matrix
The Boston Matrix - Product Portfolio Decisions
Like Ansoff's matrix, the Boston Matrix is a well-known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth.
You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.
This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows.
Dogs
These are products with a low share of a low growth market. These are the canine version of 'real turkeys!’ They do not generate cash for the company, they tend to absorb it. Get rid of these products.
Cash Cows
These are products with a high share of a slow growth market. Cash Cows generate more than is invested in them. So keep them in your portfolio of products for the time being.
Problem Children
These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.
Stars
These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.
Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows are used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures.
Problems with the Boston Matrix
There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs.
It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product.
There is another assumption that SBUs will cooperate. This is not always the case.
The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.
Boston Matrix Exercise: Manor Way Tools
Manor Way Tools began life as a small steel company at the end of the 19th Century. It was one of the first companies to put carbon into regular iron to create steel. It was strong and flexible. Their first products were fishhooks, which were made from the flexible wire that they were able to produce.
Over the years the product portfolio grew to include anything that their operation could turn its hand to such as javelins and railings. Today they focus their operations on the manufacture of tools for the professional, production, and the enthusiastic amateur. Core products include handsaws, drill bits, screwdriver, bowsaws etc.
The tool trade is very complex and competitive. Manor Way's main competitor is Oliver Tools. They are the market leader in many similar areas of the market.
Analyze your product portfolio using the Boston Matrix.
Oliver is the market leader in handsaws with 40% of the market. Manor Way has only 25%. There is little house building and nowadays many amateurs use power tools. However is still quite profitable.
Manor way still makes a range of barbed fish hooks, which are now banned in some markets.
Both Oliver and Manor Way have invested heavily in gardening tools and expect sales to increase in the future since people have more leisure time and a larger disposable income. Manor Way has 10% of the new market, and Oliver has 15%.
Manor Way has a high share in the new market for sandpaper replacement products. Their Way plate is a steel sandpaper replacement for which they have sole rights. They have 5% of this growing market.
What about the javelins?
4.3 The Strategy Clock: Bowman's Competitive Strategy Options
The 'Strategy Clock' is based upon the work of Cliff Bowman (see C. Bowman and D. Faulkner 'Competitive and Corporate Strategy - Irwin - 1996). It's another suitable way to analyze a company's competitive position in comparison to the offerings of competitors. As with Porter's Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. There a six core strategic options:
?Option one - low price/low added value
Likely to be segment specific
Option two - low price
Risk of price war and low margins/need to be a 'cost leader'.
Option three - Hybrid
Low cost base and reinvestment in low price and differentiation
Option four - Differentiation
(a) Without a price premium
Perceived added value by user, yielding market share benefits
(b) With a price premium
Perceived added value sufficient to bear price premium
Option five - focused differentiation
Perceived added value to a 'particular segment' warranting a premium price
Option six - increased price/standard
Higher margins if competitors do not value follow/risk of losing market share.
Option seven - increased price/low values
Only feasible in a monopoly situation
Option eight - low value/standard price
Loss of market share
Bowman's Strategy Clock - Exercise
Place the following competitive offerings onto the Strategy Clock:
New Zealand Lamb
A standard domestic 40 watt light bulb
A Colored 40 Watt light bulb
Per view TV
Hyundai Autos
First Class fights on United Airlines
A standard paper clip
SAGA holiday (for the over fifties)
4.4 Generic Strategies – Michael Porter (1980)
Generic strategies were at their most popular in the early 1980s. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment:
Sources of competitive advantage – are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market – does the company target a wide market, or does it focus on a very narrow, niche market?
The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.
4.4.1 Cost Leadership
The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. ‘cost advantage’ is the focus. Costs are shaved off every element of the value chain. Products tend to be ‘no frills.’ However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organization, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.
4.4.2 Differentiation
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service. The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.
4.4.3 Focus or Niche strategy
The focus strategy is also known as a ‘niche’ strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.
The danger of being ‘stuck in the middle.’
Make sure that you select one generic strategy. It is argued that if you select one or more approaches, and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage.
?Exercise - Generic Strategies
Consider the global market for restaurants. Place the following restaurants onto the Generic Strategies matrix.
McDonalds (global brand)
Chick King (lesser known chicken restaurant)
KFC (global brand)
Burger King (global brand)
Woodies Restaurant Chichester, UK (small but popular restaurant)
Denny’s or Little Chef (national chain of identical restaurants
MGM Hotel Restaurant, Las Vegas (huge brand, single mega hotel)
Subway (growing 'sub' sandwich brand)
A deli in New York (small but popular deli)
A hot dog stand in a New York street (cheap but low quality).
4.5 Value Chain Analysis
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'
4.5.1 Primary Activities
Inbound Logistics
Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.
Operations
This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.
Outbound Logistics
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.
Marketing and Sales
In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
Service
This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.
4.5.2 Support Activities
Procurement
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).
Technology Development
Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Human Resource Management (HRM)
Employees are an expensive and vital resource. An organisation would manage recruitment and selection, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.
Firm Infrastructure
This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
?Exercise - Value Chain - Fen Side Golf Course
Fen Side Golf Course is an internationally known Scottish golf facility. It is not just an eighteen hole world-class golf course, it has a five star hotel with 250 luxury rooms, and private leisure centre, indoor tennis courts, as well as a series of top class restaurants. Below are a series of nine activities that add value to the Fen Side experience. Print out the value chain above and place the appropriate letter (below) onto the value chain.
A. All staff are trained to the highest industry standards.
B. The hotel management team focus on goals set out in their strategic plan.
C. All golf course fairways are trimmed and watered daily.
D. Fresh fruit and vegetables are delivered and prepared every day.
E. The hotel has an advanced room reservation system.
F. Fen Side is promoted through magazines targeted at the weathly and influential.
G. The whole experience is based upon high quality, professional service at every stage.
H. Limousines are available to take guests to airports as they finish their stay.
I. Fen Side has a series of contracts with suppliers of meat and fish.
5. MARKETING TACTICS
5.1 Consumer buyer Behavior
If a marketer can identify consumer buyer behavior, he or she will be in a better position to target products and services at them. Buyer behavior is focused upon the needs of individuals, groups and organizations. It is important to understand the relevance of human needs to buyer behavior (remember, marketing is about satisfying needs).
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Let's look at human motivations as introduced by Abraham Maslow by his hierarchy of needs: The hierarchy is triangular. This is because as you move up it, fewer and fewer people satisfy higher level needs. We begin at the bottom level. Physiological needs such as food, air, water, heat, and the basic necessities of survival need to be satisfied. At the level of safety, man has a place to live that protects him from the elements and predators. At the third level we meet our social and belongingness needs i.e. we marry, or join groups of friends, etc. The final two levels are esteem and self-actualization. Fewer people satisfy the higher level needs. Esteem means that you achieve something that make you recognized and give personal satisfaction, for example writing a book. Self-actualization is achieved by few. Here one is the one of a small number to actually do something. For example, Neil Armstrong self-actualized as the first person to reach the Moon. The model is a little simplistic but introduces the concept a differing consumer needs quite well.
To understand consumer buyer behavior is to understand how the person interacts with the marketing mix. As described by Cohen (1991), the marketing mix inputs (or the four Ps of price, place, promotion, and product) are adapted and focused upon the consumer. The psychology of each individual considers the product or service on offer in relation to their own culture, attitude, previous learning, and personal perception. The consumer then decides whether or not to purchase, where to purchase, the brand that he or she prefers, and other choices.
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This is a very simple example of what can be a very complex process. There are many complex and detailed models of buyer behavior such as The Source Loyalty Model of Webster and Wind (1972), Decision Process Models such as Cyert (1956), Organizational Models such as Webster and Wind (1972), Consumer Buyer Behavior such as Sheth and Howard (1969), Engel et al (1978), and Industrial Buyer Behavior such as Sheth (1973), as well as many others.
The Buyer Decision Process
The buyer decision process is a useful tool to use when trying to learn consumer buyer behavior. It has a number of stages:
Recognition of a need e.g. buying a new personal computer (PC).
Choice of level of involvement (i.e. justifying you time and effort e.g. low for bubble gum, high for a holiday).
Identification of alternatives e.g. Dell, IBM, PC store. Evaluation of alternatives (such as price, support, software, etc).
Make decision.
Action i.e. buy PC.
Post-purchase behavior i.e. did it meet your expectations? Did you use it? Was it reliable? Etc.
Consumer Buying Behaviour - Exercise
Describe the Buying Decision Process for a mobile/cell phone. Fit your description around the five stages that follow:
The Buyer Decision Process:
Recognition of a need.
Choice of level of involvement (i.e. justifying you time and effort e.g. low for bubble gum, high for a holiday).
Identification of alternatives.
Make decision.
Action
Post-purchase behavior i.e. did it meet your expectations? Did you use it? Was it reliable? Etc.
5.2 Marketing mix
The 'marketing mix' is probably the most famous phrase in marketing. The elements are the marketing 'tactics'. Also known as the 'four Ps', the marketing mix elements are price, place, product, and promotion.
Some commentators will increase the mix to the 'five Ps', to include people. Others will increase the mix to 'Seven Ps', to include physical evidence (such as uniforms, facilities, or livery) and process (i.e. the whole customer experience e.g. a visit the Disney World). The term was coined by Neil H. Borden in his article 'The Concept of the Marketing Mix' in 1965.
The concept is simple. Think about another common mix - a cake mix. All cakes contain eggs, milk, flour, and sugar. However, you can alter the final cake by altering the amounts of mix elements contained in it. So for a sweet cake add more sugar! It is the same with the marketing mix. The offer you make to you customer can be altered by varying the mix elements. So for a high profile brand increase the focus on promotion and desensitize the weight given to price.
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5.3 Pricing Strategies
There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.
Premium Pricing
Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.
Penetration Pricing
The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom in order to attract new corporate clients.
Economy Pricing
This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.
Price Skimming
Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.
Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.
Psychological Pricing
This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.
Product Line Pricing
Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.
Optional Product Pricing
Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.
Captive Product Pricing
Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades, which fit the razor.
Product Bundle Pricing
Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.
Promotional Pricing
Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).
Geographical Pricing
Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
Value Pricing
This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.
?Pricing Strategies - Exercise
Listed below are a series of pricing strategies/polices. Place them onto the correct section of the matrix.
Wall-Mart launches a new range of own-label soups.
Cunard launch two new cruise ships.
A cable TV provider moves into a new area and needs to achieve a market share.
Holiday Inns try to fill hotels during winter weekends.
Burger King introduces a new range of value meals.
Nokia launch a new videophone.
5.4 Place, distribution, channel, or intermediary
Bucklin - Theory of Distribution Channel Structure (1966): A channel of distribution comprises a set of institutions, which perform all of the activities utilized to move a product and its title from production to consumption.
Another element of Neil H.Borden's Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.
5.4.1 There are six basic 'channel' decisions:
Do we use direct or indirect channels? (e.g. 'direct' to a consumer, 'indirect' via a wholesaler)
Single or multiple channels
Cumulative length of the multiple channels
Types of intermediary (see later)
Number of intermediaries at each level (e.g. how many retailers in Southern Spain).
Which companies as intermediaries to avoid 'intrachannel conflict' (i.e. infighting between local distributors)
5.4.2 Selection Consideration - how do we decide upon a distributor?
Market segment - the distributor must be familiar with your target consumer and segment.
Changes during the product life cycle - different channels can be exploited at different points in the PLC e.g. Foldaway scooters are now available everywhere. Once they were sold via a few specific stores.
Producer - distributor fit - Is there a match between their polices, strategies, image, and yours? Look for 'synergy'.
Qualification assessment - Establish the experience and track record of your intermediary.
How much training and support will your distributor require?
5.4.3 Types of Channel Intermediaries
There are many types of intermediaries such as wholesalers, agents, retailers, the Internet, overseas distributors, direct marketing (from manufacturer to user without an intermediary), and many others. The main modes of distribution will be looked at in more detail.
5.4.3.1 Channel Intermediaries - Wholesalers
They break down 'bulk' into smaller packages for resale by a retailer.
They buy from producers and resell to retailers. They take ownership or 'title' to goods whereas agents do not (see below).
They provide storage facilities. For example, cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer.
Wholesalers offer reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs.
A wholesaler will often take on the some of the marketing responsibilities. Many produce their own brochures and use their own telesales operations.
5.4.3.2 Channel Intermediaries - Agents
Agents are mainly used in international markets.
An agent will typically secure an order for a producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a 'stockist agent' will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs).
Agents can be very expensive to train. They are difficult to keep control of due to the physical distances involved. They are difficult to motivate.
5.4.3.3 Channel Intermediaries - Retailers
Retailers will have a much stronger personal relationship with the consumer.
The retailer will hold several other brands and products. A consumer will expect to be exposed to many products.
Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel agents.
Products and services are promoted and merchandised by the retailer.
The retailer will give the final selling price to the product.
Retailers often have a strong 'brand' themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal.
5.4.3.4 Channel Intermediaries - Internet
The Internet has a geographically disperse market.
The main benefit of the Internet is that niche products reach a wider audience e.g. Scottish Salmon direct from an Inverness fishery.
There are low barriers low barriers to entry as set up costs is low.
Use e-commerce technology (for payment, shopping software, etc)
There is a paradigm shift in commerce and consumption, which benefits distribution via the Internet.
Exercise - Newtown
Welcome to Newtown. It sits 25 miles from Commerce Town, 10 miles away from Friesner Airport, and 35 miles away from Poshbury.
Floor-Mart is considering where to put their new store. Their store will sell groceries and provisions 24 hours a day (at a premium price of course). They have three options, each one is considered below. You must recommend a place for the position of the new store.
This site is next to Commerce Town. It has very few inhabitants. However 7,000 people travel there everyday to go to work. It already has a competing store (C). There are plans to build low cost housing in the area.
This site is very close to the exclusive Poshbury. It has 1,000 very exclusive, wealthy inhabitants. There is no competition in the locality.
This site is close to Newtown. However the 7,000 of the 10,000 citizens of Newtown work in Commerce Town and spend little time at home during the working week. This site some 5 miles away from Newtown and 4 miles away from the growing Friesner Airport. It is situated on the only road between Friesner airport and Newtown.
Which place would you recommend to Floor-Mart? Justify your recommendations.
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5.5 The Product Life Cycle (PLC)
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Believe it or not the Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).
In theory it's the same for a product. After a period of development it is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilizes and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn. However, most products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers.
5.5.1 Strategies for the differing stages of the PLC
Introduction
The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.
Growth
Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilize.
Maturity
Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and uses a greater variety of media.
Decline
At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.
5.5.2 Problems with PLC
In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously the decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.
The Product Life Cycle - Exercise
Put the following products on the PLC
MS-DOS
Internet Telephones (WAP or 3G)
Palmtop computers
Play Station 2
Sega Megadrive
Fax machines.
5.6 Integrating the Promotions Mix
Another one of the 4P's is 'promotion'. This includes all of the tools available to the marketer for 'marketing communication'. As with Neil H.Borden's marketing mix, marketing communications has its own 'promotions mix.' Think of it like a cake mix, the basic ingredients are always the same. However if you vary the amounts of one of the ingredients, the final outcome is different. It is the same with promotions. You can 'integrate' different aspects of the promotions mix to deliver a unique campaign. The elements of the promotions mix are:
Personal Selling
Sales Promotion
Public Relations
Direct Mail
Trade Fairs and Exhibitions
Advertising
Sponsorship
The elements of the promotions mix are integrated to form a coherent campaign. As with all forms of communication. The message from the marketer follows the 'communications process' as illustrated above. For example, a radio advert is made for a car manufacturer. The car manufacturer (sender) pays for a specific advert with contains a message specific to a target audience (encoding). It is transmitted during a set of commercials from a radio station (Message / media). The message is decoded by a car radio (decoding) and the target consumer interprets the message (receiver). He or she might visit a dealership or seek further information from a web site (Response). The consumer might buy a car or express an interest or dislike (feedback). This information will inform future elements of an integrated promotional campaign. Perhaps a direct mail campaign would push the consumer to the point of purchase. Noise represents the thousand of marketing communications that a consumer is exposed to everyday, all competing for attention.
The Promotions Mix
Let us look at the individual components of the promotions mix in more detail. Remember all of the elements are 'integrated' to form a specific communications campaign.
5.6.1 Personal Selling
Personal Selling is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. However sales people are very expensive and should only be used where there is a genuine return on investment. For example salesmen are often used to sell cars or home improvements where the margin is high.
5.6.2 Sales Promotion
Sales promotion tends to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions, free accessories (such as free blades with a new razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales promotion should be carefully costed and compared with the next best alternative.
5.6.3 Public Relations (PR)
Public Relations is defined as 'the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its publics' (Institute of Public Relations). It is relatively cheap, but certainly not cheap. Successful strategies tend to be long-term and plan for all eventualities. All airlines exploit PR; just watch what happens when there is a disaster. The pre-planned PR machine clicks in very quickly with a very effective rehearsed plan.
5.6.4 Direct Mail
Direct mail is very highly focused upon targeting consumers based upon a database. As with all marketing, the potential consumer is 'defined' based upon a series of attributes and similarities. Creative agencies work with marketers to design a highly focused communication in the form of a mailing. The mail is sent out to the potential consumers and responses are carefully monitored. For example, if you are marketing medical textbooks, you would use a database of doctors' surgeries as the basis of your mail shot.
5.6.5 Trade Fairs and Exhibitions
Such approaches are very good for making new contacts and renewing old ones. Companies will seldom sell much at such events. The purpose is to increase awareness and to encourage trial. They offer the opportunity for companies to meet with both the trade and the consumer. Expo has recently finish in Germany with the next one planned for Japan in 2005, despite a recent decline in interest in such events.
5.6.6 Advertising
Advertising is a 'paid for' communication. It is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market. There are many advertising 'media' such as newspapers (local, national, free, trade), magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides).
5.6.7 Sponsorship
Sponsorship is where an organization pays to be associated with a particular event, cause or image. Companies will sponsor sports events such as the Olympics or Formula One. The attributes of the event are then associated with the sponsoring organization.
The elements of the promotional mix are then integrated to form a unique, but coherent campaign.
Exercise: 'www.cuttingitshort.com' - The Campaign.
Clarissa Drive-Terrior is one of the new breeds of entrepreneurs that have taken advantage of the massive opportunities open to e-businesses. Her idea was to sell travel and flights, theater tickets, and similar products and services, to consumers that need them at very short notice; hence the name cutting it short. Www.cuttingitshort.com became extremely popular almost immediately. It was so popular that Clarissa decided to float the business. This was also a huge success, with stocks/shares exchanging hands for more than $20.00 each.
Now that the business was a success, it needed a campaign to reinforce its brand attributes in the mind of existing consumers, and the generate new ones.
Your task is to integrate the promotions mix to form a campaign for www.cuttingitshort.com.
Use the different elements of the mix which were:
Personal Selling
Sales Promotion
Public Relations
Direct Mail
Trade Fairs and Exhibitions
Advertising
Sponsorship
