1. The Role of Marketing

Definition of Marketing

Marketing – the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.

• As customers, our needs and wants evolve with economic circumstances and our stage of life. Marketing is about creating loyalty to the company, product, and brand.

  • Firms may persuade us to buy a product once through clever marketing, but if the buying process or the product is unsatisfactory, we may never buy the product again, nor recommend it.

  • Firms only succeed by getting us to buy and buy again. This is repeat purchasing behavior.

• Marketing is both a function of an organization and a business philosophy, stressing the achievement of business goals through customer satisfaction.

  • The complex range of activities that define marketing are applicable to all firms, large or small, new or established, and even applies to non-profit making organizations.

• Marketing is the process of identifying a target market, defining what that target market needs and/or wants, and organizing the firm to meet those needs and wants.

• Firms try to predict customer demand patterns, so better definitions of marketing focus on the satisfaction of customer needs.

Marketing vs. Advertising vs. Selling

• ​Marketing is not interchangeable with advertising.

  • Advertising is just one element of marketing.

• Marketing is not interchangeable with selling.

  • Selling emphasizes the needs of the seller, whereas marketing focuses on the needs of the buyer.

• The marketing of the business extends outside of the workplace

Types of Marketing

Markets are increasingly fragmented, with various social exchanges facilitated by technologies such as the Internet (e-commerce):

• B2B (business-to-business): commercial transactions between businesses.

• B2C (business-to-consumer): the marketing of products and services by businesses to a consumer market that is not business-related.

• C2C (consumer-to-consumer): any informational or financial transactions between consumers, usually mediated through a business site such as eBay.

• B2G (business-to-government): often called public-sector marketing.

Marketing Planning

Marketing and its relationship with other business functions

• Marketing is not only much broader than selling but also 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.

• Marketing is a business philosophy and cannot be the sole responsibility of the marketing department.

• Marketing thinking must permeate the entire organization.

• Developing an effective marketing plan requires close links with other functional areas.

Marketing and operations management/production

The marketing department works closely with the production department to ensure that:

• Adequate research and development are planned to satisfy current and future customer needs.

• The item can be manufactured to the quality and design desired by the consumer.

• The volume of orders generated by marketing can be met within the time schedule.

• Marketers wish to get products to market as soon as possible to ensure competitive advantage, whereas production wants to evaluate products fully to ensure low defect rates and meet legal requirements.

Marketing and Finance

• The marketing department will need to work closely with the finance department to ensure an adequate budget to meet the needs for research, promotion, and distribution.

• The finance department’s role is to ensure that the business operates within its financial capabilities.

• The marketing department concentrates on sales volume and market share, whereas the finance department is more focused on cash flow, costs, and paying back investment.

Marketing and human resource management (HRM)

The marketing department will need to work closely with the HRM department to ensure appropriate skills and staffing levels are in place to:

• Research and develop new product ideas.

• Meet production targets.

• Create a competent sales team.

• The HRM department has recruitment and training demands and needs to balance its obligations to marketing with those to other departments.

• The differences between the marketing of goods and the marketing of services

• In more economically developed countries, most national income and wealth comes from the sale of services rather than from products.

2. Products and Goods

Product – also known as a good, is a tangible (visible) item that can be seen, touched, felt, heard, and smelled. When purchased, ownership of the product moves from the seller to the buyer.

Types of products

Consumer goods - are sold to the general public.

Categories of Consumer Goods

• Convenience items – consumers search for the nearest shop for staples like milk, emergency items like plasters and impulse buys like sweets.

• Shopping/comparison goods – consumers compare prices and features before purchase

• Specialty goods – unique or special goods.

• Consumer durables – bought by households and used many times, e.g., TVs.

• Consumer non-durables – goods consumed in use

• Industrial/capital goods are sold business to business (B2B) - and used in the production of other goods.

3. Services

Features of a service

• Intangibility (or invisible item) – purchasers buy skills and experience that cannot be seen or touched

• Inseparability – the service cannot be separated from the person or the seller providing it.

• Heterogeneity – difficult to achieve standardization of service, as quality differs with the person supplying it,

• Perishability – services cannot be stored.

• Ownership – ownership does not move from the supplier of a service to the purchaser.

Types of service

Personal services - are sold to the general public.

Commercial services - are sold to other businesses.

Goods vs. Services

• There are few ‘pure’ products or ‘pure’ services.

• Pure – refers to basic commodities that remain totally intangible

• Most products contain service elements.

• When choosing a new car, customers consider after-sales service, credit terms, and image.

• The service element provides the ‘value added’ that differentiates one product from its competitors.

• Most services have tangible elements.

4. The marketing mix for services

Four P’s

1. Product

2. Price

3. Place (or distribution)

4. Promotion

• The marketing mix was developed for manufactured products, not services, and some vital ingredients are missing from the mix for a service, especially in the not-for-profit sector.

• In recent years, the Four Ps have been extended to include three service elements: people, physical evidence, and process.

People

• People are the most important element of any service experience.

• Operational staff in service organizations may perform and sell a service.

Physical evidence

• Physical evidence – The physical environment where the service is delivered will influence consumer satisfaction.

Examples of Physical Evidence

• packaging

• brochures

• furnishings

• signage

• uniforms

• building design

Process

• The process of buying a service influences repeat purchases.

• If a customer enjoys the process of buying, such as excellent service, they are more likely to provide positive word-of-mouth promotion.

Examples

• Waiting time

• Payment methods

• Delivery

• Additional services

5. Market Orientation vs. Product Orientation

• The concept of a specialist marketing function was developed to sell fast-moving consumer goods (FMCGs) such as food and clothing.

• The success of marketing in creating a competitive advantage encouraged firms to adopt marketing techniques for other products and services.

Product Orientation

Product orientation - is a management approach that emphasizes the quality of the product rather than the needs and wants of the target market.

• ​A product orientation is the belief that if the firm makes a good product, it will sell.

• Firms concentrate on selling what they have already produced rather than on the customer.

• Product orientation, established at the end of the 19th century, reflected the fact that production was by small firms and, as a consequence, demand > supply.

Selling orientation

• Selling orientation – prevalent in the 1960s and 1970s, was built on the belief that a good salesperson could sell any product.

• It resulted in the unethical ‘hard sell’, forcing governments to pass consumer protection laws. For the first time in some markets, particularly FMCGs, supply > demand.

Market/customer orientation

​Market orientation - is a management approach where firms seek to identify and quantify customer requirements and plan their production accordingly.

• The market or consumer orientation is based on the principle that ‘the customer is king’ and that success is achieved through customer and brand loyalty and ‘repeat purchase.’

• The process is outward looking like customer requirements are established through market research before the firms produce.

• This approach, developed in the 1980s, reflected the fact that customers had considerable choice as supply > demand in almost all markets.

Choosing an Approach

• The approach adopted is determined by the nature of the product, market, and firm.

  • Traditional firms may have corporate cultures encouraging product orientation, keeping costs low, and emphasizing efficiency.

  • However, increased competition forces even these firms to be more market-orientated.

6. Commercial Marketing vs. Social Marketing

Marketing - is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and values with others.

Social marketing (or societal orientation)

• Developed in the 1970s

• Kotler and Zaltman realized that commercial marketing principles used to sell products could be used to ‘sell’ ideas, attitudes, and behaviors.

• Premise: increasing environmental awareness grew out of an increasing concern about consumerism, pandering to wasteful and undesirable needs of the consumer.

​Social marketing - seeks to influence social behaviors, not to benefit the marketer but to benefit the target audience and society in general.

Societal marketing - a concept to determine the needs, wants, and interests of target markets and deliver satisfaction better than competitors while preserving or enhancing the consumer’s and society’s well-being.

7. Characteristics Of the Market In Which An Organization Operates.

Three Main Measures of Market Size

• Volume of sales - measures the amount of goods sold by quantity.

• Value of sales (revenue) - is the amount customers spend on goods sold, expressed in a currency.

• Volume of Customers

Market growth

Market growth - is the percentage change in sales of a product or service over a certain period. It is a factor considered when evaluating the performance of a particular product in a market.​

​Market share

Market share - is the percentage of all the sales in a particular market held by one brand or company, measured by volume (units sold) or by value (revenue generated).

​The importance of market share and market leadership

Increasing market share produces:

• greater economies of scale

• more market influence and power

• the ability to charge lower prices

• lower costs and higher profit margins

The important factor in computing relative market share is not the exact number associated with the sales volume. Your position relative to the competition is more important.

Market concentration

Market concentration - is the extent to which a relatively small number of firms account for a relatively large percentage of the market.

• Concentration ratios are measures of the total output produced in an industry by a given number of firms.

The Most Common Concentration Ratios

• CR4:CR4​ - measures the combined output of the four largest firms in the industry.

• CR8:CR8​ - measures the combined output of the eight largest firms in the industry.

The marketing objectives of for-profit organizations and non-profit organizations (NPOs)

For-Profit vs. Non-Profit

• Profit or surplus may, in reality, be remarkably similar.

• Firms in the private sector seek to maximize profits, whereas charities aim to maximize funds for their clients.

• Profit-making firms may support good causes to promote a socially responsible image.

• Not-for-profit organizations raise awareness of the causes they represent more than they raise awareness of the organization itself, often using political lobbying.

8. Innovation, ethical considerations, and cultural differences

Ethical considerations

• Ethical principles extend across cultures and nationalities.

• What is acceptable in one country may not be in another, so firms must be sensitive to the beliefs, values, and lifestyles.

Cultural differences

• The export of cultural values affects the aspirations of local populations, with the ‘new generations’ demanding economic, cultural, and social reform.

Considerations for multinationals

Cultural and ethical issues extend into employment practices. Ethical and policy considerations for multinationals acting in international markets must be asked:

• Do we understand the societies and cultures in which we operate?

• Do we offer local staff similar terms and conditions to those offered in other regions?

• Are we aware of the norms and values of local communities?

• Do our operations harm the local and/or national community?

• Are we regarded as a foreign or a ‘local’ firm?

​9. Sales Forecasting

Trends and Extrapolation

• When you look at sales figures for a business, there may be underlying patterns of growth or decline – referred to as a trend.

Extrapolated trend

• The graph shows inconsistent sales figures over a period.

• However, it is possible to produce a ‘line of best fit’ called a trend line, which forecasts improving sales in the future.

• This trend is established using moving averages to smooth out variations in data.

Benefits of sales forecasting

• Plan future production levels allowing more efficient use of resources

• Improve cash flow and working capital by calculating cash flow needs

• Improve stock control using the sales forecasts

• Drive marketing campaigns, including distribution and promotion

• Underpin the budgeting process: sales drive budgets

• Identify significant trends and use to adapt its product portfolio

• Identify the influence of economic cycles on demand patterns

Time series analysis

Time Series - helps predict future sales levels, using past sales data.

Trend Variations

• Secular trend - the very long-term growth or decline of a series, which may explain the trend itself.

• Seasonal variation – short-term variation reflecting seasonal changes.

• Cyclical variation – long-term cycling of a trend.

• Irregular or random variation – irregular, unpredictable shocks that hit all economies.

Moving averages

Moving average - is used to ‘smooth’ data and remove seasonal and trade cycles and random variations.

• The easiest and quickest moving average, but it does not completely smooth the trend line and makes accurate extrapolation difficult.

• Calculated by taking a number in the series with the previous and next numbers and averaging all three.

​Centring

Centring - means averaging two averages to produce a result that corresponds with an actual sales figure.

• The trend line can be extended to forecast the future trend line on the assumption that the trend of the past continues in the future.

• The angle of the extension can be changed according to other data.

Identifying the seasonal variation

Trend Analysis Summary Method

1. Plot the actual sales.

2. Work out the trend by using 8-quarter moving averages.

3. Add the trend to the original graph.

4. Extend (extrapolate) the trend.

5. Calculate average seasonal variations.

6. Predict the actual future by recreating the seasonal variation around the extrapolated trend.

7. Read the predicted actual sales for the future period required.

The benefits and limitations of sales forecasting

Benefits of Sales Forecasting

• improve financial plans to improve liquidity

• supports operational planning, ensuring supply matches demand

• more efficient workforce planning and stock holding

• supports the planning of marketing campaigns

Limitations of Sales Forecasting

• Results are only as good as the data used to produce the forecasts

• it ignores qualitative factors and other the external environment changes

10. E-Commerce

Features of e-commerce

Electronic commerce (e-commerce) - is the buying and selling of products or services over electronic systems, such as the Internet and other computer networks. It also includes electronic funds transfer.

• E-commerce allows firms to operate 24 hours a day.

Changing technology, e-commerce, and the marketing mix

• Product: e-commerce allows firms to offer a wider range of products and provide more information on specifications with greater customization opportunities.

• Price: lower overheads reduce the prices of goods. Customers compare prices using search engines and price comparison sites.

• Promotion: e-commerce supports innovative promotion, e.g. purchase suggestions based on search behavior.

• Place: e-commerce reduces the number of intermediaries in the supply chain, and increases opportunities to find suitable products and services.

Types of e-commerce

Business-to-business (B2B)

• involves businesses selling to other businesses, e.g. retailers ordering stock from suppliers.

Functions of B2B:

• attract, develop, retain, and cultivate customer relationships

• streamline supply, manufacturing, and purchasing to deliver the right products and services to customers quickly and cost-effectively

• capture, analyze, and share customer information

Business-to-consumer (B2C)

• means businesses selling goods directly to consumers, e.g. ordering goods and services directly from Amazon.

Consumer-to-consumer (C2C)

• Consumer-to-consumer transactions are between one consumer and another, characterized by the growth of electronic marketplaces, peer-to-peer sites, and online auctions such as eBay.

The costs and benefits of e-commerce to firms and consumers

Potential costs and benefits to firms

Costs of E-Commerce

• It is harder to develop online brand loyalty as customers can search for cheaper alternatives.

• It is expensive to develop reliable, secure sites with payment facilities and links to distribution systems.

• Vulnerability to cyber-attacks from competitors, spammers and hackers, and loss of commercially sensitive information.

• Some products are difficult to market online as customers want to try them out before buying.

• Fewer quality controls on online businesses and product quality may be less than in physical retail outlets.

• Laws protecting shoppers in one country may not apply to purchases from foreign sites.

• Customer security may be compromised online.

• Cybercrime is growing, with hackers and spammers disrupting commercial activities and stealing information.

Benefits of E-Commerce

• Potential access to global markets.

• Increasing opportunities for small producers in niche markets.

• Cost savings and improved efficiency.

• Improved relationships with trading partners along the supply chain.

• Potential costs and benefits to consumers

• Lower overheads than physical competitors and consequently lower prices;

• A larger range of products available

• search facilities to find the correct product and information more easily.

• reduced transaction times

• purchase tracking

• higher service levels

• encrypted payment systems

11. Market Research

Market research - is ‘the systematic and objective collection of forms of information that allows trends in market behavior to be identified and predicted.’

• It is the process by which firms find market information, note its relevance, and decide how to act upon it.

Market research methods and techniques

Primary market research

Primary research - is the gathering of new or ‘first-hand’ data specifically tailored to provide information on the firm’s own products, customers, and markets.

• Data is collected by fieldwork such as questionnaires, observation, and surveys. It is expensive, but also relevant, accurate, and up-to-date.

• Primary data can be collected from internal or external sources.

Secondary market research

Secondary research (desk research) - is the assembly, collation, and analysis of existing or ‘second-hand’ marketing data.

• This process is cheaper than primary research, but the data may be less relevant as it was not collected for the firm's specific needs and may be outdated.

The following summarizes the advantages and disadvantages of primary and secondary data:

Primary research methods and techniques

• surveys

• interviews

• focus groups

• observations

Surveys and interviews

• Surveys and interviews come in various different types.

• The most common is stopping members of the public and asking them product related questions.

• how questions are asked may influence those interviewed, and introduce bias.

Main Forms of Survey

• Face-to-face – form of survey where a researcher asks the questions, explaining the purpose.

• Self-completion – form of survey often used after a service.

• Postal – form of survey which may follow product purchase. Firms often provide incentives for completion.

• Telephone – form of survey similar to a face-to-face questionnaire, except respondents can hang up!

• Internet – form of survey where pop-ups appear after ordering online, asking for views on products and/or services.

Types of Questions

• Structured: relying mainly on ‘closed’ questions that provide respondents with a list of possible responses, such as ‘satisfied/unsatisfied’.

• Unstructured: using more ‘open’ questions allowing respondents to develop answers and express opinions. Provides more information, but answers are difficult to quantify.

Focus groups

• Focus groups are presented with marketing messages to see which have favorable impacts, providing information on changes in public attitudes and tastes.

• Participants are introduced to a general area, such as ‘organic foods’, and then focus on what the researcher really wants to know

Observations

• Researchers watch potential and actual consumers’ behavior, possibly using in-store cameras. Often used to design store layouts to maximize sales.

Ethics of market research

• The issue of governments ‘tapping’ into phone conversations and tracking internet traffic has led to global discussion about the ethics of governments and commercial firms when using personal data that has been gathered without consumer permission or knowledge.

• The development of the internet resulted in unprecedented abuse of data and the invasion of privacy.‌

• Market and personal data is of huge value to commercial organizations and is regularly bought and sold.

Qualitative vs. quantitative research

Qualitative research – This is in-depth research into the motivations behind customer purchasing behavior and attitudes, providing information on preferences, tastes, and buying habits by using personal diaries and techniques such as focus groups.

• Qualitative research asks why customers buy and gather information about the strength of demand. This type of information is difficult to present in a succinct form.

Quantitative research – This concentrates on numerical data such as market share, gathered through opinion polls and customer surveys.

• Quantitative research asks questions about who buys the product and how much they buy, which is easier to graph and present visually.

Methods of sampling

Random sampling – A simple random sample is where all participants have an equal chance of being chosen.

• Computers are used to generate a random selection for researchers.

• To be effective, researchers must possess a full and accurate record of all those who could participate (the sample frame).

Quota sampling – This is based on market segmentation using characteristics such as age and gender. A set number of people (the quota) from each group are interviewed.

• This is a cheap and effective way of compiling a representative sample.

Stratified sampling – Where the population is divided into subgroups.

• The sample reflects each subgroup in proportion to their representation in the population as a whole.

Cluster sampling – Also known as area sampling, this method is used when the population is dispersed.

Snowballing – Also known as chain sampling. Here an initial contact is interviewed and then asked to suggest other potential interviewees to provide additional experience.

• This is used when the researching organization has little knowledge of the issues but relies on recommendations for a broad selection of informed advice.

Secondary research methods and techniques

Source

Internal – annual reports, sales data, customer records, client databases, payment records.

External – government data, national and local media, competitor reports, market research reports, and company websites.

Market analyses

• The goal of a market analysis is to determine the attractiveness of a market, both now and in the future.

• Firms use these reports to consider the fit between market opportunities and their strengths.

Academic journals

• Academic journals include original research articles, written by researchers in a particular academic discipline.

• Many academic journals are subsidized by professional organizations and do not exist to make a profit.

Government publications

• Government publications – articles issued by local, regional or national governments or by their agencies.

• These provide valuable market information, including social trends, government statistics, and economic data.

Media articles

• The media describes forms of mass communication including television and newspapers.

• Some magazines and newspapers, such as the Wall Street Journal, specialize in economic and business topics, which provide useful market information.

Results from data collection

Errors in Sampling

Bias – where external effects influence the result.

Statistical sampling error – even without bias, there are random variations from sample to sample.

Although results will not be fully accurate using a sample, an estimate of the error or accuracy is possible knowing the sample size and the experimental method.

12. International Marketing

International marketing - is carried out to satisfy different buying patterns, demographics, and market segments in overseas markets.

International Marketing vs. Global Marketing

• Global marketing employs a uniform approach to the marketing of goods in overseas markets, rather than adapting marketing to local conditions.

Methods of entry into international markets

• Direct exporting – the firm makes the products at home and sends them to the country of consumption, potentially losing control of the marketing process.

• Franchising – a firm sells the right to a franchisee to trade under its name and logo requiring the franchisee to maintain the quality and reputation of its brand.

• Licensing – a local firm buys the right to produce the goods of a multinational company.

• Joint venture – two or more companies join together to fulfill a particular contract, sharing the risks.

• Direct investment – a firm produces and distributes products in an overseas market.

• Mergers and takeovers – a firm buys a business operating in the country in which it wants to sell.

• E-commerce –a method to access global markets.

Opportunities and threats of entering international markets

Opportunities

• Increased profitability – larger markets result in increases in sales and profitability, because of greater economies of scale, lower sourcing costs and possible higher prices.

• Diversification/spreading of risk – a fall in economic activity in one market may be mitigated by shifting production to other growing markets.

• Increased brand exposure and recognition – global brand recognition increases its value, making it easier for the firm to introduce new products and services.

• Legal differences – cheaper and easier production; not all countries apply the same legal and safety standards.

• Market saturation – firms can boost sales and prolong product life cycles by selling overseas.

Threats

• Social factors: differences in social conditions, religion, and culture affect consumers’ perceptions and buying behavior, and demographic changes impact on products demanded.

• Technological factors: the growth of the Web has increased international competition.

• Economic factors: the purchasing power of global populations vary, affecting the products demanded and supporting marketing.

• Ethical factors: firms adopt ethical approaches to promoting and selling products that may harm local populations and their way of life.

• Political factors: governments may impose restrictions on marketing to local populations.

• Legal factors: marketers must be aware of laws governing acceptable marketing and selling techniques.

• Environmental factors: marketing must avoid detrimental effects on the environment.

The strategic and operational implications of international marketing

• Globalization and growing internet access increased the interdependency and interconnections of countries and the firms that operate within them.

Managing stakeholder expectations

• The complexities of international marketing mean MNCs have more stakeholders with differing expectations and, therefore, potential for conflict.

• The firm’s ability to manage conflicts influences its international marketing success.

Cultural differences in international marketing

• Culturally bound products: religious taboos or differences may make certain products unsellable in certain countries e.g. pig products.

• Status relationships: in many Asian cultures, status is very important and language reflects this, with different words used to express similar ideas.

• Advertising: some cultures dislike aggression and others prefer symbols to language. Humor is very culturally specific.

• Packaging: colors have associations with death, sickness, or national pride.

• Language: translation may be difficult if suitable words are unavailable in other languages.

  • Whether local populations perceive MNCs as ‘foreign’ or ‘local’ influences purchasing decisions.

The influence of globalization on international marketing

• increasing competition as markets are deregulated

• changing consumer tastes and preferences as local populations absorb ideas and values imported from abroad through global media

• opportunities for marketing economies of scale

13. The Four Ps (product, price, promotion, place)

The Product Life Cycle

• Products, like human beings, are conceived and born.

• As time passes, products move through infancy, grow, and reach maturity, and, like humans, they will eventually decline and die. Like humans, death may happen at any stage.

Unlike a human:‌

• a product’s life is measured in terms of sales and products may be reborn

• the speed at which a product moves through its life cycle varies

The five stages

Stage 1: Development.

• The research and development (R & D) department develops the product and the marketing department conducts extensive market research.‌ New product development (NPD) follows a pattern:‌

1. Idea generation – ideas come from brainstorming, market research, various departments, and customers and employees.

2. Screening – products are assessed according to marketing, production, and strategic factors, with many ideas dropped at this stage.

3. Concept testing – market research or focus groups are used to assess the reaction.

4. Market/business analysis – the marketing department forecasts market potential, costs, sales, profit, and return on investment.

5. Product development – products not excluded by screening go forward. Costs at this stage are high. A prototype is produced and focus groups provide feedback.

6. Test marketing – products are tested in a small geographical area, selected because it has the characteristics of the target market. Feedback is analyzed and adjustments are made before the full launch.

7. Product launch/commercialization – launching into the intended market is costly, and requires careful planning. Sales are analyzed to see if the product will earn profit.

Stage 2: Introduction.

• The product is launched into the test market(s).‌

  • Significant promotion is required, so marketing costs are high.

  • Informative advertising tells potential consumers of the product’s benefits.

  • There are few economies of scale.

  • The price can be high if the product has a first-mover advantage.

  • Prices are set lower if there are existing competitors to allow the firm to gain market share. This is known as penetration pricing.

‌Stage 3: Growth. ‌

• Persuasive advertising tells customers why the product is better than its competitors to establish brand loyalty.

  • Sales growth.

  • Penetration pricing is used to gain market share.

  • Costs fall as the firm achieves economies of scale.

  • Sales revenues increase and profits rise.

‌Stage 4: Maturity and saturation

Maturity

• Growth slows, but the firm has a significant market share.

• High sales and low unit cost lead to high profit margins.

• Positive cash flows are used to fund new product development.

• New competitors enter the market in response to high profitability and customers become price sensitive.

• Competitive pricing is used to maintain market share.

• Advertising is used to remind customers of the product’s benefits.

Saturation

• Sales fall as more competitors enter the market and compete on price.

• Prices fall with competitive pricing to maintain market share.

• Extension strategies are employed, e.g. redesigned packaging.

‌Stage 5: Decline

• ‌Sales and profits decline.

• Low-cost rivals gain market share.

• Cost cutting is inevitable, e.g. the firm reduces human resources, sales outlets, and investment.

• Promotion cut.

• Further extension strategies are used, e.g. prices are reduced.

• Product eliminated.

​

The relationship between the product life cycle and the marketing mix

Extension strategies

• Firms use extension strategies to prolong product life cycles and delay decline.

Extension strategies prolong the life of a product:

• modifying the product

• promoting more heavily

• developing complementary products

• finding new uses

• lowering price

• more effective distribution

The relationship between the product life cycle, investment, profit, and cash flow

• The cash flow from a product changes through its life cycle.

• Introduction and growth stages

  • High development and promotional costs result in a negative cash flow.

• Maturity and saturation stage

  • As a product moves into maturity, cash flow becomes positive. Economies of scale cause falls in unit costs and profits increase rapidly.

  • As a product becomes mature, competition increases and demand becomes more price elastic. Falling price reduces profit margins.

• Decline stage

  • Sales fall and cash flow declines, possibly leading to losses.

Boston Consulting Group (BCG) matrix

• A company may have products at various stages of its life cycle, illustrated by a Boston matrix (BCG matrix).

• The market share of a product is plotted on the horizontal axis with market growth on the vertical axis.

• Products within a firm’s product mix are classified into four categories used to support a firm’s marketing strategy.

• Question mark/problem child: small market share, high market growth. New products are potentially successful but require considerable financial support. They may become stars or fail and become dogs.

• Star: high share of a fast-growing market. Still requires considerable investment, but profit rises substantially.

• Cash cow: high market share but little market growth. Sales revenues are high and costs low. Cash flow ‘milked’ to provide funds for new product development.

• Dog: both low market share and little prospect of growth. Extension strategies are employed or the firm drops the product.

Four Basic Strategies of BCG

• Sow: investment in R&D and marketing to launch the product, raise awareness, and develop distribution channels.

• Nurture: investment to turn problem children into stars, increasing promotion and developing new distribution channels and markets.

• Harvest: funds from sales of cash cows used to finance other products and improve cash flows.

• Plough (divest): liquidate the product or sell it to another business.

14. Branding (Product)

Brand - is a name, sign, or symbol used to identify items or services of the seller(s) and to differentiate them from competitors’ products.

Global brands - are recognized throughout the world.

• Firms employ a unified approach to support the brand and its development, using consistent packaging, color, fonts, and logos.

Functions

• identify them quickly

• relate to the firm and feel good about its product

• Trust the firm by providing reliable, good-quality products

Brand awareness

• Familiarity with a brand allows businesses to reach a wider audience.

• Brand extension occurs when the firm produces new products under the same brand umbrella.

Brand development

• Brand development is an ongoing evolution.

• The process begins with market research to understand what the firm’s brand stands for and what differentiates it from the competition (brand perception).

• If brand perception is not what a firm wants, it creates a marketing plan to reposition it in the minds of consumers.

  • consistently express the brand values (verbally and visually);

  • actively engage with customers wherever they get information about the firm’s products;

  • expand into complementary markets or products that align with the brand strategy.

Brand loyalty

A brand name is often a firm’s most valuable asset, shown in the balance sheet as an intangible asset.

Results

• repeat purchases

• word-of-mouth endorsement

• economies of scale

• lower price sensitivity

• market leadership

Brand value

• Consumers rarely have a relationship with a product but are loyal to brands.

The importance of branding

• The term ‘brand’ is associated with a product that has a unique, consistent, and well-recognized character.

• Brands convey quality, credibility, image, and experience that outlive the product and create emotional attachments with customers.

• In recessions, branded products perform better than unbranded products.

The importance of packaging

• Packaging is part of products and/or promotion.

• The specific requirements of packaging mean that it is often considered a distinct ‘P’ within the marketing mix.

• Packaging has been described as the ‘silent salesman’ as it grabs customers’ attention and makes products stand out from competitors.

Functions

• physical protection in distribution and storage.

• Content information, e.g. weight, ingredients, and storage details

• convenient use and disposal, e.g. Tetrapacks for liquids

• Protection against theft by incorporating security tags

• Promotion by displaying logos and brand names

15. Price and pricing strategies

Different Pricing Techniques

• Cost-plus pricing – the price is set by adding an agreed level of profit to average cost. This ensures a certain amount of profit per unit sold but ignores competitors’ prices.

• Contribution pricing – the price covers variable costs and makes a contribution to fixed costs.

• Price discrimination – different prices are charged to different customers for the same product in different market segments. To work, the markets must be kept separate.

Options in Pricing Strategy

• Skimming pricing – a high price is set to earn a high level of profit. This works if a product contains new technology and there are few direct rivals. Customers associate the price with a high quality but it may reduce sales.

• Penetration pricing – a deliberately low price is set to gain market share when established brands already exist. Customers may regard a low price as being associated with poor quality.

• Price leader – a dominant firm with a significant share of the market sets the price and other, smaller firms follow.

• Predator or destroyer pricing – a firm deliberately sets a low price, possibly beneath the average cost of production, to force rivals out of the market. This strategy may breach competition rules.

Tactical Pricing Decisions

• Loss leading – certain items are sold very cheaply to entice consumers into a shop in order that they pay full price for other items bought.

• Psychological pricing – prices are set to make consumers believe they are getting ‘value.’

Price-Quality Strategy Mix

• Firms may use a combination of pricing strategies in response to changes in the market and the marketing activities of their competitors.

• The elements of the marketing mix must be consistent with each other.

• There is a close correlation between price and product.

• If a product is priced towards the top end of a consumer’s price perception, a higher promotional effort is required to persuade the consumer that it is a premium product justifying a premium price.

16. Promotion

• Build brand image, awareness, and recognition.

• Inform customers about new and improved products, their functions, and prices.

• Persuade customers to make a purchase and/or switch brand loyalty.

• Remind customers of the firm products to retain loyalty or renew purchasing its established products.

• Attract attention to the ‘family’ of products offered by the business and build corporate image.

• Promotion is NOT simply advertising. It’s all the various ways in which consumers are made aware of the goods and services offered by a firm.

Above-the-line promotion (ATL) - advertising

Above-the-line promotion - is the paid-for promotion that is carried out through independent mass media that allows a firm to access a wide audience.

• These include radio, television, newspapers, and the Web.

• e firm passes control of promotion to specialist external organizations.

Advertising - is directed at a mass audience to generate customer loyalty and repeat purchasing, allowing the firm to produce or buy in bulk and enjoy economies of scale.

• Advertising is a media message paid for by a sponsor.

For advertising to be effective, it should:

• reach the desired target audience

• be appealing to the target market

• generate more sales revenue than it costs the firm

Two Types of Advertising

• Informative: providing information to consumers on the product’s key features and characteristics, specifications, availability, and price.

• Persuasive: convincing consumers to purchase the firm’s products, often in preference to the competitor’s products. Adverts may promote brand image.

Below-the-line promotion (BTL)

Below-the-line promotion - is a promotion over which the firm has direct control. It includes direct promotions like direct mailing, exhibitions, trade fairs, and sales promotions.

• BTL promotions target individuals based on their needs or preferences and can lead directly to sales

Examples

• sales promotion

• direct marketing

• public relations (PR)

• sponsorship

• personal selling

• merchandising

• telemarketing

• trade fairs

Sales promotion

Sales promotions - are temporary methods to improve sales by attracting new customers and encouraging existing customers to purchase more.

• Sales promotions are not without cost.

Types of Sales Promotions

• Into the pipeline activities designed to encourage retailers and wholesalers to stock the product.

• Out of the pipeline - activities carried out by manufacturers to encourage customers to buy in greater quantities.

Point-of-sales promotions - are directed at customers in retail outlets.

Direct marketing

• Direct marketers target customers with advertising techniques such as fliers, catalogs, and promotional literature.

  • If an advertisement asks the customer to respond in some way, such as calling a free phone number, this is called direct response advertising.

• Direct marketing is predominantly used by small to medium-sized enterprises with limited advertising budgets.

• Direct mail involves the delivery of promotional material to named individuals at their homes or businesses, selected from a list of known customers.

  • This is often called 'junk mail' because most people throw the materials away as they are not seen as desirable.

Public relations (PR) – Publicity

• Publicity is more cost-effective than advertising because PR messages are not paid for directly, although they are not cost-free.

• Promotional materials give information about an event, business, or person included in press releases and show the firm in a positive light to enhance its reputation.

• A positive article about a firm will be remembered longer than an advertisement, which is clearly sponsored.

  • For the media, good PR is often treated as a news story, even though it promotes an organization.

• Other PR tools used to provide positive information, include brochures, newsletters, and annual reports.

  • Increasingly PR departments use social networking sites, such as Twitter and Facebook, to engage in two-way communication and receive immediate feedback from stakeholders.

Sponsorship/celebrity endorsement

• Sponsorship is where an organization pays to be associated with a particular event, cause, or image.

• It is evident in the sports arena, where no major event is without significant sponsors.

• Celebrity endorsement encourages fans to link the image of the athlete with products and services.

• Firms look for positive qualities such as an athlete's global popularity and recognition, credibility, fitness, physical attractiveness, trustworthiness, and expertise.

Promotional Mix

The promotional mix - is the way in which the components of an individual promotional campaign are blended as part of an overall promotional strategy.

• The elements include advertising, public relations, direct marketing, packaging, personal selling, and sales promotion.

Factors

• How the product is perceived by consumers. The inexpensive end of most markets tends to receive less promotional expenditure.

• The target market and customer needs.

• Cost: Firms divide their overall promotional budget between brands and products.

• Where the product is in its life cycle.

• The most cost-effective method of promotion.

The impact of changing technology on promotional strategies: e-marketing

• Word-of-mouth promotion is one of the most powerful transmitters of customer satisfaction, but new technologies have made this contagious transmission of information less controllable and predictable.

  • If the messages are positive, the firm acquires the kind of exposure that it could not have generated through major marketing campaigns costing millions of dollars.

  • If the message is negative, the impact can be devastating.

Social media

• Social media marketing (SMM) is the process of gaining website traffic or attention through social media sites and social networks such as Facebook, LinkedIn, Twitter, YouTube, and WhatsApp.

• Social network users draw the attention of their peers to products, such as new music; they follow, or ‘like’, specific products or companies, identifying themselves as customers or fans of brands.

Viral marketing

• Viral marketing is a marketing technique that uses customers to promote the product and increase brand awareness.

• Internet users pass on marketing messages to other sites or users, creating exponential growth in the message’s visibility.

• Viral marketing may take the form of video clips, games, images, text messages, email messages, web pages, search engines, and other social media to spread the message.

• However, viral messages are not always consciously engineered; as they multiply, evolve, and mutate, they may not reflect the strategic intentions of the firm’s marketing plan.

Advantages and disadvantages of technology in promotional activities

Advantages

• Speed – the message reaches the target audience quicker than via traditional media.

• Availability – the web is available 24/7.

• Wide reach – firms can access a global audience with little cost.

• Cost-effective – e-commerce is cheaper than traditional promotion.

Disadvantages

• Lack of control – firms have little control over the transmission of marketing messages between users and consumers.

• Access – not all consumers have access to the internet.

• Attention spans – the internet is crammed with messages, many of them conflicting. Users of the internet tend to spend little time on web pages.

• E-commerce sites and payment gateways offer opportunities for hackers.

Guerrilla marketing and its effectiveness as a promotional method

Focus: low-cost unconventional marketing tactics that yield maximum results.

• It relies on energy and imagination rather than on a big advertising budget and is popular with small and medium-sized firms.

• It requires creativity, flexibility, and a willingness to take risks.

• It is about creating a ‘social buzz’, especially online.

• Research shows it creates a more lasting impression on consumers than traditional forms of advertising and marketing.

Methods of guerrilla marketing

• social media sites, such as Facebook, to begin campaigns, share features, and event host events

• competitions or discounts to encourage users to share or create content related to products or events

• videos showing entertaining or surprising events that internet users share

• interactive activities, such as games, to stimulate product interest and engagement and promote events

18. Place

The importance of place in the marketing mix

• Place is one element of the marketing mix, more accurately described as ‘distribution’.

• Physical Distribution Management - an active process often carried out by specialist logistics companies using computer-controlled distribution to maximize cost-effectiveness.

  • The path from producer to consumer normally involves more than one organization

  • Though new technologies have shortened the distribution chain and encouraged firms to sell directly to the consumer, reducing costs and lowering prices.

Channels of distribution

Distribution channel - is the set of firms and individuals that take title or assist in transferring title, to a good or service as it moves from the producer to the final consumer or industrial user.

• Producers use middlemen to distribute their products even though they take a profit margin because this is more cost-effective and efficient.

Traditionally distribution has involved the following intermediaries:

• Agents/brokers bring buyers and sellers together and receive a commission.

• Wholesalers buy in bulk and break this down to offer smaller amounts for sale.

• Retailers buy in bulk from the wholesaler and then sell on to the consumer. They also break bulk as most sales are of single items.

Methods of distribution‌

• The distribution process breaks bulk through the use of intermediaries such as wholesalers, allowing firms to mass produce and customers to buy single units.

• Each part of the chain takes a profit margin.‌

1. A zero-level or direct-marketing channel consists of a manufacturer selling directly to customers.

2. A one-level channel contains one intermediary. In a consumer market, this is typically a retailer whereas in an industrial market, this will be an agent.

3. A two-level channel contains two intermediaries and, where these are a wholesaler and a retailer, represents the most common form of consumer distribution.

The effectiveness of different types of distribution channels

• The nature of the product – perishable products require different channels for consumer durables.

• The nature of the customer and market segment – certain customers require delivery of products in particular ways and in particular locations.

• The objectives of the firm – firms looking for cost efficiencies may change distribution methods.

• The market – a regionally concentrated market requires different channels to global markets.

• Legal restrictions – not all products are openly sold and distributed

• Quantity to be delivered – direct delivery of small quantities may not be economic.

• Security – valuable products require greater security measures.

• Frequency of delivery – regular customers may justify customized distribution.