Summary Principles of Marketing (Kotler)
Simply put, marketing is managing profitable relationships, by attracting new customers by superior value and keeping current customers by delivering satisfaction. Marketing must be understood in the sense of satisfying customer needs. Marketing can be defined as the process by which companies create value for customers and build strong customer relationships to capture value from customers in return. A five-step model of the marketing process will provide the structure of this chapter.
Understanding the marketplace and customer needs
There are five different core customer and marketplace concepts.
1. Customer needs, wants and demands. Human needs are states of felt deprivation and can include physical, social and individual needs. Wants are the form human needs take as they are shaped by culture and individual personality. Demands are human wants that are backed by buying power.
2. Market offerings are a combinations of products, services and experiences offered to a market to satisfy a need or want. These can be physical products, but also services – activities that are essentially intangible. The phenomenon of marketing myopia is paying more attention to company products, than to the underlying needs of consumers.
3. Value and satisfaction are key building blocks for customer relationships.
4. Exchanges are the acts of obtaining a desired object form someone by offering something in return. Marketing consists of actions trying to build an exchange relationship with an audience.
5. A market is the set of all actual and potential buyers of a product or service. Marketing involves serving a market of final consumers in the face of competitors.
Designing a customer-driven marketing strategy
Marketing management is the art and science of choosing target markets and building profitable relationships with them. The aim is to find, attract, keep and grow the targeted customers by creating and delivering superior customer value. The target audience can be selected by dividing the market into customer segments (market segmentation) and selecting which segments to go after (target marketing). A company must also decide how to serve the targeted audience, by offering a value proposition. A value proposition is the set of benefits or values a company promises to deliver.
There are five alternative concepts that companies use to carry out their marketing strategy.
1. The production concept: the idea that consumers will favour products that are available and highly affordable and that the organisation should therefore focus on improving production and distribution efficiency.
2. The product concept: the idea that consumers will favour products that offer the most quality, performance, and features and that the organisation should therefore devote its energy to making continuous product improvements.
3. The selling concept: the idea that consumers will not buy enough of the firm’s product, unless it undertakes a large-scale selling and promotion effort.
4. The marketing concept: the idea that achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. It can be regarded as an “outside-in view”.
5. The societal marketing concept is the idea that a company’s marketing decisions should consider consumer wants, the company’s requirements, consumers’ long-term interests and society’s long-term interests. Companies should deliver value in a way that maintains consumers and society’s well-being.
Constructing an integrated marketing plan
A marketing strategy outlines which customers it will serve and how it will create value. The marketer develops an integrated marketing plan that will deliver value to customers. It contains the marketing mix: the tools used to implement the strategy, which are the four Ps: product, price, place and promotion.
Building customer relationships
The first three steps all lead to this one: building profitable customer relationships. Customer relationship management (CRM) is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. The crucial part here is to create superior customer-perceived-value, which is the customer’s evaluation of the difference between all the benefits and all the costs of a marketing offer, in relation to those of competing offers and superior customer satisfaction, which is the extent to which a product’s perceived performance matches a buyer’s expectations. Customer delight can be achieved by delivering more than promised.
Customer relationships exist at multiple levels. They can be basic relationships or full partnerships and everything in between. In current times, companies are choosing their customers more selectively. New technologies have paved the way for two-way customer relationships, where consumers have more power and control. The marketing world is also embracing customer-managed relationships: marketing relationships in which customers, empowered by today’s new digital technologies, interact with companies and with each other to shape their relationships with brands. A growing part of this dialogue is consumer-generated marketing: brand exchanges created by consumers themselves, by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers.
Today’s marketers often work with a variety of partners to build consumer relationships. Partner relationship management means working closely with partners in other company departments and outside the company to jointly bring greater value to customers. These partners can be inside the company, but also outside the firm. The supply chain is a channel, from raw material to final product, and the companies involved can be partners through supply chain management.
Capturing customer value
The final step of the model involves capturing value. Customer lifetime value is the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Companies must aim high in building customer relations, to make sure that customers are coming back. Good CRM can help increase the share of customer, the portion of the customer’s purchasing that a company gets in its product categories. Customer equity is the total combined customer lifetime values of all of the company’s customers. It is the future value of the company’s customer base.
When building relationships, it is important to build the right relationships with the right customers. Customers can be high- or low-profitable and short-term or long-term oriented. When putting these on two axes, a matrix of four terms appears.
- Butterflies are profitable, but not loyal and have a high profit potential.
- True friends are both profitable and loyal and the firm should invest in a continuous relationship.
- Barnacles are loyal, but unprofitable. If they can’t be improved, the company should try to get rid of them.
- Strangers are not loyal and unprofitable, the company should not invest in them.
Today’s world is moving and changing fast. The economic crisis resulted in an uncertain economic environment, where consumers are more careful when spending their money. The technology boom of the digital age leads to an increase in connectedness and information. It provides marketers with new ways to track customers and create products based on their needs. It brought a new way of communicating and advertising. The most dramatic change in technology is the Internet, a vast public web of computer networks that connects users of all types all around the world to each other and an amazingly large information repository.
Web 1.0 connects people with information, Web 2.0 connected people with people and the upcoming Web 3.0 puts information and people connections together into a more usable Internet experience. Because of globalisation, companies are now globally connected with their customers. Current times also involve more sustainable marketing practices, involving corporate ethics and social responsibility.
Strategic planning is the process of developing and maintaining a strategic fit between the organisation’s goals and capabilities and its changing marketing opportunities. It is the base for the long term planning of the firm. At a corporate level, the firm starts defining the company’s mission. A mission statement is a statement of the organisation’s purpose. The mission leads to a hierarchy of goals.
Based on this, the management must plan the business portfolio: the collection of businesses and products that make up the company. Portfolio analysis is the process by which management evaluates the products and businesses that make up the company. The first step is identifying the strategic business units (SBU) that are vital to the company. The well-known model of the Boston Consulting Group (BCG) sorts the SBUs into a growth-share matrix, leading to four types of SBUs:
- Stars: high growth and high share units, in need of investment.
- Cash cows: low-growth, high share units, producing cash.
- Question marks: low-share units, in high-growth markets. Require cash, but can turn out to be unprofitable.
- Dogs: low-growth, low-share units, which are not very profitable.
After the units are classified, the company should determine in which units to build share, hold share, harvest the profits or divest the SBU.
Designing the business portfolio also means looking at future businesses. The product/market expansion grid is a portfolio-planning tool for identifying company growth opportunities through:
- Market penetration: company growth by increasing sales of current products to current market segments without changing the product.
- Market development: company growth by identifying and developing new market segments for current company products.
- Product development: company growth by offering modified or new products to current market segments.
- Diversification: company growth through starting up or acquiring businesses outside the company’s current products and markets.
Companies also need strategies for downsizing, which means reducing the business portfolio by eliminating products or business units that are not profitable or that no longer fit the company’s overall strategy.
Marketing provides a philosophy, input and strategies for the strategic business units. Besides customer relationship management, marketers must also invest in partner relationship management to form an effective value chain: the series of internal departments that carry out value-creating activities to design, produce, market, deliver and support a firm’s products. When trying to create customer value, a firm must go beyond the internal value chain and partner up with others in the value delivery network. The value delivery network is the network composed of the company, its suppliers, its distributors and ultimately its customers who partner with each other to improve the performance of the entire system.
Marketing strategy is the marketing logic by which the company hopes to create customer value and achieve profitable customer relationships. The company must choose which customers to serve and how to serve them. This process involves four steps:
Market segmentation: dividing a market into distinct groups of buyers who have different, needs, characteristics or behaviour and who might require separate products or marketing programmes. A market segment is a group of consumers who respond in a similar way to a given set of marketing efforts.
Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.
Positioning is arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of consumers.
Differentiation is actually differentiating the market offering to create superior -customer value.
The marketing mix is the set of tactical marketing tools: product, price, place and promotion, that the firm blends to produce the response it wants in the target market. Product refers to the combination of goods and service the firm offers. Price is the amount the customer pays to obtain the product. Place refers to the availability of the product. Promotion relates to the activities that communicate the benefits of the product.
Managing the marketing process requires four marketing management functions. The first is marketing analysis, starting with a SWOT analysis. A SWOT analysis is an overall evaluation of the company’s strengths (S – internal capabilities), weaknesses (W – internal limitations), opportunities (O – external factors that can be profitable) and threats (T – external factors that might challenge the company). Secondly, marketing planning involves choosing the right marketing strategies. Third is marketing implementation: turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives. And finally, there is marketing control: measuring and evaluating the results of marketing strategies and plans and taking corrective action to ensure that the objectives are achieved. Operating control refers to checking the performance against the annual plan, while strategic control involves looking at the match between strategies and opportunities.
Nowadays, marketers need to back up their spending by measurable results. The return on marketing investment (marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. The marketing ROI measures the profits generated by investments in marketing activities and can be a helpful tool, but is also difficult to measure.
The marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. It consists both of the micro and macro environment.
The microenvironment consists of the actors close to the company that affect its ability to serve its customers, such as: the company itself and its subdivisions and suppliers that provide the resources the firm needs to produce its products.
But also of marketing intermediaries, which are firms that help the company to promote, sell and distribute its goods to final buyers. Resellers are distribution channel firms. Physical distribution firms help the company stock goods, while marketing service agencies are marketing research firms. Financial intermediaries include banks and credit companies.
Other factors are competitors that operate in the same markets as the firm and the public: any group that has an actual or potential interest in or impact on an organisation’s ability to achieve its objectives. These can be financial publics, media publics, government publics, local publics, general public and internal publics.
Finally, customers are the most important actors. Consumers markets consist of individuals that buy goods for personal consumption. Business markets buy goods for usage in production processes, while reseller markets buy to resell at a profit. Government markets consist of buyers who use the product for public service, and international markets consist of all these types of markets across the border.
The macroenvironment consists of the larger societal forces that affect the microenvironment and consists of multiple factors. Demography: the study of human populations in terms of size, density, location, age, gender, face, occupational and other statistics. Changes in demographics result in changes in markets. There are some important demographic trends in today’s world, such as the world population growth and the changing age structure of the world population, where some parts of the world are aging and others have younger populations.
In the developed world, there are often generational differences to be found. Baby boomers are the 78 million people born during the years following the Second World War and lasting until 1964. Generation X are the 45 million people born between 1965 and 1976 in the “birth death” following the baby boom. Generation Y or the Millennials are the 83 million children of the baby boomers born between 1977 and 2000. They are characterized by a high comfort in technology.
Changes can also be found in the family structure. The traditional western household (husband, wife and children) is no longer typical. People marry later and divorce more. There is an increased number of working women and youngsters tend to stay at home longer. The workforce is also aging, because people need to work beyond the previous retirement age. There are also geographic shifts, such as migration. These movements in population lead to opportunities for marketing niche products and services. There are also migration movements within countries, namely from the rural to urban areas, also called urbanisation.
The economic environment consists of economic factors that affect consumer purchasing power and spending patterns. Countries vary in characteristics, some can be considered industrial economies, while others can be subsistence economies, consuming most of their own output. In between are developing economies that offer marketing opportunities. The BRIC (Brazil, Russia, India, China) countries are a leading group of fast expanding nations.
There are also changes in customer spending patterns, such as the recent recessions, which can lead to lifestyle changes. Marketers should also pay attention to income distribution and income levels.
The natural environment involves natural resources that are needed as inputs by marketers or that are affected by marketing activities. Changes in this environment involve an increase in shortage of raw materials, increased pollution and increased governmental intervention. Environmental sustainability involves developing strategies and practices that create a world economy that the planet can support indefinitely.
The technological environment consists of forces that create new technologies, creating new product and market opportunities. It can provide great opportunities, but also comes with certain dangers.
The political environment consists of laws, government agencies and pressure groups that influence and limit various organisation and individuals in a given society. Current trends in our world today are increasing legislation affecting businesses globally and thus an increase in governmental influence over businesses. There is also an increase in emphasis on ethics and operating socially responsible. Cause-related marketing refers to companies linking themselves to meaningful causes, to improve company image.
The cultural environment involves instructions and other forces that affect society’s basic values, perceptions, preference and behaviour. Cultural factors influence how people think and consume. Core beliefs are fundamental and passed on by parents and reinforced by the environment. Secondary beliefs are more open to change. People can vary in their views of themselves, of others, of organisation, but also in their views of society, nature and the universe.
In conclusion, firms should be pro-active rather than observing in respect to the marketing environment.
Marketing relies on good customer information. Customer insights are fresh understanding of customers and the marketplace derived from marketing information that become the basis for creating customer value and relationships. To gain this information, companies must design marketing information systems (MIS), which are people and procedures for assessing information needs, developing the needed information and helping decision makers to use the information to generate and validate actionable customer and market insights. A MIS helps to assess information needs, develop needed information and analyse the right information to form customer insights.
Internal databases are electronic collections of consumer and market information obtained from data sources within the company network. Internal data can be a strong base for a competitive advantage, because of the potential of this information. Competitive marketing intelligence is the systematic collection and analysis of publicly available information about consumers, competitors and developments in the marketing environment. Good marketing intelligence helps gain insights in how consumers think of and connect with the brand.
Marketing research is the systematic design, collection, analysis and reporting of data relevant to a specific marketing situation facing an organisation. The process of marketing research has four steps:
Defining the problem and research objectives. The objective of exploratory research is to gather preliminary information that will help define problems and suggest hypotheses. The objective of descriptive research is to better describe marketing problems, situations or markets. Causal research aims to test hypotheses about cause-and-effect relationships.
Developing the research plan on how the information will be gathered.
Secondary data is information that already exists somewhere, having been collected for another purpose. Secondary data can be accessed by using commercial online databases, which are collections of information available from online commercial sources or accessible via the Internet. Internet search engines can be used to locate secondary data, but the research must verify that the found information is relevant, accurate, current and impartial.
Primary data is information collected for the specific purpose at hand. It can be collected via observational research, which gathers primary data by observing relevant people, actions and situations. Ethnographic research is a form of observational research that involves sending trained observers to watch and interact with consumers in their “natural environments”.
Primary data can also be collected via survey research, which gathers information by asking people questions about their knowledge, attitudes, preferences and buying behaviour. Experimental research gathers primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors and checking for differences in group responses.
Information can be collected via mail, telephone, personal interviews or online. Mail questionnaires can be quite massive, while telephone information is also quickly gathered. Personal interviewing can be individual or group interviews. Online marketing research collects primary data online through Internet surveys, online focus groups, web-based experiments or tracking consumer’s behaviour online. Online focus groups gather a small group of people online with a trained moderator to chat about a product, service or organisation and gain qualitative insights about consumer attitudes and behaviour.
It is often impossible to collect information from the entire population, so marketers often base conclusions on samples. A sample is a segment of the population selected for marketing research to represent the population as a whole. Three decisions regarding the sample need to be made: the sampling unit (who), sampling size (how many) and sampling procedure (how should they be chosen). There are probability samples, in which each member of the population has an equal chance of being included, such as simple random samples, stratified random samples and cluster samples. But there are also non-probability samples, such as convenience samples, judgment samples and quota sample categories.
When collecting primary data, there are two research instruments: the questionnaire and mechanical devices. The questionnaire can be via email, phone or online and are flexible. Mechanical instruments can help monitor consumer behaviour.
Implementing the research plan means putting it into action. This means collecting, processing and analysing the information.
Interpreting and reporting the findings. The interpretation should not only be done by the researchers, but also by the marketing managers who know about the problem and the decisions that need to be made.
Customer relationship management (CRM) is managing detailed information about individual customers and carefully managing customer touch points to maximise loyalty. It means capturing and using consumer data to manage customer interactions and build customer relationships. Data mining techniques can be used to access customer data. By using CRM to understand customers, relationships with them can be deeper.
When collecting marketing information, some things must be kept in mind. When executing international marketing research, cultural differences and struggles in accessibility must be kept in mind. There are also concerns regarding public policy and ethics in marketing research, such as intrusions on privacy and the misuse of the findings of the research.
Consumer buyer behaviour is the buying behaviour of final consumers: individuals and households that buy goods and services for personal consumption. All these consumers add up to the consumer market: all the households and individual that buy or acquire goods and services for personal consumption. Consumers make buying decisions every day, but it can be difficult to determine why they make certain decisions. Consumer purchases are influenced by different characteristics.
Cultural factors have an influence on consumer behaviour. Culture is the set of basic values, perceptions, wants and behaviours learned by a member of society from family and other important institutions. A subculture is a group of people with shared value systems based on common life experiences and situations. They are distinct, but not necessarily mutually exclusive. Social classes are relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviours.
Another influence is social factors. Groups are two or more people who interact to accomplish individual or mutual goals. Many small groups influence a person’s behaviour. Membership groups are groups in which a person belongs, while reference groups serve as direct points of comparison.
Word-of-mouth influence of friends and other consumers can have a strong influence on buying behaviour. An opinion leader is a person within a reference group who, because of skills, knowledge, personality or other characteristics, exerts social influence on others. Marketers try to identify the opinion leader and aim their marketing efforts towards this person. Buzz marketing involves creating opinion leaders to serve as brand ambassadors. Online social networks are online communities, such as blogs, social networking sites or even virtual worlds, where people socialize or exchange information and opinions.
Family can have a strong influence on buying behaviour as well. Buying role patterns in families change with evolving consumer lifestyles. A person belongs to many groups beside the family, also clubs, organisation and online communities. The position of a person in a group is defined in terms of role and status. A role consists of the expected actions of a person. People usually choose products appropriate to their role and status.
Personal characteristics also have an influence on consumer buyer behaviour. These characteristics can be the person’s age and life-cycle stage, the person’s occupation and economic situation, but also lifestyle and personality. Lifestyle is a person’s pattern of living as expressed in his or her activities, interests and opinions. Personality is the unique psychological characteristics that distinguish a person or group.
It can be said that brands also have personalities. A brand personality is the mix of human traits that may be used to describe the brand. There are five general brand personality traits: sincerity, excitement, competence, sophistication and ruggedness.
Buying behaviour is influenced by four major psychological factors: motivation, perception, learning and beliefs and attitudes. Motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction of the need. Motivation research refers to qualitative research designed to find consumer’s hidden motivations. Maslow’s hierarchy of needs categorizes needs into a pyramid, consisting of psychological needs, safety needs, social needs, esteem needs and self-actualisation needs.
Perception is the process by which people select, organise and interpret information to form a meaningful picture of the world. People form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion and selective retention. Learning describes changes in an individual’s behaviour arising from experience. A drive is a strong stimulus that calls for action. Cues are minor stimuli that determine how a person responds.
A belief is a descriptive thought that a person holds about something. An attitude is a person’s consistently favourable or unfavourable evaluations, feelings and tendencies toward an object or idea. Attitudes can be difficult to change, because they are usually part of bigger pattern.
There are different types of buying decision behaviour. Complex buying behaviour is characterized by high consumer involvement in a purchase and significant perceived differences among brands. The buyer will pass through a learning process, developing beliefs and attitudes and then a purchase choice will follow. Dissonance-reducing buying behaviour is consumer buying behaviour characterised by high involvement, but few perceived differences among brands.
Habitual buying behaviour is consumer buying behaviour characterized by low consumer involvement and few significantly perceived differences. Repetition of advertisements can create brand familiarity (but not conviction), which can lead to habitual purchases. Variety-seeking buying behaviour is consumer buying behaviour characterised by low consumer involvement, but significant perceived brand differences.
The buyer decision process has five stages.
Need recognition is the first stage, in which the consumer recognises a problem or need.
Information search is the stage in which the consumer is aroused to search for more information, the consumer may simply have heightened attention or may go into active information search. Information can be obtained from personal sources, commercial sources, public sources and experiential sources.
Evaluation of alternatives. Alternative evaluation is the process in which the consumer uses information to evaluate alternative brands in the choice set.
Purchase decision is the buyer’s decision about which brand to purchase. Both the attitude of others and unexpected situational factors can influence the ultimate decision.
Post-purchase behaviour is the stage of the buyer decision process in which consumers take further action after purchase based on their satisfaction or dissatisfaction with a purchase. Cognitive dissonance is buyer discomfort caused by post-purchase conflict.
The buyer decision process can be different for new products. A new product is a good, service or idea that is perceived by some potential customers as new. The consumer must decide to adopt them or not. The adoption process is the mental process through which an individual passes from first hearing about an innovation to final adoption. There are five stages in the adoption process: awareness, interest, evaluation, trial and adoption.
Business buy behaviour of organisations that buy goods and services for use in the production of other products and services that are sold, rented or supplied to others. The business buying process is the decision process by which business buyers determine which products and services their organisations need to purchase and then find, evaluate and choose among alternative suppliers and brands. The business market is bigger than the consumer markets, and differs in many ways.
The business markets consist normally with less, but larger buyers than consumer markets. Business demand is derived demand: business demand ultimately derives from the demand for consumer goods. Business markets’ demand is more inelastic and is less affected by short-term price changes, while demand also fluctuates more quickly.
The nature of the buying unit involves more decision participants and a more professional purchasing effort. The business buyers’ decisions are often more complex and formalized. Finally, buyer and seller often work on long-term relationships. Supplier development is the systematic development of networks of supplier-partners to ensure an appropriate and dependable supply of products and materials for use in making products or reselling them to others.
There are three types of business buying situations. A straight rebuy is a business buying situation in which the buyer routinely reorders something without any modifications. A modified rebuy is when the buyer wants to modify the product specifications, prices, terms or suppliers. A new task is a business buying situation in which the buyer purchases a product or service for the first time. Systems selling (or solutions selling) is buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation.
There are multiple participants in the business buying process. The buying centre are all the individuals and units that play a role in the purchase decision-making process.
- Users are members of the buying organisation who will actually use the purchased product or service.
- Influencers are people in an organisation’s buying centre who affect the buying decision, they often help define specifications and also provide information for evaluating alternatives.
- Buyers are the people in an organisation’s buying centre who make an actual purchase.
- Deciders are people who have formal or informal power to select or approve the final suppliers.
- Gatekeepers are people in an organisation’s buyer centre who control the flow of information to others.
The buying centre is a set of buying roles assumed by different people.
There are a lot of things that can influence the business buyer, such as environmental factors. These can include the economic environment, the supply of key materials and culture and customs. Organisational factors such as objectives, systems and policies can also have an influence. Also interpersonal factors, such as authority, status and persuasiveness can exercise their influence. Lastly individual factors, such as age, income, education and risk attitudes can play a role in the decision of the business buyer.
The business buying process
The business buying process has eight stages.
Problem recognition: someone in the company recognises a problem or need that can be met by acquiring a good or a service.
General need description is the stage in the business buying process in which a buyer describes the general characteristics and quantity of a needed item.
Product specification is the stage in the business buying process in which the buying organisation decides on and specifies the best technical product characteristics for a needed item.
Supplier search is the stage in which the buyer tries to find the best vendors.
Proposal solicitation is the stage in which the buyer invites qualified suppliers to submit proposals.
Supplier selection is the stage in which the buyer reviews proposals and select a supplier or suppliers.
Order-routine specification is the stage in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies and warranties.
Performance review is the stage in which the buyer assesses the performance of the supplier and decided to continue, modify or drop the arrangement.
E-procurement involves purchasing through electronic connections between buyers and sellers, usually online. This can be via reverse auctions, trading exchanges, company buying sites and extranet links. Benefits of e-procurement are lower transaction costs and efficient purchasing.
The institutional market consists of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care. These markets can be extensive and are often characterized by low budgets. Government markets consist of governmental units (federal, state and local) that purchase or rent goods and services for carrying out the main functions of government.
Today, most companies moved from mass marketing to target marketing: identifying market segments and selecting a few to produce for. There are four major steps in designing a customer-driven marketing strategy.
Market segmentation means dividing a market into smaller segments with the distinct needs, characteristics or behaviour that might require separate marketing strategies or mixes. There are different ways to segment a market:
Geographic segmentation: dividing a market into different geographical units, such as nations, states, regions, counties, cities or even neighbourhoods.
Demographic segmentation: dividing the market into different segments based on variables such as age, gender, family size, family life cycle, income, occupation education, religion, race, generation and nationality. Age and life-cycle segmentation is dividing a market into different age and life-cycle groups. Gender segmentation means dividing a market based on gender, while income segmentation divides a market based on income levels.
Psychographic segmentation: dividing a market into different segments based on social class, lifestyle or personality characteristics.
Behavioural segmentation: dividing a market into segments based on consumer knowledge, attitudes, uses or responses to a product. This can be done via occasion segmentation: dividing the market according to occasions when buyers get the idea to buy, actually making their purchase or use the purchased items. Benefit segmentation: dividing the market according to the benefits that customers seek from the product. Markets can also be segmented based on user states, usage rate and loyalty status.
Marketers often use multiple segmentation bases to identify a well-defined target group. For segmentation to be effective, market segments must be measurable, accessible, substantial, differentiable and actionable. Business markets can be segmented with the same variables, but also with additional ones, such as customer operating characteristics, purchasing approaches and situational factors. International markets can be segmented using a combination of variables. Intermarket segmentation (cross-market segmentation): forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries.
Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. When evaluating segments, a marketer must look at segment size and growth, segment structural attractiveness and company objectives and resources. A target market consists of a set of buyers sharing common needs or characteristics that the company decides to serve. There are several forms of market targeting.
- Undifferentiated (mass) marketing: a marketing coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.
- Differentiated marketing or segmented marketing: a market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each.
- Concentrated marketing (niche): a market-coverage strategy in which a firm goes after a large share of one or a few segments or niches.
Micromarketing is tailoring products and marketing programmes to the needs and wants of specific individuals and local customer segments. It includes local marketing: tailoring brands and promotions to the need and wants of local customer segments; cities, neighbourhoods and even specific stores. It also includes individual marketing: tailoring products and marketing programmes to the needs and preferences of individual customers, also called one-to-one marketing, customized marketing and markets-of-one marketing.
Companies need to consider a lot of factors when deciding upon a targeting strategy, such as available resources, market variability and competitors’ marketing strategies.
Differentiation and positioning
Differentiation means differentiating the market offering to create superior customer value. Positioning is arranging for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the mind of target consumers. A product position is the way the product is defined by consumers on important attributes: the place the product occupies in the consumers’ minds relative to competing products. Perceptual positioning maps show consumer perceptions of brands versus competing products.
To build profitable relationships, marketers must understand customer needs. When a company is differentiated by superior customer value, this can create a competitive advantage: an advantage over competitors gained by offering greater customer value, either by having lower prices or providing more benefits that justify high prices. The company can differentiate itself via product differentiation, service differentiation, channel differentiation, people differentiation or image differentiation.
When a company has multiple difference to promote, many marketers think the company should focus on one unique selling point (USP), while some others think they can promote more. Differences worthy to promote need to be important, distinctive, superior, communicable, not easily copied, affordable and profitable.
The value proposition is the full positioning of a brand: the full mix of benefits on which it is positioned. There are multiple possible value propositions, of which five can be “winning”:
More for more: upscale products and higher prices.
More for the same: used to attack competitors by offering quality at a low price.
The same for less: a good deal.
Less for much less: a less optimal performance for a low price.
More for less: ultimately winning, but difficult to actually achieve.
A positioning statement is a statement that summarises company or brand positioning. It takes this form: To (target segment and needs) our (brand) is (concept) that (point of difference). Once a position is chosen, a company must take action to deliver and communicate the position to its target customers.
A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. A service is an activity, benefit or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything. Products are key in the overall market offering. The market offer might exist of only pure tangible goods, pure services and everything in between. Product planners need to consider three levels when deciding on services and products. The first one is the core customer value level. Secondly, the core benefit must be turned into an actual product. Finally, an augmented product must be built around the actual product by offering services.
Consumer and industrial products
Products and services fall into two broad classes: consumer products and industrial products. Consumer products are products bought by final consumers for personal consumption.
- Convenience products are a type of consumer product that consumers usually buy frequently, immediately and with minimal comparison and buyer effort.
- Shopping products are consumer products that the customer, in the process of selecting and purchasing, usually compares on such attributes as suitability, quality, price and style.
- Speciality products are a type of consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort.
- Unsought products are consumer products that the consumer either doesn’t know about, or knows about but does not normally consider buying.
Industrial products are products bought by individuals and organisations for further processing or for use in conducting a business. Materials and parts include raw materials (farm products, natural products) and manufactured parts (component materials and parts).
Organisation marketing consists of activities to create, maintain or change the attitudes and the behaviour of target customers. Corporate image advertising campaigns can be used to improve the image of a firm. Person marketing consists of activities to change attitudes of specific people. Place marketing involves activities to create, maintain or change attitudes towards particular places. Social marketing is the use of commercial marketing concepts and tools in programmes designed to influence individuals’ behaviour to improve their well-being and that of society.
Decisions regarding products and services are made at three levels:
Individual product and service decisions
Developing a product or service involves defining the benefits. Product quality are the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. Total quality management (TQM) is an approach where the whole company is involved in constantly improving the overall quality. Product quality is based on the quality level and consistency. Other product and service attributes are product features and the product style (appearance) and the design (heart of the product).
A brand is a name, term, sign, symbol, design or a combination of these that identifies the products or services of one sell or group of sellers and differentiates them from those of competitors. Packaging involves the activities of designing and producing the container or wrapper for a product. Innovative packaging can give a competitive advantage. The final product and service decisions include labels that help identifying a product or brand and supporting services of the product.
Product line decisions
A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets or fall within given price ranges. Major decisions include the product line length, which can be adjusted by product line filling (adding more items within present range) and line stretching (lengthen beyond current range).
Product mix decisions
A product mix (product portfolio) is the set of all product lines and items that a particular seller offers for sale. Product mix width is the number of different product lines, while length refers to the total number of items within the product lines. The product mix depth refers to the number of versions offered for each product in the line.
Firms must decide upon four service characteristics when designing marketing programmes. Service intangibility: services cannot be seen, tasted, felt, heard or smelled before they are bought. Service inseparability: service are produced and consumed at the same time and cannot be separated from their providers. Service variability: the quality of services may greatly vary depending on who provides them and when, where and how. Service perishability: services cannot be stored for later sale or use.
The service profit chain is the chain that links service firm profits with employee and customer satisfaction. This chain consists of five links: internal service quality, satisfied and productive service employees, greater service value, satisfied and loyal customers and ultimately healthy service profits and growth. Service marketing is more than traditional external marketing, it also consists of internal and interactive marketing. Internal marketing involves orienting and motivating customer contact employees and supporting service people to work as a team to provide customer satisfaction. Interactive marketing involves training services employees in the fine art of interacting with customers to satisfy their needs.
Service marketers need to manage service differentiation, making sure that they stand out amongst competitors. They also need to manage service quality, which can be harder to define than product quality. Lastly, they need to manage service productivity by ensuring employees are skilful and implementing the powers of technology.
Brand equity is the differential effect that knowing the brand name has on customer response to the product or its marketing. Brand equity can be a powerful asset. Brand valuation is the process of estimating the total financial value of a brand. In order to build a strong brand, there are some major brand strategy decisions to be made. Brand positioning involves positioning the brand in the mind of the consumer. Brand name selection is important in order to select a good name. The brand name should say something about the service benefits and should be easy to pronounce and remember. It needs to be distinctive and extendable, easily translated and should be capable of legal protection.
Brand sponsorship can be done via four ways. A product can be launched as a national (manufacturer) brand or as a private brand or store brand. Another way is via licensed brands or a co-brand with another company. A store brand is a brand created and owned by a reseller of a product or service. Licensing involves lending the brand name to other manufacturers. Co-branding is the practice of using the established brand names of two different companies on the same product.
When developing brands, companies have four choices. Line extensions occur when extending an existing brand name to new forms, colours, sizes, ingredients or flavours of an existing product category. A brand extension extends a current brand name to new product categories. Multibrands means offering more than one brand in the same category. New brands can be created when believed that the power of existing brands is fading.
New product development is the development of original products, product improvements, product modifications and new brands through the firm’s own product development efforts. New products are essential for the continuation of the company. New products aren’t easy to find. There are eight major steps in the product development process.
Idea generation: the systematic search for new-product ideas. Ideas can be found via internal sources, but also external idea sources. These can be distributors, suppliers, but also competitors. Crowdsourcing means inviting broad communities of people – customers, employees, independent scientists and researchers and even the public at large – into the new-product innovation process.
Idea screening: screening new-product ideas to spot good ideas and drop poor ones as soon as possible.
Concept development and testing. Product concept is a detailed version of the new product idea stated in meaningful consumer terms. Concept testing means testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.
Marketing strategy development: designing an initial marketing strategy for a new product based on the product concept. It consists of three parts: describing the target market and value proposition, outlining the budgets and lastly describing the long-term marketing mix strategy.
Business analysis is a review of the sales, cost and profit projections for a new product to find out whether these factors satisfy the company’s objectives.
Product development: developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering.
Test marketing: the stage of new product development in which the product and its proposed marketing programme are tested in realistic market settings. This can be done in both controlled test markets and simulated test markets.
Commercialisation: introducing a new product into the market.
Customer-centred new product development: new product development that focuses on finding new ways to solve customer problems and create more customer satisfying experiences. Team-based new product development is an approach to developing new products in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness. Systematic new product development is preferred over haphazard and compartmentalised development. Innovation can be messy and difficult to manage, especially in turbulent times.
The product life cycle (PLC) is the course of product’s sales and profits over its lifetime. It involves five distinct stages:
Product development: development of the idea without any sales.
Introduction: slow sales growth when the product is introduced.
Growth: period of rapid acceptance.
Maturity: period of sale slowdown because of acceptance by most potential buyers.
Decline: the period when sales fall and the profit drops.
The PLC concept can also be applied to styles, fashions and fads. A style is a basic and distinctive mode of expression. Fashion is a currently accepted or popular style in a given field. Fad is temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity. Companies must continually innovate to keep up with the cycle. There are different strategies for each stage.
The introduction stage is the PLC stage in which a new product is first distributed and made available for purchase. Profits are generally low and the initial strategy must be consistent with product positioning.
The growth stage is the stage in which a product’s sales start climbing quickly. Profits increase and the firm faces a trade-off between high market share and high current profit.
In the maturity stage, products sales are growing slowly or level off. The company tries to increase consumption by finding new consumers, also known as modifying the market. The company might also try to modify the product by changing characteristics.
In the decline stage, the product’s sales are declining or dropping to zero. Management might decide to maintain the brand, reposition it or drop a product from the line.
When introducing product in international markets, it must be decided which products to offer in which countries and how these product should be adapted. Packaging issues can be subtle, from translating issues to different meanings of logos.
A price is the amount of money charged for a product or a service, the sum of the values that customers exchange for the benefits of having or using the product or service. Price is the only element in the marketing mix that produces revenue, all others are costs. Setting the right price is one of the most complex tasks. Good pricing starts with customers and their perception of the value of the product.
Customer value-based pricing: setting price based on buyer’s perceptions of value rather than on the seller’s cost. The value customers attach to a product might be difficult to measure, so the company must work hard to establish estimates. There are two other types of value-based pricing: good-value pricing and value-added pricing. Good-value pricing means offering the right combination of quality and good service at a fair price. Value-added pricing means attaching value-added features and services to differentiate a company’s offers and charging higher prices.
Cost-based pricing means setting prices based on the cost for producing, distributing and selling the product plus a fair rate of return for effort and risk. There are two forms of costs: fixed costs (overhead) are costs that do not vary with production or sales level. Variable costs are costs that vary directly with the level of production. Total costs are the sum of the fixed and variable costs for any given level of production.
The experience curve (learning curve) is the drop in the average per-unit production costs that comes with accumulated production experience. Put more simply: as workers become more experienced, they become more efficient and costs drop.
The simplest pricing method is cost-plus pricing or mark-up pricing: it means adding a standard mark-up to the cost of the product. However, this method ignores demand and competitors prices and is therefore unlikely to lead to the best price. Break-even pricing (target return pricing) means setting the price to break even on the costs of making and marketing a product or setting price to make a target return. The break-even volume is the amount of units that need to be sold to break even. Competition-based pricing means setting prices based on competitor’s strategies, prices, costs and market offerings.
Beyond customer value perceptions, costs and competitor prices, the firm must also think of other factors. Price is only one element of the marketing mix and the overall marketing strategy must be determined first. Target costing is pricing that starts with an ideal selling price and then targets costs that ensure the price is met. Good pricing is based on an understanding of the relationship between price and demand for the product.
Pricing can differ in different types of markets. In pure competition markets, there are numerous buyers and sellers that all have little effect on the price. In monopolistic competition, there are many buyers and sellers who trade over multiple prices. In an oligopolistic competition market, there are few sellers who are highly sensitive to each other’s pricing strategies. In a pure monopoly, the company is the only seller and can set any price it desires.
The demand curve is a curve that shows the number of units the market will buy in a given time period, at different prices that might be charged. The price elasticity is a measure of sensitivity of demand to changes in price. It is given by the following formula: price elasticity of demand = .
Pricing strategies can be challenging. There are two broad strategies. Market-skimming pricing (price skimming) means setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price, the company makes fewer but more profitable sales. Market-penetration pricing means setting a low price for a new product to attract a large number of buyers and a large market share.
There are five product mix pricing situations.
1. Product line pricing: setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitor’s prices.
2. Optional product pricing: the pricing of optional or accessory products along with a main product.
3. Captive product pricing: setting a price for products that must be used along with a main product.
4. By-product pricing: setting a price for by-products to make the main product’s price more competitive.
5. Product bundle pricing: combining several products and offering the bundle at a reduced price.
There are also seven price adjustment strategies that can be used.
1. Discount: a straight reduction in price on purchases during a stated period of time or of larger quantities. Allowance is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.
2. Segmented pricing: selling a product or service at two or more prices, where the difference in prices is not based on costs. Customer-segment pricing involves different types of customers paying different pricing. Product-form pricing involves different prices for different versions of the same product. Location-based pricing involves different prices for different locations, while time-based pricing involves different prices for different moments in time.
3. Psychological pricing: pricing that considers the psychology of prices, not simply the economics, the price says something about the product. Reference prices are prices that buyers carry in their minds and refer to when they look at a given product.
4. Promotional pricing: temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.
5. Geographical pricing: setting prices for customers located in different parts of the country or world. This can be FOB-origin pricing: a geographical pricing strategy in which goods are placed free on board a carrier, the customer pays the freight from the factory to the destination. Uniform-delivered pricing: a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location. Zone pricing: the company sets up two or more zones. All customers within a zone pay the same total price, the more distant the zone, the higher the price. Base-point pricing: a pricing strategy in which the seller designates some city as a base point and charges all customers the freight cost from that city to the customer. Freight-absorption pricing is a strategy in which the seller absorbs all or part of the freight charges to get the desired business.
6. Dynamic pricing means adjusting pricing continually to meet the characteristics and needs of individual customers and situations.
7. International pricing: charging different pricing for customers in different countries.
After setting prices, there are often situations in which companies need to change their prices. Sometimes, the company finds it desirable to initiate price cuts, for instance when demand is falling, or price increases to improve profits. Consumers can react differently to changes in prices, as well as competitors. When competitors change prices first, the firm has to respond. There are as many as four responses, namely: the firm can reduce its price, maintain its price but raise the perceived value of the product, improve the quality and increase the price or launch a low-price fighter brand to compete with the price change.
There is legislation surrounding price fixing (talking to competitors to set prices), which is illegal. Predatory pricing (selling below costs to punish competitor) is also prohibited. Many countries also try to prevent unfair price discrimination and deceptive pricing.
In order to produce a product, relationships with others in the supply chain are necessary. The term demand chain might be better, because it suggests a sense-and-respond view of the market. A value delivery network is composed of the company, suppliers, distributors and ultimately the customers, who partner with each other to improve the performance of the entire system in delivering customer value. The marketing channel (distribution channel) is a set of interdependent organisations that help make a product or service available for use or consumption by the consumer or business user. Channel members can add value by providing more efficiency and specialization in making goods. Some of the key function channel members do are: information gathering, promotion, contacting buyers, matching products and needs and negotiating agreements. But also physical distribution, financing and taking over risks of carrying out the work.
A channel level is a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Channel 1 is a direct marketing channel: a marketing channel that has no intermediary levels. Indirect marketing channels are channels containing one or more intermediary levels. Channels are behavioural systems composed of real companies and people, who interact to accomplish goals. Each channel member depends on others and they behave differently, which can lead to channel conflict: disagreement among marketing channel members on goals, roles and rewards, who should do what and for what rewards. Horizontal conflict occurs among firms at the same channel level. Vertical conflict is between different levels of the same channel.
For channels to work well, the role of the channel members must be specified. A conventional distribution channel is a channel consisting of one or more independent producers, wholesalers and retailers, each is a separate business seeking to maximise its own profits, even at the expense of profits for the system as a whole. In contrast with this is the vertical marketing system (VMS), a distribution channel in which producers, wholesalers and retailers act as a unified system. One channel member owns the others, has contracts with them or wields so much power that they all cooperate. There are three major types of VMSs:
1. Corporate VMS is a vertical marketing system that combines successive stages of production and distribution under single ownership. Channel leadership is accomplished through common ownership.
2. Contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts. The most common example of a contractual VMS is the franchise organisation: a contractual marketing system in which a channel member (franchisor) links several stages in the production-distribution process. There are also three types of franchises: manufacturer-sponsored retailer franchise systems, manufacturer-sponsored wholesaler franchise systems and service-firm-sponsored retailer franchise systems.
3. Administered VMS: a vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties.
Another development regarding channels is the horizontal marketing system: a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. This can be with competitors, but also with non-competitors. A multi-channel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. This occurs when a company sets up multiple marketing channels to reach multiple customer segments and is most beneficial in complex markets, but also brings additional risks.
Current changes in the channel organisation include disintermediation, which is the cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries.
Marketing channel design means designing effective marketing channels by analysing customer needs, setting channel objectives, identifying major channel alternatives and evaluating those alternatives. The base is analysing consumer needs, since marketing channels are actually customer value delivery networks. Next comes setting the channel objectives. When identifying major channel alternatives, the company should look at three things:
1. Types of intermediaries. The company should identify the different types of channel members that can be involved in the channel.
2. The number of marketing intermediaries. Intensive distribution means stocking the product in as many outlets as possible. Exclusive distribution means giving a limited number of dealers the exclusive right to distribute the company’s products in their territories. Selective distribution involves the use of more than one, but fewer than all, intermediaries who are willing to carry the company’s products.
3. The responsibilities of the intermediaries.
Finally, the firm should evaluate all of the alternatives using economic criteria, control issues and adaptability criteria.
Marketing channel management means selecting, managing and motivating individual channel members and evaluating their performance over time. Managing and motivating other channel members means practicing partner relationship management to build long-term partnerships with other channel members.
Marketing logistics, or physical distribution, is the planning, implementing and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirements at a profit. It basically means getting the right product to the right customer at the right place and time. It includes both outbound (from company to customer) and inbound distribution (within the channel) and reverse distribution (moving returned products).
It involves the entire supply chain management: managing upstream and downstream value-added flows of materials, final goods and related information among suppliers, the company, resellers and final consumers. Logistics can be a source of competitive advantage and efficient ones can cut cost drastically. There is however a trade-off between minimal distribution costs and maximum customer service. Logistics include some major functions:
1. Warehousing. Distribution centres are large, highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill them efficiently and deliver goods to customers as quickly as possible.
2. Stock management involves deciding on the balance between too little and too much stock. Just-in-time logistic systems involve small stocks, while new stock arrives exactly when needed.
3. Transportation affects the pricing of products, delivery times and the condition of the goods. It can be via road, but also via railways, waterways and air carriers. Intermodal transportation means combining two or more modes of transportation.
Integrated logistics management is the logistics concept that emphasises teamwork, both inside the company and among all the marketing channel organisations, to maximise the performance of the entire distribution system. Cross-functional teamwork inside the company means an integrated and harmonized system. Companies should not only improve their logistics, but also their logistic partnerships. Third-party logistics (3PL) provider is an independent logistics provider that performs any or all of the functions required to get a client’s product to the market. They often do this at a lower cost and more efficiently, while the company can focus on its core business.
Retailing includes all the activities involved in selling goods or services directly to final consumer for their personal, non-business use. Retailers are businesses whose sales come primarily from retailing. Retailing connects brands to consumers in the final steps (“last mile” of buying process). Shopper marketing means using in-store promotions and advertising to extend brand equity to the “last mile” and encourage favourable hi-store purchase decisions. There are different types of retailers. Self-service retailers serve customers who are willing to perform part of the service. Limited-service retailers provide some assistance in the service process, while full-service retailers assist customers in every step of the buying process.
Retailers can also be classified by the length and breadth of their product line.
1. Speciality store: a retail store that carries a narrow product line with a deep assortment within that line.
2. Department store: a retail organisation that carries a wide variety of product lines. Each line is operated as a separate department managed by specialist buyers or merchandisers.
3. Supermarkets are large, low-cost, low-margin, high-volume and self-service stores that carry a wide variety of grocery and household products.
4. Convenience stores are mall stores, located near residential areas and that carry a limited line of high-turnover convenience goods.
5. Superstore: a store much larger than a regular supermarket that offers a large assortment of routinely purchased food products, non-food items and services.
6. Category killer: a giant speciality store that carries a very deep assortment of a particular line and is staffed by knowledgeable employees.
7. Service retailers: a retailer whose product line is actually a service.
Retailers can also be classified according to the price they charge for their goods and services.
- Discount store: a retail operation that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume.
- Off-price retailers are retailers that buy at less-than-regular wholesale price and sell at less than retail.
- Independent off-price retailers are off-price retailers who are either independently owned or is a division of a larger retail corporation.
- Factory outlet: an off-price retailing operation that is owned and operated by a manufacturer and normally carries the manufacturer’s surplus discontinued or irregular goods.
- Warehouse clubs: an off-price retailer that sells a limited selection of brand name grocery items, appliances, clothing and a hodgepodge of other goods at deep discounts to members who pay annual membership fees.
Chain stores are two or more outlets that are commonly owned and controlled. Their size allows for buying in large quantities at lower prices. A franchise is a contractual association between a manufacturer, wholesaler or service organisation and independent businesspeople, who buy the right to own and operate one or more units in the franchise system. Retailers must first segment and define their target market, before deciding upon how to differentiate and position themselves in these target markets. Retailers must decide upon three major product variables: product assortment, services mix and store atmosphere. The product assortment should differentiate the retailer from competitors. The services mix can help differentiate, while the store’s atmosphere is another unique element to distinguish the retailer.
The price a retailer asks for its product must fit the target market and position of the retailer. Retailers can use all of the five promotion tools to reach their customers, namely: advertising, personal selling, sales promotion, public relations and direct marketing. The place of the products, or location, is vital in retailing success. A shopping centre is a group of retail businesses built on a site that is planned, developed, owned and managed as a unit. A regional shopping centre is large, containing more than 50 to 100 stores. A community shopping centre contains between 15 and 50 retailers. A neighbourhood shopping centre or strip mall generally holds 5 to 15 stores. Power centres are huge unenclosed shopping centres consisting of long strips of retail stores. A lifestyle centre is a smaller open-air mall with upmarket stores.
Trends in retailing
In current times, retailers are dealing with changing lifestyles and fierce competition for customer expenditure. The economic downturn provides a challenge for a lot of retailers. The wheel-of-retailing concept states that new types of retailers usually begin as low-margin, low-price, low-status operations but later evolve into higher priced, higher-service operations, eventually becoming like the conventional retailers they replaced. The rise of mega-retailers also has its influence on the environment, squeezing out small competitors. The growth of non-store retailing via advanced technologies also provides new opportunities and challenges. Retailing technologies have become important as competitive tools. There is also a trend of green retailing, where retailers are adopting environmentally sustainable practices.
Wholesaling includes all the activities involved in selling goods and services to those buying for resale or business use. A wholesaler is a firm engaged primarily in wholesaling activities. Wholesalers add value by performing one or multiple of the following channel functions:
- Selling and promoting and thereby reaching many small customers.
- Buying and assortment building.
- Bulk breaking by buying in large quantities.
- Warehousing and holding stock.
- Financing of customers and suppliers.
- Risk bearing.
- Providing market information.
- The management of services and giving advice.
Wholesalers fall into three major groups.
1. Merchant wholesalers are independently owned wholesale businesses that take title to the merchandise it handles. They include full-service wholesalers, who provide a full set of services and limited-service wholesalers who offer less services to their customers. Industrial distributors sell to manufacturers, while wholesale merchants sell primarily to retailers. Cash-and-carry wholesalers carry a limited line of fast moving goods. Drop shippers never carry stock, but select manufacturers who ship the product upon order.
2. Brokers and agents. A broker is a wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation. An agent is a wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions and does not take title to goods. Selling agents have contractual authority to sell a manufacturer’s entire output. Purchasing agents often have long-term relationships with buyers and make purchases for them.
3. Manufacturers’ sales branches and offices: wholesaling by seller or buyers themselves rather than through independent wholesalers.
Like retailers, wholesalers must also decide upon the product, prices, promotion and place of their services. Today’s wholesalers are facing challenges in the need for greater efficiency and changing needs of customers.
The promotion mix (marketing communication mix) is the specific blend of promotion tools that the company uses to persuasively communicate customer value and build customer relationships. It consists of five major promotion tools:
1. Advertising: any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.
2. Sales promotion: short-term incentives to encourage the purchase or sale of a product or a service.
3. Personal selling: personal representation by the firm’s sales force for the purpose of making sales and building customer relationships.
4. Public relations: building good relations with the company’s various public by obtaining favourable publicity: building up a good corporate image and handling or heading off unfavourable rumours, stories and events.
5. Direct marketing: direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships.
Several factors are changing today’s marketing communication. First, consumers are changing: they are better informed and more empowered. Also, marketing strategies are shifting away from traditional mass marketing. Finally, communications technology is changing the way companies and customers communicate with each other. These changes come together in a need for integrated marketing communications (IMC) which involves carefully integrating and coordinating the company’s many communications channels to deliver a clear, consistent and compelling message about an organisation and its products. IMC recognizes all touchpoints where the company and customers meet and ties together all messages.
In order to develop marketing communications, an understanding of the communication process is required. A message is send from a sender to a receiver via media, but can be interrupted by noise or encoding/decoding differences.
There are different steps necessary in developing effective marketing communication.
1. Identifying the target audience.
2. Determining the communication objectives. The target audience can be in any stage of the buyer-readiness stages. The buyer-readiness stages are the stages consumers normally pass through on their way to a purchase, including awareness, knowledge, liking, preference, conviction and finally the actual purchase. A goal of a marketer is to move target customers through the buying process.
3. Designing the message. The message should get attention, hold interest, arouse desire and obtain action. Attention, interest, desire and action come together as the AIDA model. The marketer determines the content of the message. Rational appeals relate to the audience self-interest and their benefits. Emotional appeals attempt to stir up emotions that can motivate purchase. Marketers must also decide the message structure and the format.
4. Choosing the channels of communication. There are two broad categories. Personal communication channels are channels through which two or more people communicate directly with each other, including face to face, on the phone, via e-mail or even through Internet chat. Personal communication channels include word-of-mouth influence: personal communications about a product between target buyers and neighbours, friends, family members and associates. Buzz marketing is cultivating opinion leaders and getting them to spread information about a product or a service to others in their communities.
Non-personal communication channels are media that carry messages without personal contact or feedback, including major media, atmospheres and events. Atmospheres are designed environments that create the buyer’s leanings toward buying a product.
5. Selecting the message source. Highly credible sources are more persuasive.
6. Collecting feedback. The marketer must research the effect on the target audience.
When setting the total promotion budget, there are four common methods that can be used.
1. Affordable method: setting the promotion budget at the level management thinks the company can afford.
2. Percentage-of-sales method: setting the promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales prices.
3. Competitive-parity method: setting the promotion budget to match competitor’s outlays.
4. Objective-and-task method: developing the promotion budget by (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives and (3) estimating the cost of performing these tasks. The sum of these costs is the proposed promotion budget.
The promotion mix
The promotion mix consists of five tools. Advertising can reach masses of geographically dispersed buyers at a low cost, but it cannot be as persuasive as people. Personal selling is the most effective in certain stages of the buying process, but is quite costly. Sales promotion attracts the customer’s attention, but the effect is often short lived. Public relations (PR) is believable but is often underused. Direct marketing is less public and delivered to a certain person.
Marketers can choose from two basic promotion mix strategies. A push strategy calls for using the sales force and trade promotion to push a product through channels. A producer promotes a particular product to channel members, who in turn promote it to final consumers. A pull strategy calls for spending a lot on consumer advertising and promotion to induce final consumers to buy a particular product, creating a demand vacuum that “pulls” a product through the channel.
Having set the promotion budget and mix, the next task is to integrate into a promotion mix. There are legal and ethical issues to consider when thinking about marketing communications. Marketers must avoid false or deceptive advertising and must follow the rules of fair competition.
Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor. The first step to advertising is setting advertising objectives based on past decisions on the target market, positioning and the marketing mix. An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time. Informative advertising is often used when introducing a new product. Persuasive advertising is more used when competition is increasing. Reminder advertising is relevant for mature products and is used to maintain customer relationships.
After setting the advertising objectives, the advertising budget is set. The advertising budget is the money and other resources allocated to a product or a company advertising programme. The budget is often dependent of multiple factors, such as the stage in the product life cycle, market share and the number of competitors in the market.
The next thing in the advertising process is developing an advertising strategy: the strategy by which the company accomplishes its advertising objectives. It consists of two major elements: creative advertising messages and selecting advertising media.
The advertising message
When creating the advertising message, it is important to gain the attention of the customer and to stand out from the clutter of all other advertisements. In order to stand out, many marketers use “Madison & Vine”, a term that has come to represent the merging of advertising and entertainment in an effort to break through the clutter and create new avenues for reaching consumers with more engaging messages. The aim of “advertainment” is to make ads entertaining enough, so that people actually want to watch them. Branded entertainment, or brand integrations, involves making the brand an inseparable part of some form of entertainment.
The message strategy is the general message that will be communicated to consumers. The creative concept is the compelling “big idea” that will bring the advertising message strategy to life in a distinctive and memorable way. Advertising appeals should have three characteristics. They should be meaningful, believable and distinctive. After that, the message needs to be executed. There are different execution styles: the approach style, tone, words and format used for executing an advertising message. Some styles are:
- Slice of life: normal people using a product in a normal setting.
- Lifestyle: shows how a product fits within a certain lifestyle.
- Mood or image: builds a mood or certain image around the product.
- Musical: singing advertisement.
- Personality symbol: creates a character that represents the product.
- Technical expertise.
- Scientific evidence: proving the brand is better.
- Testimonial evidence or endorsement: featuring a highly believable or likable source.
The marketer must also decide upon the tone and format of the advertisement. The illustration is the first thing noticed, while the headline must entice the right people to read to advertisement. The copy (main block of text in the ad) must be simple, strong and convincing All of the elements must work together in order to persuade the customer.
The other major part of developing an advertisement strategy is selecting advertising media. Advertising media are the vehicles through which advertising messages are delivered to their intended audiences. To select media, a marketer must decide upon the reach and frequency of advertising that is desired. Reach is a measure of the percentage of people reached in the target market, while frequency is a measure to show how many times the average person is exposed to the message.
An advertiser will want to reach the desired media impact: the qualitative value of the message exposure. Media planners must also choose the best media vehicles: specific media within each general media type. Furthermore, they need to consider audience quality, audience engagement and editorial quality. Some media sources are more believable than others. Finally, the advertiser must decide upon the media timing. Continuity means scheduling ads evenly within a given period, while pulsing means scheduling ads unevenly over a given time period.
Measuring advertising effectiveness and the return on advertising are becoming important. Return on advertising investment is the net return on advertising investment divided by the costs of the advertising investment. There are two types of advertising results: communication effects and sales and profit effects.
Advertising is organised differently in different companies. It ranges from someone handling it in the sales department, to advertising departments and advertising agencies: a marketing services firm that assists companies in planning, preparing, implementing and evaluating all or portions of their advertising programmes.
Public relations (PR) means building good relations with the company’s various publics by obtaining favourable publicity, building up a good corporate image and heading off unfavourable rumours, stories and events. Activities involved in PR are press relations, product publicity, public affairs, lobbying and managing investor relations. PR can have a strong impact on public awareness and results can be impressing. Some of the most important tools of PR are the news, speeches, written materials, audio-visual material and public services activities.
Personal selling: are personal presentations by the firm’s sales force for the purpose of making sales and building customer relationships. A salesperson is an individual representing a company to customers by performing one or more of the following activities: prospecting, communicating, selling, services, information gathering and relationship building. Personal selling is an interpersonal part of the promotion mix. The sales force is a link between the company and its customers. Sales people represent the company to customers, but at the same time they represent customers to a particular company. The sales force should work closely with other marketing functions in order to create value for its customers, but often sales and marketing are approached as different functions.
Sales force management means analysing, planning, implementing and controlling sales force activities. There are six major steps in the sales force management process:
1. Designing the sales force strategy.
The sales force structure can have different shapes. A territorial sales force structure is a sales force organisation that assigns each salesperson to an exclusive geographic territory in which that salesperson sells the company’s full line. Territory sales representatives report to territory managers, who are under the supervision of regional managers, who in turn report to a director of sales.
A product sales force structure is a sales force organisation in which salespersons specialise in selling only a portion of the company’s products or lines. This might lead to trouble when customers buy multiple products of the same company and could lead to double work.
A customer or market sales force structure is a sales force organisation in which salespeople specialise in selling only to certain customers or industries. This can help a company build closer relationships with meaningful customers.
Finally combinations of sales force structures are possible, leading to complex structures. Once the structure is set, the sales force size must be determined. This can be done by the workload approach, where the number or salespersons are based on the amount of effort desired for different classes of work. Sales management must also determine who will be involved in the sales force. Outside sales force (field sales force) are salespeople who travel to call on customers in the field. Inside sales force are salespeople who conduct business from their offices via telephone, the Internet or visits from prospective buyers. Team selling means using a team of people from sales, marketing, engineering, finance, technical support an even upper management to service large, complex accounts.
2. Recruiting salespeople.
The success of a sales force operations depends on the skills of salespeople. Good sales people are motivated, disciplined, have skills and knowledge and a great understanding of customer needs.
3. Training salespeople
Most companies provide continuous sales training. Training programmes teach salespeople what they need to know about their customers and give them the necessary skills.
4. Compensating salespeople
To attract good salespeople, they need to be compensated. Compensation can consist of four elements: a fixed amount, a variable amount, expenses and fringe benefits.
5. Supervising salespeople
The goal of supervision is to help salespeople work smart, by doing the right things the right way. Motivation helps salespeople to work hard to reach the sales force goals. Supervising salespeople can be done by period call plans and time-and-duty analysis. Sales 2.0 is the merging of innovative sales practices within Web 2.0 technologies to improve sales force effectiveness and efficiency. Beyond directing, sales managers must also motivate salespeople. Sales quota are standards that state the amount a salesperson should sell and how sales should be divided among the company’s products. Organisational climate describes the feeling salespeople have about their opportunities and rewards. Sales meetings provide occasions to air feelings.
6. Evaluating salespeople
The last step in the process is evaluating the salespeople. Information can be gathered in different ways: via sales reports call reports and expense reports.
The selling process are the steps that salespeople follow when selling, which include prospecting and qualifying, pre-approaching, presenting an demonstrating, handling objections, closing and following up.
1. Prospecting: a salesperson or company identifies qualified potential customers.
2. Pre-approaching: a salesperson learns as much as possible about a prospective customer before making a sales call.
3. Approaching: a salesperson meets the customer for the first time.
4. Presenting: a salesperson tells the “value story” to the buyers, showing how the company’s offer solves the customer’s problems.
5. Handling objections: a salesperson seeks out, clarifies and overcomes any customer objections to buying.
6. Closing: a salesperson asks the customer for an order.
7. Following up: a salesperson follows up after the sale to ensure customer satisfaction and repeat business.
The steps in the selling process can be described as transaction oriented. But in most cases, the long-term goals are to develop a profitable relationship.
Sales promotion: short-term incentives to encourage the purchase or sale of product or service. Sales promotions tools are used by most companies and can be consumer promotions, trade promotions, business promotions and sales force promotions. Sales promotion objectives can vary widely and are used together with other promotion mix tools.
Consumer promotions are sales promotion tools used to boost short-term customer buying and involvement or enhance long-term customer relationships. These can be samples (trial products), coupons (saving certificates), cash refunds, price packs (money-off deals), or premiums (goods offered at low cost). But also promotional products, point-of-sales (POS) promotions (displays and demonstrations) and contests and games are sales promotion tools. Event marketing (event sponsorship) means creating a brand-marketing event or serving as a sole or participating sponsor of events created by others.
Trade promotions are sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising and push it to consumers. Business promotions are sales promotion tools used to generate business leads, stimulate purchases, reward customers and motivate salespeople.
Direct marketing means connecting directly with carefully targeted segments of individual consumers, often on a one-to-one, interactive basis. For most companies, direct marketing is a supplemental channel, but for others it is a complete way of doing business. Direct marketing is expanding, it is key to the trend towards building close and interactive customer relationships. Direct marketing has certain benefits for buyers: it is convenient, private, easy and gives a lot of comparative information. It also has benefits for sellers: it is an important tool for building customer relationships and is a low-cost and efficient way of reaching target markets. Direct marketing begins with a good customer database.
A customer database is an organised collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic and behavioural data. Companies can use this database to located potential customers, learn about their customers and build relationships with them. There are several major forms of direct marketing:
- Direct-mail marketing: direct marketing by sending an offer, announcement, reminder or other item to a person at a particular physical or virtual address. It can be used well for direct one-to-one communication, but can be resented as “junk mail”.
- Catalogue marketing: direct marketing through print, video or digital catalogues that are mailed to select customers, made available in stores, or presented online. They eliminate mailing costs and allow for real-time merchandising.
- Telephone marketing: using the telephone to sell directly to customers. However, the recent do-not-call rules have been hurting the telemarketing industry.
- Direct-response television (DRTV) marketing: direct marketing via television, including direct-response television advertising (or infomercials) and home shopping channels. Home-shopping channels are television programmes or channels dedicated to selling goods and services.
- Kiosk marketing is marketing via information and ordering machines.
- New digital direct-marketing technologies such as mobile phone marketing, podcasts/vodcasts and interactive TV are upcoming tools.
Online marketing are efforts to market products and service and build customer relationships over the internet. The Internet is a vast public web of computer networks that connects users of all types around the world to each other and an amazingly large information repository. Click-only companies are the so-called dot-coms, which operate only online and have no brick-and-mortar market presence. Click-and-mortar companies are traditional brick-and-mortar companies that have added online marketing to their operations. There are four major online marketing domains.
1. Business-to-consumer (B-to-C) online marketing: businesses selling goods and services online to final consumers.
2. Business-to-business (B-to-B) online marketing: businesses using online marketing to reach new business customers serve current customers more effectively and obtain buying efficiencies and better prices.
3. Consumer-to-consumer (C-to-C) online marketing: online exchanges of goods and information between final consumers. Blogs are online journal where people post their thoughts, usually on a narrowly defined topic. Companies can also advertise on blogs and influence content there.
4. Consumer-to-business (C-to-B) online marketing: online exchanges in which consumers search out sellers, learn about their offers and initiate purchases, sometimes even driving transaction terms.
Either way, most companies now exist online. Corporate (brand) websites are websites designed to build customer goodwill, collect customer feedback and supplement other sales channels rather than sell the company’s products directly. A marketing website is a website that engages consumers in interactions that will move them closer to a direct purchase or other marketing outcome. However, creating a website is not enough, sites must be visited and therefor a website must be promoted. This can be done via online advertising: advertising that appears while consumers are browsing the Web, including display ads, search-related ads, online classifieds and other forms. Rich media allow animation, sound, video and interactivity. The largest form of online advertising is search-related ads (or contextual advertising). Viral marketing is the Internet version of word-of-mouth marketing: websites, videos, email messages or other marketing events that are so infectious that customers will want to pass them along to friends.
Online social networks: online social communities, blogs, social networking websites or even virtual worlds, where people socialise or exchange information and opinions. Marketers can engage in online social networks by participating in existing Web communities or establishing their own. Social networking sites presents challenges, since companies do not really know how to use them effectively. E-mail is an important and growing online marketing tool and it can be the ultimate marketing medium. However, the explosion of spam (unsolicited, unwanted commercial e-mail messages) can lead to customer irritation.
The direct-marketing industry has been facing some privacy concerns and cases of unfair practices. Direct marketing can sometimes annoy customers. Internet fraud has become a serious problem. Phishing, a type of online identity theft uses deceptive emails to fool users into divulging their personal data. Customers also worry about online security and their privacy. Many online marketers have become skilled at obtaining detailed consumer information. Because of these challenges, various governments are putting up legislation to protect customers.
A competitive advantage is an advantage over competitors gained by offering consumers greater value than competitors do. Competitive marketing strategies exist of competitor analysis and developing competitive marketing strategies. Competitive marketing strategies are strategies that strongly position the company against competitors and give the company the strongest possible strategic advantage. Competitor analysis is the process of identifying key competitors, assessing their objectives, strategies, strengths and weaknesses and reaction patterns, and selecting which competitors to attack or avoid. It consists of three steps.
1. Identifying competitors. This might seem easy, but companies face a lot more competitors than can be identified at first sight. Competitors can be identified from an industry point or a market point of view.
2. Assessing competitors. When doing so, firms need to look at the competitor’s objectives and identify competitor’s strategies. A strategic group is a group of firms in an industry following the same or a similar strategy. It is also important to assess the strengths and weakness of competitors. This way, the firm can benchmark. Benchmarking is the process of comparing one company’s products and processes to those of competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance. Finally, the firm can estimate how competitors will react to changes and anticipate their moves.
3. Selecting which competitors to attack and avoid. A useful tool for assessing competitor’s strengths and weaknesses is the customer value analysis: an analysis conducted to determine what benefits target customer’s value and how they rate the relative value of various competitors’ offers. The key to gaining competitive advantage is to take each segment and examine how the company’s offer compares to that of competitors. Most companies compete with close competitors, but they will also have distant competitors. Firms also benefit from having competitors, they share the costs of market development and competitors may increase total demand.
When the competitors are identified and evaluated, the firm must design a competitive strategy. Strategies differ for every company. Approaches to marketing strategy often pass through three stages: entrepreneurial marketing, formulated marketing and intrepreneurial marketing.
Entrepreneurial marketing: most companies are started by individuals who have no explicit strategy. Formulated marketing: as small companies are more successful, they move to more formulated strategies. Intrepreneurial marketing: many large companies get stuck in formulated marketing and should re-establish their entrepreneurial spirit.
Porter is famous for his competitive positioning strategies: three winning ones and one losing one. The three winning strategies are:
- Cost leadership: the firm has the lowest production costs and can therefore ask the lowest prices.
- Differentiation: the firm creates a highly differentiated product.
- Focus strategy: the firm focuses on a small niche market segment.
The losing strategy is the “middle of the roaders” and applies to firms with no clear strategy.
Companies can pursue any of three value discipline for delivering superior customer value:
- Operational excellence: the firm has leads in the industry by price and convenience.
- Customer intimacy: the firm provides superior value by precisely tailoring its products to match the needs of their customers.
- Product leadership: the firm provides superior value by offering a continuous stream of superior products.
There are multiple competitive positions in a given market.
1. Market leader: the firm in an industry with the largest market share. The leader has the largest market share and usually sets the pace in the market. Market leaders can encourage users to usage their products more. Leaders must be constantly prepared for other firms challenging its strengths. Sometimes attack is the best defence, and market leaders should continuously innovate.
2. Market challenger: a runner-up firm that is fighting hard to increase market share in an industry. The runner-up can either challenge the market leader or play along with competitors and not “rock the boat”. Challengers often become leaders by imitating and improving the ideas of previous leaders. It can attack the leader by a full frontal attack, by attacking the leader’s strengths but also by an indirect attack by attacking the leader’s weaknesses.
3. Market follower: a runner-up firm that wants to hold its share in an industry without rocking the boat. Followers can learn from the leader (who pays for the cost of innovation). A follower must know how to current customers and win new ones.
4. Market nicher: a firm that serves small segments that the other firms in an industry overlook or ignore. By focusing on such a specific segment, the firms are often good in exactly matching the product to customer needs.
However, a company can also focus too much on its competitors. A competitor-centred company is a company whose moves are mainly based on competitor’s actions and reactions. A customer-centred company is a company that focuses on customer developments in designing its marketing strategies and delivering superior value to its target customers. A market-centred company is a company that pays balanced attention to both customers and competitors in designing its marketing strategies.
As global trade grows, global marketing also intensifies. A global firm is a firm that, by operating in more than one country, gains R&D, production, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors. A company faces six major decisions in international marketing.
1. Looking at the global marketing environment.
Companies must start by understanding the international trade system. Countries may set quotas and limits on the amount of foreign import, which can lead to barriers. But there are also forces helping the trade between nations. The GATT is a treaty to promote word trade by reducing trade barriers. The World Trade Organization was created to enforce the GATT rules.
Certain countries have formed free-trade or economic communities: a group of nations organised to work toward common goals in the regulation of international trade, such as the EU.
The international marketer must pay attention to the economic environment. The industrial structure shapes its product and service needs. The four types of industrial structures are as follows:
- Subsistence economies: the vast majority of people engage in simple agriculture, which they consume themselves.
- Raw material exporting economies: economies are rich in natural resources, but not all of them. Revenue comes from exporting these resources.
- Emerging economies are industrialising economies with rapid growth.
- Industrial economies are major exporters of manufactured goods.
Besides the industrial structure, the income distribution is also of importance.
Next to the economic environment, international marketers must also look at the political/legal environment, such as political stability and monetary regulations, and the cultural environment. Culture can have a big impact on marketing strategy. When advertising, cultural differences must be taken into account.
2. Deciding whether to go global.
Not all companies decide to dive into international markets. Local businesses only need to be present in their local marketplace. However, companies that operate in global industries often are strongly affected by global positions.
3. Deciding which markets to enter.
Before going abroad, the company should define their international marketing objectives and policies. Most companies start small when they go abroad. Firms need to choose how many countries and the types of countries to enter.
4. Deciding how to enter the market.
Once a company has decided upon entering a country, there are different modes of entry. Exporting is entering a foreign market by selling goods produced in a company’s home country, often with little modification.
Joint venturing is entering foreign markets by joining with foreign companies to produce or market a product or services. Licensing is a method of entering a foreign market in which a company enters into an agreement with a licensee in a foreign market. Contract manufacturing is a joint venture in which a company contracts with manufacturers in a foreign market to produce a product or provide a service. Management contracting: a joint venture in which a domestic firm supplies the management know-how to a foreign company that supplies the capital, the domestic firm exports management services rather than products. Joint ownership is a joint venture in which a company joins investors in a foreign market to create local business in which a company shares joint ownership and control.
Direct investment means entering a foreign market by developing foreign-based assembly or manufacturing facilities. The major global marketing decision is how much a firm should adapt is marketing strategy to local markets.
5. Deciding on the global marketing programme.
There are two extremes when deciding on adapting the marketing strategy. At one point is the standardised global marketing: an international marketing strategy that basically uses the same marketing strategy and mix in all of a company’s international markets. At the other end is adapted global marketing: an international marketing strategy that adjusts the marketing strategy and mix elements to each international target market, bearing more costs but hoping for a larger market share and return.
There are five strategies that allow for adapting product and marketing communication strategies to a global market. Three of them apply to the product, namely straight product extension, product adaption and product invention. Straight product extension means marketing a product in a foreign market without any change. Product adaption means adapting a product to meet local conditions or wants in foreign markets. Product invention means creating new products or services for foreign markets.
The other two apply to the communication strategy. Communication adaption means a global communication strategy of fully adapting advertising messages to local markets. In dual adaption, both the product and the communication strategy are adapted. Companies may also consider adapting their prices.
An international company must take a whole-channel view of the problem of distributing products. A whole-channel view means designing international channels that take into account the entire global supply chain and marketing channel, forging an effective global value delivery network. It connects sellers with final buyers via channels between nations and channels within nations.
6. Deciding on the global marketing organisation.
Most companies manage their international marketing activities in three ways. First they organise an export department, then create an international division and final become a global organisation. International divisions can be geographical organisations, world product groups or international subsidiaries.
Today, major companies must become more global if they hope to compete.
Sustainable marketing is socially and environmentally responsible marketing that meets the present needs of consumers and business while also preserving or enhancing the ability of future generations to meet their needs. Only satisfying consumers’ immediate needs, does not always serve the future best interest of either customers or the business. The sustainable marketing concepts considers both strategic planning and societal marketing.
Marketing receives much criticism. Many critics say that marketing causes prices to be higher, because of three reasons. The high costs of intermediaries in the distribution channel lead to price increases, as well as high advertising and promotion costs and excessive mark-ups. There is also criticism of deceptive practices. These can be because of deceptive pricing, deceptive promotion and deceptive packaging. Deceptive practices have led to legislation and other consumer protection actions.
Salespeople are sometimes accused of high-pressure selling, because they persuade people to buy goods these consumers did not really wanted before. Another criticism concerns poor product quality or function. Some companies have been accused of planned obsolescence, causing their products to become obsolete on purpose, so that they need replacement. A final piece of criticism is that of poor service to disadvantaged consumers.
Marketing also has an impact on society as a whole. Critics state that marketing is the cause of creating false wants and materialism, of which the industry benefits but not so much the customers. Businesses have also been accused of overselling private goods at the expense of public goods. Marketing also supposedly led to the creation of cultural pollution. Because of constant advertising, people’s minds are polluted with these messages.
Marketing also has an impact on other businesses. There are three big problems involved: acquisition of competitors, marketing practices that create barriers to entry and unfair competitive marketing practices.
Consumerism is an organised movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers. Traditional seller rights include:
- The right to introduce any product.
- The right to charge any price for a product, provided there is no discrimination.
- The right to send any amount on promotion, if it is not unfair.
- The right to use any product message, provided it is not misleading.
- The right to use buying incentive programmes, if they are not misleading.
Traditional buyers rights include:
- The right not buy a product that is offered for sale.
- The right to expect the product to be safe.
- The right to expect the product to perform as claimed.
Consumer advocates also call for additional consumer rights:
- The right to be well informed.
- The right to be protected against questionable products.
- The right to influence products and marketing practices in ways that improve quality of life.
- The right to consume in a way that will preserve the world for future generations.
Environmentalism is an organised movement of concerned citizens and government agencies to protect and improve people’s current and future living environment. Modern environmentalists are not against marketing, but just want people and organisations to operate with more care for the environment. Environmental sustainability is a management approach that involves developing strategies that both sustain the environment and produce profits for the company. Environmental sustainability involves preserving the natural environment, while marketing sustainability involves both the natural and social environments. There are generally four forms of environmental sustainability.
- Pollution prevention: eliminating or reducing waste before creation.
- Product stewardship: minimising environmental impact throughout the entire life cycle process.
- New clean technology: developing new sets of environmental skills and capabilities.
- Sustainability vision: creating a strategic framework for future sustainability.
In today’s world, environmental issues are high on the awareness list, but environmental policies still vary widely from country to country. Marketers must take responsibility for sustainable marketing.
There are five sustainable marketing principles:
- Consumer-oriented marketing: a principle of sustainable marketing that holds a company should view and organise its marketing activities from the consumer’s point of view.
- Customer value marketing: a principle of sustainable marketing that holds a company should put most of its resources into consumer value building marketing investments.
- Innovative marketing: a principle of sustainable marketing that requires a company to seek real product and marketing improvements.
- Sense-of-mission marketing: a principle of sustainable that holds a company should define its mission in broad social terms rather than narrow products terms.
- Societal marketing: a principle of sustainable marketing that holds a company should make marketing decisions by considering consumers’ wants, the company’s requirements, consumer’s long-term interests and society’s long term interests.
Sustainable marketing calls for products that are not only pleasing, but also beneficial. Products can be classified according to their degree of satisfaction and long term benefit. Deficient products are products that have neither immediate appeal, nor long term benefits. Pleasing products are products that give high immediate satisfaction, but may damage the consumer in the long term. Salutary products are products that have low appeal but may benefit the consumers in the long term. Desirable products are products that give both high immediate satisfaction and high long-term benefits.
Good ethics are important in sustainable marketing. Increasingly, companies are responding to need for guidelines of marketing ethics. Guidelines can’t resolve all the ethical decisions that firms must make, but there are some general principles that can be applied. Ethical norms for marketers include “do not harm”, “foster trust in the marketing system” and “embrace ethical values”. Ethical values include honesty, responsibility, fairness, respect, transparency and citizenship.
The core of marketing is that firms will fulfil the needs of their customers. Sustainability goes beyond the needs of today’s customers, but means having concern for tomorrow’s customers as well.
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