Introduction to Marketing Revision Notes

Chapter 1: Marketing Principles and Society Definitions: Chartered Institute of Marketing (CIM): The management process of anticipating, identifying and satisfying customer requirements profitably (CIM, 2001) The American Marketing Association: The activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. (AMA, 2007) These definitions stress the importance of considering the customer requirements and to delivering value. The difference between a customer and a consumer, is that the customer physically buys the product, and the consumer actually uses (or eats) it. The Marketing Process Marketing comprises 4 phases of activity, which is a component in the process of creating value for the customer: 1. The design phase. Companies identify customer and consumer needs, and design the product offering around their needs to create value for the customer. 2. The development phase. Companies develop products, services, and ideas, which meet those needs and deliver the intended value. 3. The delivery phase. Companies distribute those products, services and ideas to their customers and consumers and customers receive the product offering and the value created 4. The determination phase. Companies determine whether or not what customers receive really fits their needs or not and it not, redesign the product until it does fit their needs, and provide the customer with real value (or the organisation goes out of business). This process is cyclical, because products usually begin with the determination phase. There is a feedback loop to determine whether this product suits customers’ needs. These processes are influenced and dependent upon society and are regulated by government. Marketing: Ancient or Brand New? Marketing as a coherent approach to business has been around since the early 1920s. 1. Production period, 1890s-1920s: focus on physical production and supply, where demand exceeded supply, there was little competition, and the range of products was limited. This phase took place after the industrial revolution. 2. Sales Period, 1920s-1950s: focus on personal selling supported by market research and advertising. This phase took place after WW1. . Marketing Period, 1950s-1980s: more advanced focus on customer needs. This phase took place after WW2. 4. Societal Marketing Period, 1980s-present: stronger focus on social and ethical concerns in marketing. Marketing as a discipline has developed through the influence of practitioners, and through developments in the areas of industrial economics, psychology, sociology, and anthropology, (see page 9 for theorists): * I ndustrial Economics Influences – our knowledge of matching supply with demand comes from the development of microeconomics. Psychological Influences – our knowledge of consumer behaviour comes principally from psychology, particularly motivational research in relation to consumer attitudes, perceptions, motivations, and information processing. * Sociological Influences – our knowledge of how groups of people behave comes mainly from sociology, with insights into areas, such as how people from similar gender and age groups behave. * Anthropological Influences – our debt to social anthropology increases more as we use qualitative market research approaches such as observation to research consumer behaviour. Differences between Sales and Marketing Selling: Product push Marketing: Product pull Marketing * Tends towards long term satisfaction of customer needs * Tends to greater input into customer design of offering (co-creation) * Tends to high focus on stimulation of demand Sales * Tends towards short-term satisfaction of customer needs. * Tends to lesser input into customer design of offering (co-creation) * Tends to low focus on stimulation of demand, more focused on meeting existing demand What do Marketers Do? . Provide marketing intelligence and customer insight 2. Provide strategic marketing direction for the organisation 3. Develop the customer proposition 4. Manage and provide marketing communications 5. Use and develop marketing and customer information 6. Lead marketing operations and programmes 7. Work with other business functions and 3rd parties 8. Manage and develop teams and individuals Marketers at different levels of organisation will undertake different components of t hese functions at different levels. Generally, senior marketer/marketing director will guide and direct these functions, while the marketing manager will manage them, the marketing executive will undertake the actions necessary to fulfil these functions, and the marketing assistant will support the marketing executive (CIM, 2OO5). The Marketing Mix and the 4 Ps There are some general concepts that help managers frame their actions as they develop their marketing plans and undertake marketing tactics. The marketing manager was a â€Å"mixer of ingredients†, a chef who concocted a unique marketing recipe to fit the requirements of the customers’ needs at any particular time. Eugene McCarthy (1960) simplified and amended the memorable 4ps from previous lists: 1. Product – the offering and how it meets the customers’ needs, packaging and labelling. 2. Place (distribution) – the way in which the product meets customers’ needs. 3. Price – the cost to the customer, and how the cost plus profit to the seller 4. Promotion – how the product’s benefits and features are conveyed to the potential buyer Extended Marketing Mix for Services: the 7Ps American scholars, Boom and Bitner (1981), incorporated a further 3Ps into the marketing mix: 5. Physical evidence – to emphasise that the tangible components of services were strategically important since customers used these to infer what the quality of the service might be e. g. students requesting brochures of different universities, to pick the course most suitable. 6. Process – because service delivery cannot be separated from the customer consumption process. Process is included because of the need to manage customer expectations, interaction and satisfaction. E. g. track and trace delivery services. 7. People – included to emphasise that services are delivered by customer service personnel, sometimes experts and often professionals who interact with the customer sometimes in an intimate manner (e. g. spa treatments). How they interact with customers, and how satisfied customers are as a result, is of strategic importance. Market Orientation * Marketing Orientation: a company that increases the importance of marketing within the organisation, e. g. by appointing a marketing person to its board of directors. * Market Orientation: doesn’t just involve marketing. Involves all aspect of the company, gathering and responding to market intelligence (i. e. customers’ verbalised needs and preferences, market research etc) Developing a market orientation means developing the following: * Customer orientation * Competitor orientation * Interfunctional orientation Organisations that manage to develop a market orientation are better at market sensing (understanding the strategic implications of the market for a particular organisation). Relationship Marketing Organisations must keep relationships with the parties exchanging value. 1. Suppliers 2. Potential employees . Recruiters 4. Referral markets – where they exist (banks rely on professional services i. e. estate agents for mortgage referrals) 5. Influence markets – e. g. government bodies for companies in the public sector 6. Internal markets – e. g. existing employees Relationship marketing concerns the integration of customer service and quality assurance. Customer re tention is more important to companies than customer acquisition. Research proves that retention is more profitable than acquisition: * Customers will increase their purchases over time * Customers cheaper to promote to Customers who are happy with their relationship with a company are happy to refer to others The Consumer Services Perspective Some commentators argue that products and services have significant differences and similarities: Services: * Cannot be protected by a patent * Do not make use of packaging * Lack a physical display * Cannot be demonstrated in the same way However there are major similarities, including the need to: * Work at full capacity * Develop trade and service marks * Use promotional media * Use personal selling techniques The five characteristics of service products Service industries are generally seen to have 5 important differentiating characteristics: 1. Intangibility – enhancing physical environment, producing brochures, leaflets, by obtaining service quality kite marks. 2. Inseparability – production and consumption are inseparable in service markets. There is a need to manage carefully relationships between clients and their customers, managing their expectations of the quality of the service that they receive. 3. Variability – the quality and standard of service products varies depending on the individual customer and the service provider. Can be difficult to monitor and control service production to ensure consistent service standards. 4. Perishability – services cannot be stored and consumed at a later date, unless they are recorded. Service-based businesses must maximise how much their facilities are used through yield management. E. g. offering discounts at specific times. 5. Non-ownership – customers cannot own the service they receive because ownership is not transferred from the seller to the buyer as it is with a tangible good. The Business to Business Perspective The emphasis in b2b markets is strongly focused on the development and building of mutually satisfying relationships based on commitment and trust, to win the contract in the first place. B2b marketers can create a competitive advantage if they develop a linkage between the marketing and logistics functions, developing a strong customer service proposition on the following items: * Reduction in order cycle times * Simple accurate invoicing procedures * Consistent and reliable delivery * Simple and effective claims procedures * Availability of inventory Good condition of goods and effective service delivery * Flexible delivery times * Strong after-sales support What Impact Marketing has on Society It is important to be critical of marketing. As beneficial as it can be, by providing wants and needs of customers and consumers, with higher technology, more ethical products, with it can also come by marketing bad products, such as alcohol. Cigarettes have been banned to be advertised, but it is important to recognise that not all companies market products for the greater good, but because they can make a profit. Chapter 2: The Marketing Environment . External Environment 2. Performance Environment 3. Internal Environment The external environment consists of the political, social, and technological influences, and organisations have relatively little influence on each of these things. The performance environment consists of the competitors, suppliers, and indirect service providers who shape the way an organisation achieves its objectives. Here, organisations have a much stronger level of influence. The internal environment concerns the resources, processes, and polices an organisation manages in order that it can attempt to achieve its goals. These elements can be influences directly by an organisation. Understanding the External Environment The Political Environment The political environment relates to the period of interaction between business, society, and government before those laws are enacted, when they are still being formed, or are in dispute. Political environment analysis is a critical phase in environment scanning because companies can then detect potential legal and regulatory changes in their industries and so they can have a chance to impede, influence, and alter that legislation. The Economic Environment Companies have to develop an understanding of the economic environment in which they operate and trade. The external environment of a firm is affected, but not exclusively, by the following items: * Wage Inflation * Price Inflation * Gross Domestic Product (per capita) – combined output of goods and services in a particular nation and is a useful measure for determining relative wealth between countries * Income, sales, and corporation taxes – taxes run at different levels all around the world, substantially affecting how we market goods and services * Exchange rates Export quota controls and duties All these factors can change the amount a company charges for its products and services. Companies need to understand how prices or labour costs change if we are importing goods and services, or even components, from another country. The difficulty comes in comparing prices from one country to another. Firms usually have little impact on the macroeconomic environment since t hey have little control over macroeconomic variables, e. g. oil prices, which might affect their business. The Socio-Cultural Environment Lifestyles are constantly changing and consumers are constantly shifting their preferences over time. Companies who fail to recognise this will ultimately fail. Companies must consider the nature of households, lifestyles and the family structure, and the changing values in society or in a consumer group as important variables in their scanning process. The Technological Environment The emergence of new technologies can substantially affect not only high-technology businesses but non-technology businesses as well. Examples include those aspects of technology which impact upon productivity and efficiency. New technology is increasingly changing the way that companies go to market through moves towards more email and web-based marketing. The difficulty for most firms is how to determine whether or not to invest in radical new technologies, since the potential benefits are far from clear at the outset. The Legal Environment The legal environment covers every aspect of an organisation’s business. Laws and regulation are enacted in most countries ranging from the transparency of pricing, minimum wages, business taxes, product safety, packaging and labelling, the abuse of a dominant market position. All of these come under the umbrella of the legal environment. The Ecological Environment Concept of sustainability in marketing and corporate (social) responsibility. Increasingly, customers are being worried about the impact of companies on their ecological environments. Consumers are equally concerned with ensuring that products are not sourced from countries with poor and coercive labour policies. Orsato (2006) suggested that a company should adopt one of the following four different green marketing strategies: 1. Eco-efficiency – developing lower costs through resource productivity (e. . energy efficiency). This approach should be adopted by companies which need to focus on reducing the cost and environmental impact of their processes. 2. Beyond compliance leadership – the adoption of a differentiation strategy through organisational processes such as certified schemes to demonstrate their ecological credentials. This approach should be adopted by firms which suppl y industrial markets, such as car manufacturers. 3. Eco-branding – the differentiation of a firm’s products or services to promote environmental responsibility. For example, BP – formerly British petroleum – who changed their logo to make it green and yellow in a flower petal and sun synthesis, which they call the Helios, and slogan to â€Å"beyond petroleum† to reflect their intended shift in meeting the world’s energy requirements to more sustainable sources. 4. Environmental cost leadership – the offering of products and services which give greater environmental benefits at a lower price. This strategy suits firms operating in price-sensitive ecologically sensitive markets, such as the packaging and chemical industries. Chapter 3: Marketing Psychology and Consumer Buying Behaviour Diffusion Process Consumers purchase products at different times in the product life cycle. 1. Innovators: kick starts adoption process 2. Early Adopters: speeds up adoption process. Opinion leaders. 3. Early Majority: more risk averse than other 2 groups. This group requires reassurance. 4. Late Majority: sceptical of new ideas. Only adopt products due to social/economic factors. 5. Laggards: opinions hard to change. Small majority. Lowest income and social status. Suspicious of new ideas Innovators: 2. 5% of population Early adopters: 13. 5% of population Early majority: 34% of population Late majority: 34% of population Laggards: 16% of population It is likely that a promotional campaign should only be targeted at innovators and the early majority. Word of mouth and reputation will get round to the late majority and laggards. People are classified into these groups, but the type of people in the groups can swap and change depending on the type of product. Consumer Product Acquisition Motive Development Information Gathering Product Evaluation Product Selection Acquisition Re-evaluation Motive Development: the model begins when we decide we need to acquire a product. This involves initial recognition that some sort of problem needs solving, i. . need a new dress Information Gathering: the next stage requires us to look for alternative ways of solving our problem. We are open to ways of solving our problem, i. e. looking online Product Evaluation: once we feel we have all the information that we need to make a decision, we evaluate the products, i. e. choose between 2 dresses Product Selection: the pr oduct we eventually select is the one that we evaluate as fitting our needs best beforehand. This is a separate stage because there are times when we must re-evaluate, because what we want may not be right, or not available, i. . pick best dress Acquisition: once selection has taken place, different approaches to product acquisition might exist. It is important for the marketers to ensure that their customer value the product that they receive, i. e. buy online, with chance to return within 14 days, free delivery etc. Re-evaluation: the theory of cognitive dissonance (Festinger, 1957) suggests that we are motivated to re-evaluate our beliefs, attitudes and opinions. To reduce dissonance, we might: * Selectively forget information * Minimize the importance of an issue, decision or act Selectively expose ourselves to information which agrees with our existing view * Reverse a purchase decision (take product pack) Perceptions Consumer understanding very much depends on how effectively the message is both transmitted and perceived. In any one day, consumers receive thousands of messages. AMA, 2007: Based on prior attitudes, beliefs, needs, stimulus factors, and situational determinant, individuals perceive objects, events of people in the world about the. Perception is the cognitive impression that is formed of â€Å"reality† which in turn influences the individual’s actions and behaviour toward that object. The process of screening such meaningful information from the non-meaningful is known as selective exposure (Dubois, 2000). The implication for marketers is the importance of determining what media your customers use, and which they ignore. Perceptual mapping is a useful tool to determine how consumers perceive competing products and services, by comparing labels, brands and products, by rating those using semantic differential questions. Learning Consumers are continually learning about new product characteristics, their performance and new trends. Learning is the process by which we acquire new knowledge and skills, attitudes and values, through the mediums of study, experience, or modelling others’ behaviour. There are numerous theories of human learning, including classical conditioning, operant conditioning, and social learning. Classical Conditioning: Ian Pavlov stated that classical conditioning occurs, because we learn by associating one thing with another, in Pavlov’s case, the sound of the bell and arrival of food made the dogs salivate, so eventually, just by the sound of the bell, the dogs assumed that food would arrive. Operant Conditioning: Skinner (1954) argued that learning was the result of operant conditioning, which is learnt through behaviour reinforcement, through punishment or reward. Social Learning: Bandura (1977) suggested humans are much more thoughtful and less animalistic than the Skinnerian behaviourist school of learning suggested. Also contrasting to operant conditioning, Bandura argued that we can delay gratification and dispense our own rewards our punishment. In other words, we have more choice over how we react to stimuli than Skinner proposed. We can reflect on our own actions and change our future behaviour. In social learning, we learn by observing the behaviour of others. Memory Knowledge develops with familiarity, repetition of marketing messages, and consumers acquisition of product/service information. According to Bettman (1979) our memories are highly complex, there are a variety of memorisation processes which affect consumer choice, some of which include the following: 1. Recognition and recall – less frequently used words in advertising are recognised more. The more unique a campaign’s message, the better it is recognised, but the worse it is recalled. 2. Effects of context – memorisation is strongly associated with the context of the stimulus, and while information may be available in memory it will be inaccessible in the wrong context. 3. Form of coding and storage of objects in memory – subjects may store information in the form it is presented to them, either by object (brand) or dimension (product/service attribute). 4. Effect of processing load – this concept operates from a capacity allocation theory of memory suggesting that we are likely to find it more difficult to process information into our short and long term memories when we are presented with a great deal of info at once. . Effects of input mode – short term recall of auditory input (i. e. sound) is stronger than the short term recall of visual input (sight) where the 2 compete for the consumers attention. 6. Effects of repetition – recall and recognition of marketing messages increase the more times a consumer is exposed to them alth ough there are decreasing increments in memory performance and repetition increases. Personality How and what we buy is also based on our personalities. Personality: the aspect of our psyche that determines the way in which we respond to our environment in a relatively stable way over time. 3 main approaches: . Psychoanalytic approach – stresses self-reported unconscious desires 2. Trait theory – stresses classification of personality types 3. Self concept approach – concerned with how we perceive ourselves as consumers. Psychoanalytic Approach Freud (1927) stated that someone’s personality is determined by their sexual development through the oral, anal, phallic, latent, and genital stages. An adult’s personality is developed according to how well they cope with crises that occur during these 5 phases. ID – instinctual drives and urges Ego – attempts to find outlets for the urges in our id and acts as a planning centre. Moderated by superego. Superego – controls how we motivate ourselves to behave to responds to our instincts and urges, so that we do in a socially acceptable manner, and avoid any feelings of guilt or shame. Social conscience. Trait Approach This approach categorises people into different personality types. There are 20 needs. E. g. autonomy, aggression, and achievement. Maslow (1943) suggested a hierarchical order of human needs: Self-actualisation Needs The need to fulfil our potential Esteem Needs Valued and respected by self and others Belongingness Needs Affection, attachment, friendship Safety Needs A predictable non-threatening environment Physiological Needs Food, water, oxygen, sex, and shelter from the elements The importance of each level ranges from country to country, as some needs are more readily available than others. Chapter 4: Marketing Research and Marketing Information Systems Marketing research is used to obtain information that provides the management of a company with sufficient insight to make more informed decisions on future activities. For a business to be successful, an organisation must understand the motivations, desires and behaviour of its customers and consumers. Marketing research specifies the information required to address certain issues; design methods for manage and implement the data collection process; analyse the results and communicate the findings and their implications. (ESOMAR 1995) Even though marketing research is the foundational element of modern marketing practice, market research is valued by some companies more than others. Commissioning Marketing Research Conducting market research depends largely on the size of the company and the type of product or service being sold. Some large companies employ market research agencies to conduct their research for them. The main advantage of using agencies is that it is relatively cheap compared with undertaking the research in-house and collecting the data independently. The main disadvantages of using agencies are that the agency sometimes cannot achieve the depth of knowledge of the client’s problems or market unless it offers a niche specialism in this area. In many syndicated surveys, (retail audits etc) several rival organisations buy the same data from the agency, so a cost effective survey can be carried out. However the survey could be less specific to each business. The Marketing Research Brief Typical contents might include the following: * Background summary – brief info and details about the company and its products it offers * Management problem – clear statement of why the research should be undertaken and which business decisions are dependent upon its outcome * The marketing research questions – a detailed list of the information necessary in order to make the decisions outlined above * The intended scope of the research – the areas to be covered, which industries, type of consumer etc. Should be provided. Should give an indication of when the info is required and why that date is important * Tendering procedures – the client organisation should outline how agencies are to be selected as a result of the tendering process. Specific info may be required such as CVs from agency personnel to be involved in the study, and referee contact address The Marketing Research Process Stage 1 – define the problem Stage 2 – decide the research plan Stage 3 – undertake the data collection Stage 4 – undertake the data analysis/interpretation Stage 5 – write the report and deliver the presentation See book for detailed descriptions, page 144 Competitive Intelligence and Marketing In formation Systems It’s no good having lots of data unless you know how to use it. Companies are frequently swimming in data but have no means to convert the data into intelligence or no means to store it and provide it to end users. Competitive Intelligence – the organised, professional approach to collection, analysis, and distribution of timely, accurate and useful information as intelligence products – intelligence that contributes materially to the achievement of strategic and tactical business objectives (Nolan, 1999). There are various techniques used which include: * Use remote psychological assessment tools to build profiles of business opponents * Collecting competitive intelligence at conferences and trade shows * Collecting information on rivals from their customers and suppliers using elicitation techniques * Collecting intelligence on rivals from 3rd parties using elicitation techniques Marketing Research and Ethics Many supermarkets adopt loyalty cards. The major value of such schemes is the provision of consumption information. This data is analysed by a 3rd party, and sold to the company. Since marketing research is based on the cooperation of the individuals or organisations that provide the answers or fill in the questionnaires, marketing research should be carried out in an objective, unobtrusive, and honest manner. Researchers have been particularly concerned about the public’s increased unwillingness to take part in market research. Marketing research should neither attempt to induce sales of a product or service, nor influence customer attitudes, or intentions of behaviours. The general public and other parties are entitled to assurances that no information collected in a research survey will be used to identify them, or disclosed to a 3rd party without their consent. In conducting any marketing research, researchers have responsibility for themselves, their clients and the respondents from whom the information is being gathered. International Marketing Research Marketing researchers need to understand how culture operates in international markets and how this impacts upon research design. More variables need to be considered. Difficult to decide whether to use the same sampling frame, or study using different scales, sampling methods and sizing. The key issue faced by international researchers is to ensure comparable data are collected, despite differences in sampling frames, technological development and availability of interviewers. Conceptual Equivalence – when interpretation of behaviour or objects, is similar across countries. Functional Equivalence – a concept has similar functions in different countries Translation Equivalence – words in some languages have no real equivalent in other languages The International Marketing Survey Research Process . The project is discussed at length with the client 2. The fieldwork agencies for each country are selected 3. The questionnaire is developed centrally 4. The questionnaire is translated locally and the translation is checked centrally 5. The questionnaire is piloted locally 6. The questionnaire is finalised centrally 7. The interviewe rs are briefed locally by an executive of the central company 8. A coding and editing plan is provided for the local agencies 9. The edited and coded questionnaires are returned to the head office 10. A coding and editing check is carried out centrally 11. Data processing is carried out centrally Chapter 6 : Market Segmentation and Positioning The STP Process The method by which whole markets are subdivided into different segments is referred to as the STP process. STP refers to the 3 activities that should be undertaken. These are: 1. Segmentation 2. Targeting 3. Positioning Marketers are increasingly segmenting markets and indentifying attractive segments in order to identify new product opportunities, develop suitable positioning, and communicate strategies (i. . what message to communicate), and effectively allocate resources to key marketing activities (i. e. how much should we spend and where? ). Organisations operating in highly dynamic environments seek to conduct segmentation research at regular intervals to keep in touch with changes in the marketplace. Key benefits of STP process include: * Enhancing a company’s competitive position by providing direction and foc us for marketing strategies – such as targeted advertising, new product development and brand differentiation. Examining and identifying growth opportunities in the market through the identification of new customers, growth segments, or new product uses. * More effective and efficient matching of company resources to targeted market segments promises the greatest return on marketing investment. The Concept of Market Segmentation Market segmentation is the division of a market into different groups of customers with distinctly similar needs and product/service requirements. The purpose of market segmentation is to leverage scarce resources, to ensure that the elements of the marketing mix are designed to meet particular needs of different customer groups. With an increasing proliferation of tastes in modern society, consumers have increased in disposable incomes. As a result, marketers have sought to design product and service offerings around the consumer demand (market segmentation) more than around their own production needs (product differentiation) The process of Market Segmentation There are 2 main approaches to segmenting markets. 1. Breakdown Method – this adopts the view that the market is considered to consist of customers which are essentially the same, so the task is to identify groups which share particular differences. 2. Build-up Method – considers a market to consist of customers that are all different, so here the task is to find similarities. The breakdown approach is perhaps the most established and well recognized and is the main method used for segmenting consumer markets. The build up approach seeks to move from the individual level where all customers are different, to a more general level of analysis based on the identification of similarities. The aim of both methods is to identify segments in the market where identifiable differences exist between members within each segment (member homogeneity) The segmentation process varies according to the prevailing conditions in the marketplace and the changing needs of the parties involved, not simply the needs of the selling organisation. Market Segmentation in Consumer Markets To segment the consumer goods and service markets, we use market information we have collected based on certain key customer/product/situation related criteria (variables). These are classified as segmentation bases, they include profile, behavioural, and psychological criteria. The 4th segmentation criteria is contact data. The population can be segmented and analysed through various ways: * Demographics * Lifecycle * Geographics * Geodemographics * Psychographics * Behavioural criteria Transaction and purchase: the development of electronic technologies has facilitated the rapid growth in the collection of consumer purchase and transactional data, providing an additional consumer characteristic upon which to base market segmentation. Segmentation in Business Markets There are 2 main groups of interrelated variables used to segment business-to-business markets: 1. Organisational characteristics: organisational size/location/industry type (SIC codes). 2. Buyer characteristics: Decision-making unit structure/choice criteria/purchase situation. Organisational size: by segmenting organisations by size, it is possible to identify particular buying requirements. Geographic location: particularly useful since it allows sales territories to be drawn up around particular locations which salespersons can easily service. SIC codes: Standard Industrial Classification (SIC) codes are often used to get an indication of the size of a particular market. Easily accessible and standardised across most western countries. Decision-making unit: a decision making unit may have specific requirements that influence their purchase decisions in a particular market, i. e. policies, purchasing strategies, attitudes towards vendors and towards risk. Choice criteria: business markets can be segmented on the basis of the specifications of product/service that they choose. Purchase Situation: there are 3 factors associated with the purchase situation. 1. The structure of the buying organisation’s purchasing procedures (centralised, flexible etc). 2. What type of buying situation is present (new task, modified re buy, straight re buy) 3. What stage in the purchase decision process have target organisations reached? Target Markets It is important to determine which, if any, of the segments uncovered should be targeted and made the focus of a comprehensive marketing programme. It needs to be judged which markets are selected and exploited, and which markets are ignored. Kotler (1984) suggested that for market segmentation to be effective, all segments must be: * Distinct Accessible * Measurable * Profitable Targeting Approaches Once identified the company needs to select its approach to target marketing it is going to adopt. Four differing approaches can be considered: 1. Undifferentiated marketing e. g. UK post office, targets mass market. 2. Differentiated marketing e. g. Levi’s, targets multiple market segments. 3. Focu sed/concentrated marketing e. g. Jordan cereal targets consumers interested in organic. 4. Customised marketing: B2B markets (e. g. marketing research or advertising services) Market Segmentation: Some Limitations The process involves approximating product/service offering to the needs of customer groups, rather than providing an individual customised offering, there is a chance that our customers’ needs are not being fully met. * There is insufficient consideration of how market segmentation is linked to competitive advantage. Market segmentation has not tended to stress the need to segment on the basis of differentiating from competitors. * It is unclear how valuable segmentation is to the manager. Suitable processes and models to indicate how to measure the effectiveness of market segmentation processes are not yet available. Process issues – lack of experience, guidance and expertise concerning the way in which segmentation is undertaken and managed. Positioning Ha ving segmented the market, determined the size and potential of market segments, and selected specific target markets, the 3rd part of the STP process is to position a brand within the target market. Positioning is important because it is the means by which goods and services can be differentiated from one another and so give consumers a reason to buy. It’s about how customers judge a product’s value relative to competitors and its ability to deliver against the promises made. . Physical attributes – functionality and capability that a brand offers. 2. Communication – the way the brand is communicated and how consumers perceive the brand relative to other competing brands in the marketplace. Perceptual Mapping Perceptual mapping represents a geometric comparison of how competing products are perceived. The further apart the positions, the greater the opportunity for new brands to enter the market, because competition is less intense. Repositioning Strateg ies Markets, consumer tastes, fashions and competitors change. There are four main ways to approach repositioning a product. . Change the tangible attributes and then communicate the new product to the same market. 2. Change the way a product is communicated to the original market. 3. Change the target market and deliver the same product 4. Change both the product attributes and the target market. Chapter 9: Products, Services, and Branding Decisions The 3 levels of a product: 1. The core product – consists of the real core benefit or service. May be a functional benefit in terms of what the product will enable you to do, or an emotional benefit in terms of how it will make you feel. E. g. cars provide transportation and a means of self-expression. 2. The embodied product – consists of the physical good or delivered service that provides the expected benefit. E. g. features, durability, design, packaging, brand name etc. 3. The augmented product – consists of the embodied product plus all other factors necessary to support the purchase. E. g. credit and finance, training, delivery, installation, guarantees. Consumer Products Durable goods: can be used repeatedly and provide benefits each time they are used e. g. ike, Ipod Non-durable goods: limited duration, often only capable of being used once e. g. yoghurt, newspaper Convenience products can be sub-divided into 3 categories: 1. Stable products: bread, milk, petrol 2. Impulse products: chewing gum, chocolate, magazines 3. Emergency products: bandages, umbrella, plumber in the middle of the night when there’s a leak. Unsought products refers to a group of products which people do not normall y anticipate buying or want to buy. For example, insurance sold on the streets, double glazing, and timeshare holiday (mainly products pushed to buy from salespeople). Business Products There are 6 main categories identified according to how organisational customers (business people) use them: 1. Equipment goods 2. Raw materials 3. Semi-finished goods 4. Maintenance repair and operating goods 5. Component parts 6. Business services Product Lifecycles Product lifecycle is the belief that products move through a sequential, predetermined pattern of development. It consists of 5 distinct stages: 1. Development 2. Introduction 3. Growth 4. Maturity 5. Decline Speed of movement through the stages will vary but each product has a limited lifespan. The lifespan can be prolonged and extended, but the majority of products have a finite period. It does not apply to all products in the same way. E. g. some products reach the end of the introduction stage and then die as it becomes clear there is no market to sustain the product. Some products get to decline, and then get recycled back to growth stage by repositioning activities. Usefulness of Product Life Cycle The plc (product life cycle) concept allows marketing managers to adapt strategies and tactics to meet the needs of evolving conditions and product circumstances. It is a well known and popular concept and is a useful means of explaining the path a product or brand has taken. Clear, simple and predictable. However, in practice the PLC is not great use. Difficult to tell when the product has hit each stage in the cycle. Historical sales data does not help managers identify when a product has moved from one stage to another, so it is difficult to forecast sales and determine the future shape of the PLC curve. Great care is required when using the PLC. Idea Generation Idea Generation Screening Business Plans and Market Analysis Product Development and Selection Test Marketing Commercialisation The Process of Adoption The process through which individuals accept and use new products is referred to as the process of adoption (Rogers 1983). The process starts with people gaining awareness of a product and moves through various stages of adaptation before a purchase is eventually made. 1. Knowledge 2. Persuasion 3. Decision 4. Implementation 5. Confirmation Branding Branding is a method through which manufacturers and retailers help customers to differentiate between the various offerings in a market. It enables them to make associations with certain attributes or feelings with a particular brand. Brands are products and services that have added value. This value has been deliberately designed and presented by marketing managers in an attempt to augment their products with values and association that are recognised by and are meaningful to customers. It is customer perception and the brand’s value which is important. AMA definition: a name, term, sign, symbol, design or a combination, intended to identify the goods, or services of one seller or group of sellers, and to differentiate them from those of competitors (2006). There are 2 main types of attributes: 1. Intrinsic – functional characteristics of a product, such as shape, performance etc. 2. Extrinsic – brand name, price, packaging, marketing communications etc. Benefits of branding for consumers: * Assists people to identify their preferred products * Reduces level of perceived risk * Help people gauge the level of product quality * Reduces amount of time spent making product based decisions, decreases shop time. * Provide psychological reassurance or reward, especially for products bought on an occasional basis (e. g. esigner handbag) * Inform consumers about the source of a product (country or company) Benefits of branding for manufacturers and retailers: * Enable premium pricing * Help differentiate the product from competitive offerings * Encourage cross-selling to other brands owned by the manufacturer * Develop customer loyalty/retention and repeat purchase buyer behaviour * Assist the development and use of integrated mark eting communications * Contribute to corporate identity programmes * Provide some legal protection Types of Brands * Manufacturer brands: Persil, Heinz, coca-cola, Cadbury. Promoted heavily. Distributor (own label) brands: Argos, Harvey Nichols, Sainsburys. Sell manufactured and own label. * Generic brands: plain flour. Packaging only displays info required by law. Sold at prices substantially below normal price. Only firms in pharmaceutical sector use this type of brand now, as popularity elsewhere has declined. Brand Policies Individual branding: requires that each product offered by an organisation is branded independently of all the others. E. g. Unilever uses individual branding with Cif, Knorr and Dove. Advantages: * Easy to target specific segments and to enter new markets with separate names. If a brand fails or becomes subject to negative media attention, other brands are not likely to be damaged. Disadvantages * Heavy financial cost as each brand needs to have its own prom otional programme and associated support. Family branding: requires that all the products use the organisations name, either entirely or in part. E. g. Microsoft, Heinz, and Kellogg’s. Advantages: * It is hoped that customer trust will develop across all brands. * Promotional investment need not be as high as there will be a halo effect across all the brands when one is communicated. Disadvantages: * Damage to one product or operational area can cause problems across the organisation. Corporate branding: Single umbrella brand, based on the name of the organisation. Used by major supermarkets, business markets, and financial services. Advantages: * Promotional investments are limited to one brand. Disadvantages: * The risk is similar to family branding where damage to one product or operational area can cause problems across the organisation. Co-branding is where two established brands work together, either on one product or service. Brand Equity is a measure of the value of a brand. It is an assessment of a brand’s wealth, sometimes referred to as goodwill. Brand equity is considered important because of the increasing interest in trying to measure the return on promotional investments and pressure by various stakeholders to value brands for balance sheet purposes. A brand with strong equity is more likely to be able to preserve its customer loyalty and so fend off competitor attacks. There are 3 parts associated with brand equity: 1. Brand value, based on a financial and accounting base 2. Brand strength, measuring the strength of a consumer’s attachment to a brand 3. Brand description, represented by the specific attitudes customers have towards a brand Packaging There is a societal and political pressure to ensure that packaging and the materials used are appropriate and capable of being recycled. Packaging has 2 main roles to be, functional and communicative. * Protection * Preserved * Convenience * Clear messages about content, features, and dangers * Good design (complement physical attributes) * Brand identification and reassurance * Layout Labelling Labels are important. Deliver information about product usage * Help promote a brand * Enable brand owners to comply with various regulations and requirements * Good design Chapter 10: Price Decisions Price: the amount of money expected, required, or given in payment for something Price: something expended or endured in order to achieve an object In marketing terms, we consider price as the amount the customer has to pay or exchange to receive a good or service. Customer Perceptions of Pricing, Quality and Value Quality is defined as the standard of something as measured against other things of a similar kind. Consumers have differing views of the quality of the product they have purchased. Value is defined as the regard that something is held to deserve importance of worth. In marketing terms, perceived value refers to what we get for what we pay. Value = Quality/Price Although products might be perceived as expensive, they can still be perceived as value for money (e. g. Panadol is an expensive drug, but is more effective than own-label aspirin) Reference Prices: when customers have some idea of what they think is a fair price to pay for a certain good or service, or what they would expect to pay. When customers assess prices, they estimate value using pricing cues, because they do not always know the true cost and price of the item that they are purchasing. Odd Number Pricing: also known as psychological pricing. ?1. 99, we think is a lot cheaper than it is. Purchase Context in Pricing: starting off with cheaper prices before adding in extras (easy jet), or gym memberships with a small monthly fee but with a yearly contract. Consumers are drawn in more if they initially see a low price. Price Bundling: bundling other products together, e. g. magazines with free CD’s or DVD’s. This is pure price bundling. Mixed price bundling is when different products can be bundled together through choice, such as mobile phone packages with international call packages, SMS packages, and email, which can also be available independently or with other offers. Price bundles can also include â€Å"cash back† not just offering products. For example banks offer cash back schemes on money spent and inputted in their banks (Halifax pay ? 5 every month is ? 1000 is put into a current account). Pricing Approaches The setting of prices depends on a number of factors, such as demand, sales revenue, costs etc. There are 4 types of pricing approaches which can be used: 1. Cost-oriented approach (prices are set based on costs) 2. Demand –oriented approach (prices are based on price sensitivity and levels of demand) 3. Competitor-oriented approach (where prices are set based on what competitors charge) 4. Value-oriented approach (prices are set based on what customers believe to offer value) Pricing Policies Although there are 4 main types of pricing approaches, there are in fact many different possible pricing policies which could be used: 1. List pricing: unsophisticated approach to pricing. A single price is set for a product or service. 2. Loss leader pricing: the price of a product is set at a lower level than actual cost to product it. This entices customers into stores, and the loss incurred on these items is made up by increasing costs elsewhere on less price-sensitive items. 3. Promotional pricing: when companies temporarily reduce their prices below the standard price for a period of time to raise awareness of the product, to raise brand awareness in the short term. 4. Segmentation pricing: where varying prices are set for different groups of customers, e. g. tesco finest, tesco value, George asda, etc. Economists call this price discrimination. 5. Price skimming: the start of a product’s life cycle, a product is charged a lot higher, to recoup the costs of research and development, and to make the product â€Å"exclusive†. 6. Price penetration: the start of a product’s life cycle, a product is charged a lot lower, to gain market share and generate a large volume of sales to recoup research and development investment. Pricing in the B2B Setting B2B markets exist on the basis that firms sell products and services to one another rather than to end users. From the B2B seller’s perspective, there re numerous approaches to pricing products and services including the following: * Geographical pricing – where customers are located * Negotiated pricing – set according to specific agreements between company and client * Discount pricing – reduce prices on the basis that customer is prepared to bulk buy * Value-in-use pricing – price foc uses attention upon customer perceptions, what they expect to pay * Relationship pricing – understanding of customer’s needs, helps generate relationship * Transfer pricing – large organisations, internal dealing between different divisions of the company and across national boundaries. Economic value to customer – works on basis that a company prices a good according to its value to the client through comparison with a reference or market leading product, taking everything into consideration (start-up and post-purchase costs) Price Elasticity of Demand It allows us to determine how the quantity of a good or service relates to the price at which it is offered. Inelastic goods and services are defined as such, because a change in price has little effect in sales volumes, whereas elastic goods have large effects. We need to understand this concept in order to understand demand-orientated pricing mechanisms. Chapter 11: An Introduction to Marketing Communications Marketing communications or promotion is one of the 4ps of the marketing mix. It is used to communicate elements of an organisation’s offering to a target audience. Communication is the process by which individuals share meaning. There are 3 main models or interpretations, of how communication works. 1. Linear model 2. Two-way model 3. Interactive model Linear Model of Communication – page 434 Regarded as the basic model of mass communications. First developed by Wilbur Schramm (1955). The linear model emphasises that each phase occurs in a particular sequence, to enable to transmission of information, ideas, attitudes and emotion from one person or group to another. The goal is to create a message that is capable of being comprehended easily by the receiver. once encoded, the message must be put in a form that is capable of transmission. Once the receiver has received the message, they decode it, to make sense of it. Once understood, receivers react and provide a response, with feedback. The final component is understanding. The source and receiver understand each other. Increasing numbers of people now engage with interactive based communications, so companies and individuals cannot be involved in real dialogue. The linear model therefore is no longer entirely appropriate. The Two-Step Model of Communication People can have a significant impact on the communication process, and the two-step model goes some way to reflecting their influence. It recognises the importance of personal influences when informing and persuading audiences to think or behave in particular ways. There are 2 main types of influencer: * Opinion leader – ordinary person who has a heightened interest in a particular topic. * Opinion former – involved professionally in the topic of interest. These both have enormous potential to influence audiences. Messages from personal influencers provide reinforcement and message credibility. The Interaction Model of Communications Model is similar to two-step model but contains one important difference. Mass media is not the only source of communication. Interaction model recognises that messages can flow through various channels and that people can influence the direction and impact of a message. Interaction is about actions that lead to a response and much attention is now given to the interaction that occurs between people. The development of digital technologies has been instrumental in enabling organisations to provide increased interaction opportunities with their customers. (e. g. press the red button to get more info). News programmes now encourage viewers to phone or send in their emails and pictures about particular issues. This gets audiences to express their views and in doing so, promoting access to, and interacting with the programme. The Role of Marketing Communications The success of marketing communications depends upon the extent to which messages engage their audiences. These audiences can fall into 3 groups: * Customers * Channel members – suppliers, retailers, wholesalers, value added resellers * Stakeholders – shareholders, employees, local community There are many types of exchange, but 2 of particular importance: 1. Transactional Exchanges: transactions that occur independently of any previous exchanges. Short term orientation. When a consumer buys an mp3 player, a brand they have not bought from before, then a transactional exchange can be identified. . Collaborative Exchanges: longer term orientation. Develops between parties who wish to build long-term supportive relationships. When a consumer buys their 3rd product from the same brand as the mp3 player, perhaps from the same dealer, collaborative exchanges are taking place. Audiences who prefer transactional exchanges will engage better with advertising and mass media-base d communications, as messages are impersonal and product focused. Companies by adding extra touches, can convert a shopping experience from transactional to collaborative, by putting in extra effort to maintain relationships. The Tasks of Marketing Communications There are 3 main aspects associated with marketing communications: 1. Engagement 2. Audience 3. Responses Communications can be used to differentiate brands and companies, to reinforce brand memories and expectations, to inform (make aware and educate audiences), and finally to persuade them to do things or to behave in particular ways. The Marketing Communications Mix The traditional marketing communications mix consists of a set of 5 primary tools: 1. Advertising 2. Sales promotion 3. Direct marketing 4. Public relations 5. Personal selling These 5 primary tools are used in various combinations and with different degrees of intensity in order to achieve different communication goals with target audiences. Word-of-mouth Word-of-mouth communication is â€Å"interpersonal communication regarding products or services where the receiver regards the communicator as impartial†. Integrated Marketing Communications IMC is concerned with harmonising the messages conveyed through each of the promotional tools, so that audiences perceive a consistent set of meanings within the messages they receive. Cultural Aspects of Marketing Communications Culture is important because it provides individuals within a society with a sense of identity and an understanding of what is deemed to be acceptable behaviour. Within businesses various types of culture arises: * National culture * Industry/Business culture * Organisational culture * Individual behaviour Corporate Concentration – a few large organisations own more and more media properties. Chapter 12: Marketing Communications: Tools and Techniques The marketing communications mix is a set of 5 tools that can be used in various combinations to communicate with target audiences: 1. Advertising 2. Sales promotion 3. Public relations 4. Direct marketing 5. Personal selling There are 6 key classes of media: 1. Broadcast 2. Print 3. Outdoor 4. In-store 5. Digital 6. Other (which includes both cinema and ambient media) The Role and Purpose of the Marketing Communications Mix Media fragmentation: the expansion of media where different classes of media have recently been used in different ways and developed. Advertising Advertising is a non-personal form of communication. It reaches large, mass audiences in an impersonal way. * Can be used to influence demand for products Can be used to manage perceptions and understanding about the organisation as a whole. Strong theory of advertisement – Jones (1991) Weak theory of advertisement – Ehrenberg (1997) Other Promotional Methods and Approaches * Sponsorships * Product placement * Branded entertainment * Field marketing * Exhibitions * Viral marketing Chapter 13: Managing Communications: Strategy, Planning, a nd Implementation There are 3 core marketing communication strategies, each based on broad target audiences: * Pull strategies – used to communicate with end user customers. Consumers and organisations within a B2B context. * Push strategies –