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AGL – AUTONOMOUS GROUP LEARNING CRE - CREATIVE RELAXATION EXERCISE AGL – BASIC MARKETING FOR MANAGERS Draft for correction before publication June 11, 2007 Dr. Bob Boland & Team FCA, CPA, DBA, ITP (Harvard) Source: HBS/KM/EDW et alia Audio: freely available in www.crelearning.com Help: [email protected] Copyright: RGAB/1 1 DEDICATION This is a fun programme, is dedicated to memory of the all hard working accountants (and auditors), who have always been the respected traditional honest leaders in the tough game of business, but have been relegated to the relatively humble job of scorekeepers. In revenge the accountants keep the score, in such a complex way, that nobody other than skilled accountants, can know what the score really is ... was ... or will be ... 2 INDEX Item Page No Diary 4 Workpack - Part 1 66 Workpack – Part 2 121 Guide for trainer 164 APPENDICES: A - Glossary B - Quiz C – Further study 181 203 218 3 DIARY FOR EACH COURSE MEMBER NAME: 4 COURSE DIARY COURSE DATE & LOCATION: PARTICIPANT’ S NAME: TITLE: COMPANY: BUSINESS ADDRESS: PREVIOUS RELEVANT EXPERIENCE: QUIZ RESULTS: PART I ________ 100 PART II _____ 40 _____ 60 ______ 100 PERSONAL OBJECTIVES IN TAKING THE COURSE: NOTE: COMPLETE ONE SHEET OF THE COURSE DIARY FOR EACH DAY INDICATING: (1) Key points learned (2) Reactions to AGL (3) Questions which are not satisfactorily answered (4) Results of any quizzes given 2 5 QUIZ ANSWER SHEET Name:_________________________________________ Mark each correct answer with a clear X — e.g. (a) (b) (c) (d) 1. (a) (b) (c) (d) 26. (a) (b) (c) (d) 51. (a) (b) (c) (d) 76. (a) (b) (c) (d) 2. (a) (b) (c) (d) 27. (a) (b) (c) (d) 52. (a) (b) (c) (d) 77. (a) (b) (c) (d) 3. (a) (b) (c) (d) 28. (a) (b) (c) (d) 53. (a) (b) (c) (d) 78. (a) (b) (c) (d) 4. (a) (b) (c) (d) 29. (a) (b) (c) (d) 54 (a) (b) (c) (d) 79. (a) (b) (c) (d) 5. (a) (b) (c) (d) 30. (a) (b) (c) (d) 55. (a) (b) (c) (d) 80. (a) (b) (c) (d) 6. (a) (b) (c) (d) 31. (a) (b) (c) (d) 56. (a) (b) (c) (d) 81. (a) (b) (c) (d) 7. (a) (b) (c) (d) 32 (a) (b) (c) (d) 57. (a) (b) (c) (d) 82. (a) (b) (c) (d) 8. (a) (b) (c) (d) 33. (a) (b) (c) (d) 58. (a) (b) (c) (d) 83. (a) (b) (c) (d) 9. (a) (b) (c) (d) 34. (a) (b) (c) (d) 59. (a) (b) (c) (d) 84. (a) (b) (c) (d) 10. (a) (b) (c) (d) 35. (a) (b) (c) (d) 60. (a) (b) (c) (d) 85. (a) (b) (c) (d) 11. (a) (b) (c) (d) 36. (a) (b) (c) (d) 61. (a) (b) (c) (d) 86. (a) (b) (c) (d) 12. (a) (b) (c) (d) 37. (a) (b) (c) (d) 62. (a) (b) (c) (d) 87. (a) (b) (c) (d) 13. (a) (b) (c) (d) 38. (a) (b) (c) (d) 63. (a) (b) (c) (d) 88. (a) (b) (c) (d) 14. (a) (b) (c) (d) 39. (a) (b) (c) (d) 64. (a) (b) (c) (d) 89. (a) (b) (c) (d) 15. (a) (b) (c) (d) 40. (a) (b) (c) (d) 65. (a) (b) (c) (d) 90. (a) (b) (c) (d) 16. (a) (b) (c) (d) 41. (a) (b) (c) (d) 66. (a) (b) (c) (d) 91. (a) (b) (c) (d) 17. (a) (b) (c) (d) 42 (a) (b) (c) (d) 67. (a) (b) (c) (d) 92. (a) (b) (c) (d) 18. (a) (b) (c) (d) 43. (a) (b) (c) (d) 68. (a) (b) (c) (d) 93. (a) (b) (c) (d) 19. (a) (b) (c) (d) 44. (a) (b) (c) (d) 69. (a) (b) (c) (d) 94. (a) (b) (c) (d) 20. (a) (b) (c) (d) 45. (a) (b) (c) (d) 70. (a) (b) (c) (d) 95. (a) (b) (c) (d) 21. (a) (b) (c) (d) 46. (a) (b) (c) (d) 71. (a) (b) (c) (d) 96. (a) (b) (c) (d) 22. (a) (b) (c) (d) 47. (a) (b) (c) (d) 72. (a) (b) (c) (d) 97. (a) (b) (c) (d) 23. (a) (b) (c) (d) 48. (a) (b) (c) (d) 73. (a) (b) (c) (d) 98. (a) (b) (c) (d) 24. (a) (b) (c) (d) 49. (a) (b) (c) (d) 74. (a) (b) (c) (d) 99. (a) (b) (c) (d) 25. (a) (b) (c) (d) 50. (a) (b) (c) (d) 75. (a) (b) (c) (d) 100. (a) (b) (c) (d) 3 6 4.10(a) Consumer and Industrial Marketing 4.10(b) Marketing Concept 4.10(c) Product Types and life in Industrial Markets 4 7 4.10(d) DEMAND 4.10(e) ELASTICITY PRICE & SALES 4.10(f) BUYER 5 8 410(g) MIX 4.11 MARKET GRID 6 9 EXHIBIT 1 Assignment 5.1 ACE TRUCK COMPANY QUESTIONS (a) This case challenges you to relate Product Planning to the Marketing Mix over a period of time. Read the case carefully. (b) Role Assignments: A, C, E B, D, F Marketing Director Financial Director (c) Work on each question in SG but keep notes individually. 1. Evaluate the marketing mix before 1977. 2. How did the marketing mix change after 1977? 3. What criteria would firms use to purchase long haul diesel trucks? 4. Has it been a mistake to cut prices? 5. What criteria would be used to purchase pick-up trucks and campers? 6. Would you suggest that the company go ahead with the new products? 7. Set out plans of action for the company justifying any decisions for: (a) (b) Existing products New products 7 10 EXHIBIT 2 Assignment 5.1 ACE TRUCK COMPANY Company Background The Ace Truck Company has been a leading producer of long-haul diesel trucks of high price and quality. It sold both through its own sales branches and through specialist truck distributors. In 1972 the company dominated the long-haul diesel truck manufacturing industry. Of total sales turnover, 40 % was done through the company’s own outlets. Technical Superiority Ace was well known for its technical superiority and know how. It followed a regular advertised policy of quality and reliability. The company had not changed its basic design for ten years. They believed that this was a reflection of their advanced technology. They stressed this point in their advertisements, and advertised that an investment in Ace equipment would not be obsolesced by new models and innovation. 1977 Sales Downturn By 1977 Ace’s sales had begun to decline through all distribution channels and the company lost its position of dominance. This was accompanied by a decline in profits. Cost Cutting Programme In reaction to the situation, the Ace management instituted a programme which they felt would increase sales and profits and return them to their former position in the industry. A cost cutting programme was introduced. A cut in price was heavily emphasized in all their advertising and trade promotion. However, this led to a decrease in the quality of the trucks. Sales Recovery and Decline Sales recovered for a whole and then declined again. A general business downturn at the end of the 1970’s made matters worse. More cost cutting and price reductions were ordered, but this did not improve the situation. At the end of 1978 Mr. Jason Ralph, financial director of Ace Truck Company, called a meeting with the marketing department to discuss the problem. 8 11 EXHIBIT 2 (contd.) Assignment 5.1 The Meeting Mr. Ralph expressed his fear that unless something was done soon, the company would be in grave financial difficulty. He asked for suggestions. Mr. Smith, marketing director, said that his department believed that they could make a success of pick-up trucks and campers. He believed that it was necessary to diversify their product line by manufacturing a line which would appeal to small firms and the general public. He felt that the new line should go under the name “Ace” and that it should be distributed through the company’s own sales branches with adverts in general circulation magazines and emphasis on a competitive price. Mr. Ralph approved of the idea but thought that attention should also be given to re-establishing their image for diesel trucks. Also he felt that the promotion for the new line should stress quality and dependability. He felt that they had made a mistake by cutting costs in the first place! 9 12 6.9 LEARNING POINTS (a) Know the environment before making any decision. (b) Know the buyer - who makes buying decision, why is the decision made? why is the product needed - information necessary for proper marketing. (c) Plan ahead - examine all alternatives and make a rational decision. (d) Need for a consistent marketing mix - Price, Product, Promotion, Place. (e) It is easy to downgrade an image but hard to upgrade. (f) More than one person is often involved in a buying decision. (g) Past expenditures are not relevant for future decisions. (h) The market is constantly changing - keep up with its needs; do not stagnate. (i) A new product decision usually involves a substantial financial commitment. (j) Need for a constant pricing policy. (k) Need for a constant product policy. (l) Need to build a constant image - no image confusion. (m) Cannot downgrade a product and upgrade it subsequently. (n) Analyse each marketing problem in terms of the 4 P’s. PRODUCT, PRICE, PLACE, PROMOTION. Note: Plan ahead; examine all alternatives; make a rational decision; have a marketing mix which is consistent with the product and the purchaser. 10 13 6.9 a RESEARCH YOUR MARKET 6.9 b IMAGE STANDING 6.9 c INDUSTRIAL BUYER A40 11 14 6.9 d MIX CONSISTENCY 12 15 8.11A BREAK EVEN ANALYSIS (a) Break even analysis is useful for considering the relation of revenue and cost (b) Total cost is segregated into fixed and variable cost (c) The B. E. P. is that volume at which cost is covered by revenue received (d) Will this sales volume be achieved? 8. 11B BREAK EVEN CHART SHOWING PROFIT & LOSS AREAS 13 16 8.15a PRODUCT LIFE CYCLE 8.15b MARKET SEGMENTATION 8.15c PRODUCT DIFFERENTATION 14 17 8.15d PRODUCT DIVERSIFICATION 8.15e PRODUCT PLANNING 15 18 9 PRICING AND LIFE CYCLE 8.15 PRICE ALTERNATIVES 16 19 EXHIBIT 1 Assignment 9.1 FAYMICH COMPANY QUESTIONS (a) This case challenges you to relate Pricing Policy to the Marketing Mix over a period of time. Read the case carefully. Don1t be upset by the numbers. Pick out the figures from the table. (b) Role Assignments: Groups A, C, E Groups B, D, F Sales Manager Financial Controller (c) Work on each question in SG but keep notes individually 1. What are the four objectives in setting the price of product 124? Are they consistent with each other? 2. From the table given in the case, identify the unit variable costs, unit selling price and total contribution for volumes of 75.000 and 180.000 units. 3. What alternative prices and contributions could be examined? Suppose the company held its present volume (125.000) at a price of 2.00, what total contribution would be achieved? Is this better than a volume of 180.000 at a price of 1,30? 4. How reliable are sales managers estimates? 5. What Is the effect of increased volume on working capital required? 6. How Important is market share? Now? In the future? If the market declines? Why? 7. Are all costs relevant to pricing decisions? Short and long term. 8. How will competitors react to a cut in prices? How low could price competition go? As low as variable cost? 9. How is your decision affected by considerations of: market share contribution, financial requirements and long term profitability? What specific criteria shall we use to set the price? 10. Decide and justify your decisions. 17 20 EXHIBIT 2 Assignment 9.1 FAYMICH COMPANY Losing Market Share The Faymich Company was losing market share of chemical product 124 despite a reputation for quality and service, In October, 1978, the Sales Manager, Controller and Chief Executive met to decide on pricing policy for 1979. Price Competition Product 124 was produced in a special department for which no alternative use was available. It was essential to the product range because it had been a product leader some years before, until price competition reduced Faymich sales despite a growing market. Market share had been falling rapidly (1975-55% to 1978 20%). Most of the competitors were small and not financially strong. They usually followed Fayrnich price leadership but allowed a margin of safety for the difference in quality. Pricing Policy Faymich had held price in 1974 (2.00) but matched price decline in 1975 (1.50). However, in 1977 it raised prices again (2. 00) for better profit margins, hoping that competitors would follow the lead. Now, in December, 1978, management was worried because of the sharp decline in sales. Sales Manager’s Forecasts The Sales Manager, Mr. Peter Hyde, recommended an immediate price cut to 1. 50 and forecasted possible market share and contributions at different unit price levels as follows: Total Volume 000 Market Share % Unit Variable Cost Unit Fixed Cost Unit Total Cost Unit Sales Price Contribution Unit Total 000 Profit (Loss) Unit Total 000 75 125 125 130 180 200 250 11 16 16 19 26 29 36 .68 .66 .66 .66 61 .63 .70 1.30 1.13 1.13 1.94 .92 .88 .75 1.98 1.79 1.79 1.60 1.53 0.51 1.41 2.00 1.80 2.00 1.75 1.50 1.40 1.20 1.32 1.14 1.34 1.09 .89 .77 .50 .02 .01 .21 .15 (.03) (.11) (.25) 99 143 167 142 160 146 125 2 1 27 19 (5) (22) (63) 18 21 Financial Manager’s Concern The financial controller expressed concern at a product unit price of 1,50 because: (a) The company was in a liquidity crisis and needed to economise on working capital requirements. (b) The product would be sold at a loss. (c) In the long run it would never again be possible to raise prices to cover cost of production and felt that perhaps they should discontinue the line 19 22 10.13 LEARNING POINTS (a) Pricing depends on many objectives. (b) Market share, contribution, financial needs and long term profit may conflict. (c) Try various assumptions to test the sensitivity of the data. (d) Achieve contribution at high or low volumes subject to assumptions. (e) Cost is relevant to price - but not the only factor! (f) Sell above variable cost to make a contribution. (g) Fixed costs are irrelevant but have to be recovered overall in the long run. (h) Allocation of fixed costs is only an estimate of the “minimum contribution required”. (i) Product life cycle is relevant to the pricing decision. (j) Sales estimates may be suspect since Sales Manager is often biased towards optimistic volumes. (k) Sales at a ‘loss’ may merely be a bookkeeping loss but contribution could still be high. (l) Never eliminate a product producing a contribution unless you replace it with one giving a better contribution. (m) Today’s price should not spoil the long term future price. (n) Forecast competitors’ reactions and test them where possible. (o) Our cost structure of variable and fixed costs may indicate our competitors’ ability to cut prices to variable cost levels. (p) Costs are not “correct” - merely estimates based upon assumptions. (q) Look at the past to help forecast future effects of price but recognise that the environment changes. (r) Seek all alternatives and set criteria before making a decision. 20 23 10.14 (a) Price Objective Conflicts 10.14 (b) Price - Profit – Contribution 10.14 (c) BUT TOTAL CONTRIBUTION TOWARDS FIXED COSTS AND PROFITS NOT PER UNIT - 21 24 A99 10.14 CONTRIBUTION FACTORS 22 25 ASSIGNMENT 11.0 - SUMMARY LECTURE FOR PART I (45 MINUTES) 11. 1 INDUSTRIAL MARKETING Marketing is the business activity directed towards a common goal, to find and satisfy consumer needs utilising company skills and resources. Industrial goods produce or become part of other goods, or facilitate the operation of an enterprise. Industrial marketing is the marketing of industrial goods and services. 11.2 MARKETING MIX Marketing involves the selection of: product, price, place, promotion. 11.3 MARKETING MANAGEMENT CONCEPT It is consumer oriented; consumer needs are the determinants of firm’s survival and growth. We seek to achieve a profitable level of sales. Coordinate the direction of all marketing activities by formulating consistent interrelated strategies which are goal directed. 11.4 PRODUCT TYPES Distribution and promotion depend on product classification. - Major equipment - Minor or Accessory equipment - Component parts - Raw materials - Operating supplies 11.5 DEMAND FOR INDUSTRIAL GOODS Demand is derived from demand for consumer goods and services. Demand fluctuates more widely because of inventory policy and long life of capital equipment. Initial elasticity of demand for Industrial goods can run counter to normal, but in the long term, elasticity is normal. 23 26 11.6 INDUSTRIAL BUYER He is motivated by profit considerations and has rational buying motives. The purchasing decision is often influenced by more than one person - so we must ‘sell’ all concerned. Quality, technical assistance and service are often more important than price. Increasing saving to buyers may increase demand. Assurance of continued supply is important to purchaser. Reciprocity is common between buyer and seller. 11.7 MARKET TYPES Vertical Market - Horizontal Market - 11.8 covers only one or a few industries but is deep in these industries. all kinds of firms in many industries. PRODUCT MANAGEMENT It is the key to survival and growth of firm - an important competitive weapon. We must adapt to the constantly changing environment. It involves consideration of production, finance, labour and general management as well as marketing. 11.9 PRODUCT LIFE CYCLE Introductory phase, Growth, Maturity, Saturation and Decline 24 27 11.10 PRODUCT PLANNING AND DEVELPMENT We need sound product policy planned several years in advance and consistent with firm’s capabilities and the market potential. A sound programme requires: (a) (b) (c) (d) (e) commitment to a creative environment realization of risks continual self-appraisal reliance on quantitative decision-making tools formulation of new product processes. Commitment to a new product involves permanency and substantial investment. 11.11 PRODUCT DECISION Market segmentation versus product differentiation Product-line simplification Product- line diversification Planned obsolescence 11.12 MAJOR DETERMINANTS OF PRICE Costs - The lower limit, not the most important factor Market conditions - for buyers - for sellers - workable competition - price 1eadership Contribution Concept - The selling price must cover the variable costs. - Contribution therefore increases when volume increases. - Only in the long run need contribution cover variable and fixed costs. Marketing Objectives - the need to relate price to marketing the company’s objectives. Geographical - F.O.B. pricing - Postage stamp pricing - Basing point pricing - Zone pricing Government and legal regulations - Price discrimination - Retail price maintenance. 25 28 11.13 PRICING DIFFERENTIALS Quantity Differentials noncumulative - this overcomes the high cost of small orders cumulative - to maintain continued patronage Trade Discounts they cover the distributor’s operating expenses and profits Cash Discounts immediate payment results in more efficient use of working capital 11.14 PRODUCT PRICING (a) With a new product Skimming - set a high price to maximize investment recovery rate Penetration - low price to saturate the potential market and discourage competition. (b) As competition develops As product matures - most decisions arise from competitive pricing action (c) As the product declines we should not clean house as quickly as possible but look at each practical alternative. 11.15 PRODUCT AND PRICE CHECKLIST (a) PRODUCT Does the product have - consumer acceptance? distribution breadth and depth? effective merchandising? satisfactory performance? economical performance? ease of installation? adequate servicing? ultimate replacement? 26 29 11.16 INSTRUCTIONS (30 minutes) (a) Reassemble in SG now. (b) Study this note and learning patterns very carefully. (c) Discuss outstanding questions with your SG. (d) Record significant points in your notebook. (e) Do the following work in your own time: (i) Complete your Course Diary for Part I including notes on each case and the key points learned (for review later). (ii) Read your copy of the summary lecture for part I in the Course Diary. (iii) Do additional homework allocated by Course Leader. (iv) Review the Glossary. (v) Do the Quiz on Marketing Arithmetic “14” Problems. (f) Hand in the Daily Work Pack for Part I to the Organizer in SG. THIS ENDS PART I OF OUR PROGRAMME. THANK YOU FOR WORKING SO HARD! PART II BEGINS IMMEDIATELY “DOWNHILL ALL THE WAY!” 27 30 SUMMARY - PART I NOTE: COMPLETE THIS SHEET INDICATING: (a) (b) (c) (d) Key points learned. Reactions to AGL. Questions which are not satisfactorily answered. Results of any quizzes given. 28 31 QUIZ - MARKETING ARITHMETIC “14” PROBLEMS Some skills in basic marketing arithmetic may be developed from this short quiz. (Answers given at the end.) The key words are “Mark-up” and “Margin”, which are defined in the Glossary. 1. A manufacturer sells an item for 80. What would be the final price for the consumer if the wholesaler takes a mark-up of 20% (on cost) and the retailer a further mark -up of 50%? 2. The price structure of an industry gives a 40% margin (off selling) to retailers and 10% margin to wholesalers. The retail price is 10. 00. The manufacturer’s cost is 2. 70. (a) (b) (c) (d) (e) (f) 3. 4. 5. What is the wholesale price? What is the manufacturer’s price? Whet is the manufacturer’s gross margin? What is the manufacturer’s gross margin %? What is the retailer’s mark-up %? What is the wholesaler’s mark-up %? (a) What percentage mark-ups (on cost) are equivalent to the following percentage margins (on selling price): 25%, 40%, 50%, 70%? (b) What percentage margins (on selling price) are the following percentage mark-ups on cost: 33. 1/3%, 20%, 40%, 50%? A manufacturer of household appliances distributed its products through wholesalers and retailers. The retail selling price was 300. 00, the manufacturing cost 100. 00. The retail margin was 50% and wholesale margin 20%. (In practice, the manufacturer would price the item as: list price 300, less 50%, 20%). (a) What was the cost to the retailer? wholesaler? (b) What percentage margin did the manufacturer take? Compute the average “stockturn” rate from the following figures: Cost of goods sold Beginning stock at cost Ending stock at cost 6. 112, 000 13,000 15,000 Given a stockturn rate of 6 and an average stock at selling price of 25, 000, find net sales. 29 32 QUIZ - MARKETING ARITHMETIC “14” PROBLEMS (continued) 7. Ca1culate manufacturer’s a break-even point. Estimated expenses were as fo11ow: General and administrative Taxes Sa1ares Lease Payments Advertising 60,000 7,000 60,000 3,500 9,500 140,000 Estimated unit variable cost was 2. 85 and manufacturer’s sales price was 4.85. 8. A company estimates its fixed cost for the first year at 40,000, and its variable costs at 60% of sales. Sales are expected to reach 300,000. (a) (b) 9. What is the BEP? What is the estimated profit? If total fixed costs are: 200,000 and total variable costs are 300,000 at an output of 20,000 units, what are the external total fixed costs and total variable costs at en output of 30,000 units? What are the average fixed costs per unit, average variable costs per unit and average total Costa at these two levels? 10. Compute the average stock (at cost) of a firm having a stockturn rate of 10 times, net sales of 150,000, and an average gross margin of 25%. 11. What is the manufacturer’s break even point in number of units for a type of metal fitting selling at retail for 1.25 with a retail margin of 40%, and a wholesale margin of 10%? The manufacturer’s variable costs per unit are 4.315 and his fixed costs total 36, 000. 30 33 QUIZ – MARKETING ARITHMETIC “14” PROBLEMS (continued) 12. 13. To sharpen your understanding of costing, classify the following items as fixed, variable, or differential (changing with the decision) (a) salesman’s commission (b) lease payment on truck fleet (c) repair expenses (d) interest on bank borrowings (e) costs of introducing a new product (f) marketing research costs for the year (g) salary of director of pricing group (h) freight expenses on purchases (i) cost of a special market study (j) cost of computer billing system (k) cost of legal approval of advertising copy (l) packaging cost: (m) packaging design costs (n) sales taxes (o) direct material costs (p) cost of forms used in invoicing and billing (q) travel and promotional expenses incurred in selecting new distributors to handle and firm’s product lines. Construct an operating statement from the following data: Gross sales Returns and allowances Inward transportation Closing inventory at cost Expenses % of net sales Cash discounts taken Purchases at billed cost Opening inventory 75,860 3,860 504 9,040 25% 1,060 41,600 17,196 31 34 QUIZ - MARKETING ARITI.METIC “l4” PROBLEMS (continued) 14. From the following data construct an operating statement and compute: (a) gross margin percentage (b) net profit percentage (c) stockturn Purchases at billed cost 117 Ca1es returns 15 Expenses 66 Inward transportation charges 2 Opening stock 6 Gross sales 215 Closing stock at cost 22 Cash discounts taken 3 32 35 ANSWER TO MARKET1NG ARITHMETIC “14 PROBLEMS 1. 2. 3. 4. 5. Manufacturer’s selling price Mark-up + 20% Mark-up + 50% Retail price to consumer 80 16 96 48 144 (a) Wholesale price 10.00 - 40% = 6.00 (b) Manufacturer’s price 6.00 - 10% = 5.40 (c) Manufacturer’s gross margin 5.40 - 2. 70 = 2.70 (d) Manufacturer’s gross margin % 2.70 x 100% = 50% 5.40 (e) Retailer’s mark-up % 4.00 x 100% = 66.2/3% 6.00 (f) Wholesa1er’s mark-up % 0.60 x 100% = 11% 5.40 (a) 33%, 66. 2/3%, 100%, 233% (to the nearest 1%) (b) 25%, 16. 2/3%, 20%, 33% (to the nearest 1%) (a) Cost to retailer Cost to wholesaler (b) Manufacturer’s margin% = 300.00 - 50% = 150.00 = 150.00 - 20% = 120.00 20 x 100% = 16.2/3% 120 Beginning stock Ending stock Average stock Stockturn 13,500 15,000 28,000 14,000 112,000 14,000 8 times = = 33 36 ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued) 6. 6 x 25, 000 = 150,000 7. Break-even point = 140,000 2.0 (4. 35 - 2.85) = 70,000 8. Break-even point of sales = 40,000 x 100 (100-60) = 100,000 Estimated Profit and Loss Account Sales Costs: 300,000 Fixed Variable 40,000 180,000 Profit 9. 10. 220,000 80,000 Output TFC TVC 20,000 units 200,000 300,000 30,000 units 200,000 450,000 TC 500,000 650,000 Average FC (per unit) 10 15 6.2/3Average VC 15 Average total cost 25 21.2/3 Cost of goods sold = 150,000 x 75% = 112,500 112,500 Average stock = 10 Average stock = 11,250 34 37 ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued) 11. 12. Retail selling price Retail margin (40%) = 1.25 = 0.50 Wholesale selling price Wholesale margin (10%) = 0.75 = 0.075 Manufacturer’s selling price Manufacturer’s variable cost = 0.675 = 0.315 Unit contribution = 0.36 36,000 0.36 = 100,000 units (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) variable fixed fixed (actually semi-fixed) fixed differential fixed fixed variable differential fixed fixed, if in-house legal staff is used. If law firm is used, billing may be on a retainer, i.e. fixed, or on an hourly basis, i. e. variable. variable a non-recurring cost. fixed. variable variable variable differential 35 38 ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued) 13. Gross sales Returns and al1owance Net sales Opening stock (cost Purchases Less: Discounts 75,860 3,860 72,000 17,196 41,600 1,060 40,540 504 Add: Inward transportation 14. Purchases - net cost delivered 41,044 Cost of goods handled Closing stock (cost) 58,240 9,040 Cost of goods sold 49,200 Gross margin Expenses (25% of sales) Net profit 22,800 18,000 4,800 Gross sales Returns 215 15 Net sales Opening stock at cost Purchases at billed cost Cash discounts taken Purchases at net cost Inward transport charges 200 26 117 3 114 2 Purchases at net cost delivered Total cost of goods handled Closing stock at cost 116 142 22 Cost of goods sold 120 Gross margin Expenses Net profit 80 66 14 (a Gross margin % 80 200 = 40% (b) Net profit % 14 200 = 7% (c) Stockturn 120 24 = 5 times 36 39 EXHIBIT 1 Assignment 1.1 SHORT QUIZ ON MARKETING MIX For a company marketing a brand of toothpast, indicate how the Marketing Mix (Product, Price, Place and Promotion) would probably change under the following conditions: In the spaces provided, enter: C to indicate CHANGE N to indicate NO CHANGE DK to indicate DON’T KNOW or CAN’T TELL NOTE: Choose the “most probable” solution. 1. Example: A competitor launches a new brand which affects the company’s target market 2. A competitor lowers his price by 20% 3. A competitor 1aunches a new advertising campaign 4. Economy undergoes a recession 5. Company’s sales volume increases significantly each year despite limited production capacity 6. Two medium sized competitors merge their companies and replace you as the market leader. 7. Small cost error discovered in overhead allocation 8. Total sales force resigns 9. Major retail customer switches to competitor 10. New technical magazine is introduced. Product Price Place Promotion C C N DK 37 40 QUIZ ANSWER SHEET NAME:…………………………………………………………… Mark each correct answer with a clear X – e.g. (a) (b) (c) (d) 1. (a) (b) (c) (d) 26. (a) (b) (c) (d) 51. (a) (b) (c) (d) 76. (a) (b) (c) (d) 2. (a) (b) (c) (d) 27. (a) (b) (c) (d) 52. (a) (b) (c) (d) 77. (a) (b) (c) (d) 3. (a) (b) (c) (d) 28. (a) (b) (c) (d) 53. (a) (b) (c) (d) 78. (a) (b) (c) (d) 4. (a) (b) (c) (d) 29. (a) (b) (c) (d) 54 (a) (b) (c) (d) 79. (a) (b) (c) (d) 5. (a) (b) (c) (d) 30. (a) (b) (c) (d) 55. (a) (b) (c) (d) 80. (a) (b) (c) (d) 6. (a) (b) (c) (d) 31. (a) (b) (c) (d) 56. (a) (b) (c) (d) 81. (a) (b) (c) (d) 7. (a) (b) (c) (d) 32 (a) (b) (c) (d) 57. (a) (b) (c) (d) 82. (a) (b) (c) (d) 8. (a) (b) (c) (d) 33. (a) (b) (c) (d) 58. (a) (b) (c) (d) 83. (a) (b) (c) (d) 9. (a) (b) (c) (d) 34. (a) (b) (c) (d) 59. (a) (b) (c) (d) 84. (a) (b) (c) (d) 10. (a) (b) (c) (d) 35. (a) (b) (c) (d) 60. (a) (b) (c) (d) 85. (a) (b) (c) (d) 11. (a) (b) (c) (d) 36. (a) (b) (c) (d) 61. (a) (b) (c) (d) 86. (a) (b) (c) (d) 12. (a) (b) (c) (d) 37. (a) (b) (c) (d) 62. (a) (b) (c) (d) 87. (a) (b) (c) (d) 13. (a) (b) (c) (d) 38. (a) (b) (c) (d) 63. (a) (b) (c) (d) 88. (a) (b) (c) (d) 14. (a) (b) (c) (d) 39. (a) (b) (c) (d) 64. (a) (b) (c) (d) 89. (a) (b) (c) (d) 15. (a) (b) (c) (d) 40. (a) (b) (c) (d) 65. (a) (b) (c) (d) 90. (a) (b) (c) (d) 16. (a) (b) (c) (d) 41. (a) (b) (c) (d) 66. (a) (b) (c) (d) 91. (a) (b) (c) (d) 17. (a) (b) (c) (d) 42 (a) (b) (c) (d) 67. (a) (b) (c) (d) 92. (a) (b) (c) (d) 18. (a) (b) (c) (d) 43. (a) (b) (c) (d) 68. (a) (b) (c) (d) 93. (a) (b) (c) (d) 19. (a) (b) (c) (d) 44. (a) (b) (c) (d) 69. (a) (b) (c) (d) 94. (a) (b) (c) (d) 20. (a) (b) (c) (d) 45. (a) (b) (c) (d) 70. (a) (b) (c) (d) 95. (a) (b) (c) (d) 21. (a) (b) (c) (d) 46. (a) (b) (c) (d) 71. (a) (b) (c) (d) 96. (a) (b) (c) (d) 22. (a) (b) (c) (d) 47. (a) (b) (c) (d) 72. (a) (b) (c) (d) 97. (a) (b) (c) (d) 23. (a) (b) (c) (d) 48. (a) (b) (c) (d) 73. (a) (b) (c) (d) 98. (a) (b) (c) (d) 24. (a) (b) (c) (d) 49. (a) (b) (c) (d) 74. (a) (b) (c) (d) 99. (a) (b) (c) (d) 25. (a) (b) (c) (d) 50. (a) (b) (c) (d) 75. (a) (b) (c) (d) 100. (a) (b) (c) (d) 38 41 EXHIBIT 3 Assignment 1. 1 EXPLANATION OF ANSWERS TO “QUIZ ON MARKETING MIX” NOTES: (a) The questions are of course simple - indeed oversimplified - to provide a basis for provocative discussion. (b) We present below some justification for the “correct answers”. Depending upon the particular market situation and the sophistication of the marketing argument, in some cases, alternative solutions could be acceptable. (c) If your SG all agree you may count alternative solutions as “correct”. 1. Improve your brand and be prepared to change the price to meet the threat of the competitor’s new brand. Distribution channels (place) remain the same since we are operating in the same product field. Promotion should change if Product and Price changes. 2. Change price in order to meet competitor’s lower price. Channels remain the same, but promotion will change. 3. Probably launch a new advertising campaign to counter the competitor’s new campaign. 4. Probably change the product, price and promotion (but not the ‘place’) to retain as much as possible of our existing contribution from this product and market. 5. Probably change product and price to maximize contribution from the product - we have limited production capacity and would therefore try to limit our sales but still get maximum contribution. 6. To regain market share it is necessary to change product, price and promotion. Place remains unchanged. 7. Absorb this small error and do not change any part of the Marketing Mix. 8. Change our distribution (place) and much of our promotional methods to counter the loss of our complete sales force. 9. What action we take on any of the 4 P’s depends on how important the customer is to us and why he has switched. 10. As marketers of a consumer product we do not normally use technical magazines for our product promotion and would thus not change any part of the Marketing Mix. 39 42 3.14 [a] CHANNELS 3.14 [b] COVERAGE 3.14 PROMOTIONAL MIX 40 43 EXHIBIT 1 Assignment 4. 1 MOTORING AMUSEMEN’IS COMPANY QUESTIONS (a) (b) This case challenges you to relate distribution and promotion to the Marketing Mix. Read the case carefully (Exhibit 2) (5 minutes) Work on each question in SG but keep notes individually. 1. Does the car game fulfil a consumer need? Does it have unique benefits? Are there obvious substitutes? (10 minutes) 2. Do you agree with Mr Smith’s identifications of the target market? (5 minutes) 3. Do you agree that Mr Smith’s car game has tremendous potential? What are the buying criteria? 4. What distribution channel do you advise? Support your recommendations. (5 minutes) 5. Do you agree with Mr Smith’s reasoning on push and pull strategies? Could he avoid promotional expense? (5 minutes) 6. What advertising media and timing do you recommend for the full marketing strategy. (10 minutes) 41 44 EXHIBIT 2 Assignment 4.1 MOTORING AMUSEMENTS COMPANY INTRODUCTION Mr. Smith, part owner and senior executive with a newly established company had designed a game which could be played by people travelling in motorcars. The game was quite simple to play; in fact, it was ideal for children. Mr. Smith believed there was a tremendous potential for this game if he could overcome the distribution and promotion problems, without incurring large costs. CRITERIA FOR SUCCESS When it was first decided to put a car game on the market, management established three main guidelines for this game. These were: it should be a simple game, it should be cheap, and should be easily available to the motoring public. Solutions to the distribution and promotion problem must recognise these guidelines and respect the constraints they impose. TARGET MARKET Tourists and people with children making a journey of about 100 miles or more were identified as the prime target market. PRICE It was thought the game would have a great chance of success if it could be sold to the consumer at less than 30 cents. The estimated costs at present were: 20 cents manufacture 4 cents wholesaler 10 cents retailer 34 cents retail price If wholesalers could be eliminated the price could be reduced to less than 30 cents. However, it was believed that without wholesalers, the game could not get the depth of distribution thought necessary for success. Also, manufacturing cost was very sensitive to sales volume. If volume could be increased by 100% manufacturing cost would fall to 12 cents. DISTRIBUTION Ideally the product should be stocked and displayed by as many roadside outlets as possible. It was planned to get the product into the majority of petrol stations, roadside restaurants and motels, within three months from launch date. This was recognised as a difficult and expensive task. It would be necessary to use many wholesalers, since petrol stations, restaurants and motels were not catered for by the same wholesalers. Finding these wholesalers and managing their activities would take a considerable amount of Mr. Smith’s time. He was reluctant to devote the majority of his time to this venture. - He began to consider large department and chain stores as potential outlets. He 42 45 was ware that they did not present the depth of distribution available through the other channels. On the other hand, they did have toy and game departments, and they presented a relatively easy–to– contact distribution network for him as a manufacturer, and for his target market. PROMOTION If petrol stations and roadside outlets were used, Mr. Smith intended using a push strategy based on in–store promotion. There would be display units, posters and window decals in each outlet. This material would be given free to the retail outlets on an introductory, self liquidating offer. Although the product would not make profit on the first sell-in, it would not incur an expense requiring long term capital. If department and chain stores were used to distribute, it was felt that it would be necessary to rely on a pull strategy. This would be expensive. In fact, projected profits for the first year would be spent on the launch campaign. Also a much slower sales take–off could be expected using a pull strategy. This worried the company because of the lack of capital and also because the game could be imitated quite easily. Thus a fortune could be invested selling the concept of a car game to the public, and a competitor might reap the profits. You are appointed by Mr. Smith to advise him. Note: A “decal” is a window sticker advertisement. 43 STOP DO NOT TURN THE PAGE 46 5.9 LEARNING POINTS 1. To succeed a product must fulfil unsatisfied consumer needs. 2. A product must be presented to the target market in terms of consumer benefits. The consumer must be made aware of these benefits. 3. The relevance of distribution and promotion strategies can be assessed only in relation to the overall marketing objectives. 4. Don’t assume that you know the consumer. Test market your hypothesis and minimise risk. 5. Predict consumer needs and plan follow-up products. 6. Recognise that the purchaser may not be the consumer and cater for purchaser and consumer needs. 7. A successful launch is only one aspect of the marketing of a product. Plan product strategy into the future. 44 47 5.10 LEARNING PATTERNS (a) BUYER NOT ALWAYS THE CONSUMER 5.10 (b) PRICE NOT THE ONLY FACTOR 5.10 (c) NIX TO MEET CONSUMER NEEDS 45 48 EXHIBIT 1 Assignment 6.1 BILL BROWN – QUESTIONS As Bill Brown, Consumer Marketing Consultant, deal with the following problems of your clients. Answer each question individually: 1. Johnson Corporation The market for single tub washing machines is declining. In searching for new products to replace lost business, Johnson Corporation decided that the quickest and most economic way to add new products to their product range, was to acquire any other profitable businesses with established product lines. Is this a good policy to assure continued growth for the firm? 2. Elecmix Company A small manufacturer of electric mixers was faced with the probable entry into the market of several large competitors. The industry had always been very competitive; inefficient plants were constantly going out of business. However, competition was “equitable”. Elecmix Company always had emphasised its “ingenuity quality and service” against competitors’ advertising and prestige. How should Elecmix meet the potential competition? 3. Stain Pruf Corporation Stain Pruf Corporation controls the exclusive rights to a revolutionary new stain remover. It wishes to market it to housewives and is planning an extensive advertising campaign. What media should be used? 4. Amalgamated Factories Amalgamated Factories is a newly–formed corporation processing a wide variety of herbs and spices. They have to decide whether to distribute directly or indirectly. As a new industry, their financial resources are limited. should they distribute directly? Why? 5. All-Star Fasteners All-Star Fasteners manufactures a complete line of dress fasteners. In an attempt to increase sales volume, the marketing manager plans a 10% reduction in price. What do you expect the initial results will be? Why? 46 49 EXHIBIT 1 (continued) Assignment 6.1 6. Industrial Supply Corporation The Industrial Supply Corporation, distributors of a general line of household cleansers, has been plagued in the last few years by frequent, but small orders from retailers. Profit margins have been reduced because of the small orders’ cost of processing. Moreover, most customers are slow payers, debtors have thus risen, while cash has not. The company has a policy of no discounts. What do you recommend? 47 50 EXHIBIT 2 Assignment 6.1 BILL BROWN – ANSWERS 1. Johnson Corporation No. Acquisition may provide new products to bolster the firm’s declining sales but eventually sales of these products will decline also. This is only putting off the inevitable. For continued growth, we must continually search for new product ideas which match our capabilities and the resources of the firm. Market and environment are constantly changing and the firm must keep up with them. There is no point in acquiring widely different businesses from the existing base activity. 2. Elecmix Company Review production facilities to see that they are as efficient as possible. Also strive to maintain the corporate image of ingenuity, quality and service, and perhaps intensify advertising, stressing quality – both for the present and in the future. It is important that product be kept technologically current. Distribution channels should be reviewed to be sure that they are serving both customer and manufacturer in the best possible way. The pricing policy should be reviewed. 3. Stain Pruf Corporation The campaign should be based on advertisements in women’s and general household periodicals to generate awareness and interest in the product. This could be tied up by a selective in-store demonstration campaign that would establish product confidence. 4. Amalgamated Factories No! They should distribute indirectly. The product is standardised and will be used by many consumers in many different areas in very small order quantities. Probably little in the way of special knowledge and service is needed. There is also not much need for direct consumer contact. It is better to distribute through wholesalers who handle household food supplies. Also, direct distribution of the product would require a large sales force and a large financial commitment beyond the resources of the firm. 48 51 EXHIBIT 2 (continued) Assignment 6.1 5. All-Star Fasteners Provided the quality of the product is competitive, demand will increase if the reduction is accompanied by promotion. Price cuts on their own will have little effect. The market is quality, colour, size and price conscious. 6. Industrial Supply Corporation Institute a programme of noncumulative quantity discounts. This will encourage customers to plan their purchases carefully to take advantage of these discounts. When the programme is begun, inform customers of the potential savings from larger and less frequent purchases. Savings in order processing should more than pay for discounts. Allowing discounts for prompt cash payments may encourage customers to pay their bills promptly rather than delay them till the last moment. 49 52 8.7 (a) MARKETlNG PLANNING 8.7 (b) ASSESSING MARKETING OPPORTUINITY B45 8.7 (c) PLANNING 50 53 8.7 (d) CONTROL 51 54 EXHIBIT 1 Assignment 9.1 THE EYEGLASS COMPANY QUESTIONS (a) This case challenges you to relate the marketing strategy to the overall corporate objectives. Read the case carefully. (10 minutes) (b) Work on each question in SG but keep notes individually. 1. Identify the new target market, the buying criteria and the company’s key corporate objectives. (3 minutes) 2. What was the company’s marketing strategy before 1979? Identify the four P’s. (5 minutes) 3. What is the proposed strategy after 1979? Is it consistent with the company’s skills, resources, strengths and weaknesses? (5 minutes) 4. Critically evaluate the company’s expansion plan. Assess its potential and highlight any major weaknesses.(10 minutes) 5. Advise the company on what they should do. Present your recommendation in four sections, each dealing with one of the four P’s. Relate these to the corporate objectives. (12 minutes) 52 55 EXHIBIT 2 Assignment 9.1 THE EYEGLASS COMPANY INTRODUCTION In 1979 the Eyeglass Company has decided to expand its activity into new markets. Plans have been formulated to expand from the high priced prestige section of the spectacle frames market into the larger less individualist medium priced market section. Within the company there are many misgivings concerning this change. Critics of the plan point out that it will mean the development of a completely new marketing plan, new channels of distribution, new product design, new price structures and that all these changes will affect the company image and maybe the success of the current product line. The critics feel that the risks involved in expansion are intolerably high. However, they are in full agreement with their colleagues that if the Eyeglass Company is to survive in a fast growing competitive market they must expand sales and improve their declining return on investment. CORPORATE OBJECTIVES Management had agreed the following corporate objectives: (a) Improve profitability. They intend to halt the current trend of declining profits during the next twelve months and have set themselves a goal of double current annual profits per year in three years. (b) Increase sales volume. Sales volume has been static during the last few years but the market has grown steadily during this period. To achieve profit goals management estimated that they need a 25% increase in sales volume. This would bring the manufacturing capacity up to approximately 90%. It is considered unwise to attempt greater production without considerable investment in new plant. (c) Provide better working conditions for employees. The company had experienced labour unrest because of the lack of improvement in working conditions. Management were keenly aware of the fact that, they had not kept pace with market improvements and had agreed that it was their duty to do so. This decision was not based solely on consideration of improved productivity but was provoked by a respect for staff and the recognition that many of them were long term employees. (d) Maintain and strengthen the company’s identity in the spectacle frames market. The Eyeglass Company had been in the spectacles frames market for 80 years. Until recently the company was family owned and managed. Although this was no longer so, the spirit of the family and their deep respect for social responsibility continued to influence management. IMAGE The company had a very favourable image among consumers, and within the trade in the spectacle market, this was viewed by management as one of the major competitive strengths the company enjoyed and they wished to build on it. 53 56 EXHIBIT 2(Continued) Assignment 9.1 DISTRIBUTION The company currently sold exclusively to opticians who use the spectacle frames for conventional glasses and sunglasses. Expansion into the middle priced high volume market would involve manufacturing sunglasses and selling them direct to department stores, chemists and stationery stores. This fact was discussed with some current customers and the thought that the Eyeglass Company was considering the possibility of supplying direct competitors with sunglasses created great annoyance and indignation. Opticians pointed out that they had been emphasising the quality of Eyeglass Company frames as a competitive selling strategy during the last number of years when trying to sell against chemists and department stores. CONSUMER BRAND AWARENESS Because of the relatively small market share enjoyed by the company, only a small proportion of potential consumers were aware of the product. Those that were had a very high regard for the quality and individuality of the product. PURCHASING CRITERIA FOR SUNGLASSES Consumers were very discriminating in the medium priced sunglasses market. Styling, shade, fit and price were all significant factors. The market was highly competitive thus it would be difficult to obtain retail support if a new product did not compare favourably with competition. Brand image was important to retailers and consumers. This fact was evident in the wide price range experience in this market segment. PROMOTION Most of the leading brands used a pull/push strategy. Direct consumer advertising was supplemented by instore display units and attractive posters. EXPANSION PLAN The company was considering entering the top section of the medium price market segment. Thus they would provide a high quality, relatively expensive product. Distribution would be limited to chemists and high quality department stores using the current sales force who would also call on opticians. A dual advertising campaign would be launched to consumers and traders. The association with the Eyeglass Company would be emphasised as a major appeal. PROFITABILITY The unit profit on sunglasses would be 50% higher than that currently earned on frames. Provided there was not a significant fall off in business through opticians, the company would reach their profit and volume goals at around 10% of the new market. PRODUCTION Lens for sunglasses would be bought in, the company did not have the skills or resources necessary to produce them at their plant. STOP! DO NOT TURN THE PAGE 2–37 54 57 ASSIGNMENT 10.0 - LECTURE THE EYEGLASS COMPANY (30 MINUTES) 10.1 STORY OF THE CASE A company wished to expand into new markets. The expansion requires new product design, new distribution channels, and new marketing strategy. Management is concerned about the likely effects this new venture will have on the company’s established products and on the corporate image. 10.2 PRODUCT The Eyeglass Company is a manufacturer of high quality spectacle frames. They want to manufacture high quality sunglasses and enter the sunglasses market. 10.3 TARGET MARKET Until 1979 the company catered for upper income people who bought expensive spectacles and sunglasses through opticians. The new target market would be upper income people who buy expensive sunglasses through chemists and prestige department stores. 10.4 BUYING CRITERIA - CONSUMERS Style, shade, fit and price. 10.5 PROMOTION Pull/push strategy using print advertising and instore displays. 10.6 CORPORATE OBJECTIVES Improve profitability through increased sales by entering the sunglasses market. Maintain a high quality product in keeping with the corporate image. 10.7 COMPANY MARKETING STRATEGY BEFORE 1979 Price Product Place Promotion – – – – high consistent with quality and product image. high quality, specialised in the spectacle market, differentiated. clear market segmentation company salesman, very little paid advertising. Depended on a push strategy and close personal contact with customers. 55 58 10.8 PROPOSED STRATEGY AFTER 1979 The company intends to operate in two market segments. They will cater for the upper income groups in both segments and will concentrate on quality and prestige image. (a) Skills – The company is established in the spectacle frame market; it is technologically sound to enter the sunglasses market. However they will be dependent on an outside supplier for lenses. Also they do not possess skills in assessing the quality of their product. If the quality of the bought – in lenses is not consistent with the quality of the company’s frames the market image in both market segments could be lost. (b) Resources – The company has had falling profits during the last few years. They are not in a position to diversify out of the spectacle market. Expanding into the sunglasses market is a good idea. It utilises spare plant capacity and minimises new capital investment. (c) Strengths – The company has a favourable image among consumers and traders. (d) Weaknesses – The current customers may become very upset and change their supplier. 10.9 COMPANY EXPANSION PLAN (a) The decision to enter the sunglasses market is product orientated. No attempt has been made to research consumers reactions to the proposed sunglasses. Also an evaluation of competition in this market was overlooked. There may not be a market gap in the top end of the proposed market. It is possible that current brands in this market are fighting for survival. (b) The inherent assumption in the expansion plan is naïve!! Will consumers who have bought and have been satisfied with spectacles obtained through opticians on a marketing push strategy, also be enticed by a pull/push strategy through chemists and department stores to buy the new product? Opticians have greeter influence on their clients’ purchases than sales staff in a chemist or department store. The recommendation of an optician is rated as professional advice the suggestions of sales staff is rated as ‘hard sell’. The sunglasses venture may succeed but this will be a matter of good luck not professional consumer orientated market planning. 56 59 10.10 RECOMMENDATION Consumer reactions should be researched. If these are favourable a market gap analysis should be conducted to establish the market potential for the product. On the assumption that the market does exist, the company is advised to expand. However a strong promotional campaign should be launched to consolidate the optician market first. Opticians can be assured that the market for sunglasses with ground lenses and the market for casual sunglasses does not overlap significantly. Also it should be emphasised that the Eyeglass Company will be maintaining a high standard that will be favourable to the current product image. During the sunglasses launch period, a special offer should be presented to opticians to distract them from changing suppliers during a moment of annoyance. 10.11 MARKETING MIX Price - Should place the product in the prestige section of the market. This is consistent with the objective of a small market share and comfortable profit. Product - Must be consumer orientated. Fit, shade and style must be indicative of product quality and individuality. Place - As suggested, high class department stores and chemists. Exclusive selling rights should be granted to select stores to protect the product image and help capture the patronage of these stores. This strategy will also minimise distribution costs. Promotion - The emphasis should be on high quality instore displays and posters. Advertising in exclusive magazines should be used seasonally only and at the time of launch. Merchandising salesmen should be used to ensure that the product is displayed to advantage at retail outlets. The relatively small promotional budget will not dilute profits. It will concentrate on exposing the product to the consumer in an environment that will enhance its quality. 57 60 10. 12 LEARNING POINTS - Establish corporate objectives to guide marketing strategy. - Concentrate on consumer needs, not product features when searching for new products. - Don’t assume that market gaps exist - research them. - Have courage, there is always opposition to change - find solutions to these problems. - Make certain that the Marketing Mix is consistent with the corporate objective. - New product developments are long term involvements; don’t rush forward without consolidating your position. - Match company skills, resources, strengths and weaknesses with company plans. - Marketing is an integrated function involving all aspects of he company’s activity. 58 61 10.13a DIVERSIFICATION REDUCES RELIANCE 10.13b PLAN MUST HAVE OBJECTIVE 10.13c PROMOTION MUST BE CONTINUOUS 59 62 10.13d PLAN MUST BE MEASURABLE 60 63 ASSIGNMENT 12.0 - SUMMARY LECTURE 12.1 12.2 OBJECTIVE OF THE PROGRAMME (a) To understand the language and concepts of industrial marketing. (b) To appreciate the importance of the Marketing Mix. (c) To develop skills in setting marketing objectives, using marketing techniques. (d) To communicate effectively with marketing specialists. (e) To motivate further study. MARKETING EVALUATION - A CHECKLIST IN TERMS OF THE MARKETING MIX (a) PRODUCT Does your product have - consumer acceptance? satisfactory performance? economical production? ease of installation? adequate servicing? (b) PRICE Find out: - where is the product in the life cycle? do we skim or penetrate? do we want to be price leaders or followers? what is the return desired on funds? what discount funds should we follow? are there any Government or legal regulations which governs the price? what is the cost structure? Fixed, variable costs? what competitive reaction may be expected? what alternative prices are available? what contribution may be achieved? 61 64 2. MARKETING EVALUATION (continued) (a) PLACE (DISTRIBUTION) Decide on: - What market coverage is required - effectiveness and efficiency of your channels - whether your outlets are relevant to consumer purchasing demands - what amount of ‘push’ you need by marketing directly to the cost of so doing - your channel consistency with other aspects of your ‘mix’ (d) PROMOTION Decide: - how best to inform consumers about your product’s attributes - how much money to spend - whether to use personal selling, advertising, or sales promotion - whether your salesmen are an efficient part of your promotion 62 65 4. FINAL CONCLUSION (a) Marketing is finding out what the needs of your target market are and satisfying them. (b) To get organised for marketing you must be consumer orientated. (c) Make all your existing facilities attuned to one basic concept - to satisfy the consumer and his needs to the best of your ability. (d) The overall marketing man must be the general manager - there can be no marketing orientation unless he subscribes to it. (e) He becomes a marketing man by realising that any company can only on long term exist if it satisfies the needs of its target markets better than its competitors. (f) You have the right marketing mix when you are satisfying the needs of your target market better than your competitors and are making your planned profit. (g) Marketing men have to be optimistic and creative but you control them by making them personally responsible for the achievement of their goals. (h) Mathematical models in marketing are becoming very important because they are very useful tools to help you in planning the marketing mix better. (i) There is no substitute for marketing ‘flair’ but all other members of the management team should be increasingly marketing oriented in order to ensure not only the shortterm but also the long-term survival of the firm. FINAL NOTES THIS ENDS OUR PROGRAMME, WE HOPE IT HAS INSPIRED YOU TO DEVELOP YOUR SKILLS BY PRACTICAL APPLICATION. WE THANK YOU FOR YOUR INTEREST AND HARD WORK. KEEP YOUR GLOSSARY AS A DAILY REFERENCE FOR INDUSTRIAL MARKETING LANGUAGE AND CONTINUE YOUR STUDIES!! WE HOPE YOU ENJOYED THE AGL EXPERIENCE. 63 66 SUMMARY - PART II NOTE: COMPLETE THIS SHEET INDICATING: (1) Key points learned (2) Reactions to AGL (3) Questions which are not satisfactorily answered (4) Results of any quizzes given 64 67 FEEDBACK SUMMARY (Detach and give to the Organiser) 1. NAME: TITLE: COMPANY: BUSINESS ADDRESS: 2. PREVIOUS RELEVANT BACKGROUND 3. QUIZ SCORES: PART I _____ 100 PART II ______ 40 _______ 60 ______ 100 4. DID THE PROGRAMME COMPLETELY SATISFY YOUR PERSONAL OBJECTIVES? IF NOT, WHY? 5. WHAT SUGGESTIONS COULD YOU MAKE FOR IMPROVING THE PROGRAMME? 6 WHAT OTHER AGL PROGRAMMES COULD BE DEVISED WHICH WOULD BE USEFUL TO YOU OR YOUR COMPANY? 7. WHAT IS YOUR OVERALL EVALUATION OF THE COURSE IN TERMS OF : Excellent 1 Good 2 Fair 3 Poor 4 Terrible 5 Content Presentation Administration Usefulness NOTE: Mark the appropriate item with an “X” 65 68 WORK PACK - PART I ABBREVIATIONS AGL - AUTONOMOUS GROUP LEARNING IND - INDIVIDUAL SG - SMALL GROUP CSG - COMBINED SMALL GROUP MG - MAIN GROUP PR - PROGRAMMED READINGS L - LECTURE D - DISCUSSION CR - CHAPTER STOP! DO NOT TURN THE PAGE UNTIL SPECIFICALLY INSTRUCTED. 2 69 ASSIGNMENT 1.0 - INTRODUCTION (30 minutes) 1.1 1.2 SPECIFIC OBJECTIVES OF THIS PROGRAMME (a) Understand the language and concepts of Marketing. (b) Appreciate the important of the marketing mix. (c) Develop skills in setting marketing objectives and using marketing techniques. (d) Communicate effective communication with marketing specialists. (e) Motivate further study in the future. AUTONOMOUS GROUP LEARNING (AGL) The AGL method is designed to achieve rapid individual learning using special materials and the stimulus of group activity without a formal instructor. The groups use the materials to find the answers to all problems and questions. 1.3 GROUP ARRANGEMENTS The work will be done: 1.4 (a) IND - INDIVIDUALLY, or (b) SG - SMALL GROUP (in small groups of three or four members which will change daily), or (c) CSG - COMBINED SMALL GROUP (two small groups together), or (d) MG - MAIN GROUP (for short taped lectures on key learning points with visual aids). SG - SMALL GROUPS Initial group names provided by the Organizer. Note the name of your SG and names of the other members. 3 70 1.5 LEARNING MATERIALS (a) Retained by members: - (b) Used but not retained by members: - NOTE: 1.6 Textbook Course Diary Daily Work Packs, Parts I and II including: introduction, cases. Use your notebook. Do not mark the Daily Work Pack which must be handed back at the end of each day. You receive all the materials in your SG. Don’t look ahead in the Work Pack until you are specifically asked to do so! METHOD Try to complete fully every task in the time allowed. A pattern of learning methods will be used including: (a) (b) (c) (d) (e) (f) Programmed readings Case analysis Lectures Quizzes Learning patterns Homework activities 4 71 1.7 a OBJECTIVES 1.7 b GROUP ARRANGEMENTS 1.7 c METHOD 5 72 1.8 Instructions (15 minutes) (a) Assemble in SG’s to introduce yourself, indicate your past experience in marketing. And what you hope to contribute to and gain from the course. (b) Complete page 1 of the Course Diary. (c) Reassemble in MG when the bell rings. Note: Check that you have a full set of learning materials NOW.(See 1.5) 6 73 EXIHIBIT 1 Assignment 3.1 QUESTIONS ON BASICS OF MARKETING 1. Ultimate consumers are mainly affected by the functioning of the industrial market through: (a) (b) (c) (d) 2. The difficulties encountered in measuring the size of an industrial market are: (a) (b) (c) (d) 3. (d) Demand for industrial goods is highly responsive to changes in customers’ stocks. Initially industrial demand drops when prices drop. Changes in a declining industrial market have sense of urgency about them and are abrupt. All of these. Marketers have not followed the geographic decentralization of their customers because: (a) (b) (c) (d) 5. Practical difficulties in data collection and lack of agreement on the definitions of industrial marketing. It costs too much money. There are no real difficulties. Too many people are already measuring it. During depressed times industrial demand falls faster and further than consumer demand because: (a) (b) (c) 4. What products are available. How suitable these products are in relation to the needs of the users. What the prices will be for these products. All of these. There is no reason for the marketer to be conveniently located. They may have close relationships with many customers who in turn supply them with goods and services. They would have to build too many smaller plants. All of these. Emotional motives become important in the industrial purchasing process when: (a) (b) (c) (d) Products and vendors are fairly competitive in price and quality. Bad products are delivered. Promises are not kept. The vendor is not known and thus vendor analysis cannot be applied. 7 74 ASSIGNMENT 4.0 - LECTURE BASICS OF MARKETING (20 MINUTES) 4.1 MARKETING Marketing means the directing of all company activities towards one common goal. The goal is to discover the satisfy the present and potential needs of a target consumer. Groups of target consumers make up the target market 4.2 CONSUMER AND INDUSTRIAL MARKETING Consumer Marketing is the marketing of goods (or services) to the ultimate consumer....... the public. Industrial Marketing is the marketing of goods (or services) to industrial consumers, who in turn may manufacture goods for the public. 4.3 MARKETING MIX Marketing involves selection of the proper marketing MIX: Product what kind Price how much Place where and how to distribute Promotion how to get buyers .......... and personal sellings - THE FOUR P’s+P - 4.4. MARKETING MANAGEMENT CONCEPT (a) Consumer Orientation - survival and growth of the firm depend upon how well consumer needs are satisfied. (b) Profit Orientation - we seek to achieve a profitable sales volume. (c) Strategy - our plans to achieve our goals. (d) Marketing Strategy Development - coordinate direction of all marketing activities by formulating consistent interrelated strategies directed towards goals. 8 75 4.5 PRODUCT TYPES AND INDUSTRIAL MARKETS The choice of distribution channels depends on whether we have: (a) (b) (c) (d) (e) 4.6 Major Equipment: - sales usually require close technical cooperation1 more negotiation, planning and possible financing assistance due to high cost. - The product life is very long. Minor or Accessory Equipment: - is used in an auxilliary capacity; charged to current expense; demand is usually wide-spread and requires a broader market. Buyer/manufacturer relationships are less direct and immediate. - The product life is fairly long. Component Parts: - the original equipment and replacement parts market may retain identity in the finished product. - the product life is medium. Raw Materials: - unprocessed goods, often marketed through agents. - product life is fairly short. Operating Supplies: - Maintenance, Repair and Operations (MRO); these do not become part of the finished product, and are usually marketed by middlemen - the product life is the shortest of all DERIVED DEMAND Demand for Industrial goods is derived from demand for consumer goods and services. Demand fluctuates more widely than consumer demand due to very high sensitivity to changes in customer stocks. 9 76 4.7 ELASTICITY OF DEMAND (a) Elasticity is responsiveness of demand to changes in price. (b) Normal elasticity - sales increase as price declines. The more important the item, the higher the response (degree of elasticity). (c) The initial elasticity of demand for industrial goods runs counter to normal: - price increase brings growth in demand - purchasers see price change as the beginning of further movement in that direction. 4.8 4.9 THE BUYER (a) Is motivated by profit considerations and has largely rational buying motives, often influenced by more than one person. Must “sell” each person. (b) Employs value analysis: he reviews product specifications in relation to needs in order to get economic, reliable performance. (c) Buys not just goods but also benefits. He evaluates the sellers by “vendor” analysis. (d) Considers quality, technical assistance and service often more important than price. (e) Considers assurance of supply important. (f) Considers reciprocity - “you buy from me then I buy from you”. MARKET TYPES (a) Vertical Market: - (b) covers only one or a few industries but is deep in all firms. has a small number of prospective customers. each customer is a large part of the market. a change in buying patterns of a customer can cause wide variations in sales. no need for a large sales force - just for a “good one”. Horizontal Market: - many kinds of firms in many industries. - depends on an extensive distribution system. - marketing oranization must be designed to fit the market. 10 77 4.10. MARKET GRID. (a) Used to select target market. (b) Portrays as a box. , cross hatched like a grid. (c) Done on the basis of relevant market characteristics on the vertical and horizontal axis. (d) Each square represents a smaller more homogeneous market. (e) Each market box (target) in the grid requires a special marketing mix. (f) Choose the best market target and, apply the correct marketing mix. 78 4.10(a) Consumer and Industrial Marketing 4.10 (b) Marketing Concept 4.10 (c) Product Types and life in Industrial Markets Nature of Equipment SEE COPY IN COURSE DIARY 11 79 4.10 (d) DEMAND 4.10 (e) E.L.A.S.T.I.C.I.T.Y PRICE & SALES 4.10 (f) BUYER SEE COPY IN COURSE DIARY 12 80 4.10 (g) MIX 4.10 (h) MARKET GRID SEE COPY IN COURSE DIARY 13 81 EXHIBIT 1 Assignment 5.1 ACE TRUCK COMPANY QUESTIONS (a) This case challenges you to relate Product Planning to the Marketing Mix over a period of time. Read the case carefully. (b) Role Assignments: A, C, E B, D, F Marketing Director Financial Director (c) Work on each question in SG but keep notes individually. 1. Evaluate the marketing mix before 1977. 2. How did the marketing mix change after 1977? 3. What criteria would firms use to purchase long haul diesel trucks? 4. Has it been a mistake to cut prices? 5. What criteria would be used to purchase pick-up trucks and campers? 6. Would you suggest that the company go ahead with the new products? 7. Set out plans of action for the company justifying any decisions for: (a) (b) Existing products New products SEE COPY IN COURSE DIARY 14 82 EXHIBIT 2 Assignment 5.1 ACE TRUCK COMPANY Company Background The Ace Truck Company has been a leading producer of long-haul diesel trucks of high price and quality. It sold both through its own sales branches and through specialist truck distributors. In 1972 the company dominated the long-haul diesel truck manufacturing industry. Of total sales turnover, 40 % was done through the company’s own outlets. Technical Superiority Ace was well known for its technical superiority and know how. It followed a regular advertised policy of quality and reliability. The company had not changed its basic design for ten years. They believed that this was a reflection of their advanced technology. They stressed this point in their advertisements, and advertised that an investment in Ace equipment would not be obsolesced by new models and innovation. 1977 Sales Downturn By 1977 Ace’s sales had begun to decline through all distribution channels and the company lost its position of dominance. This was accompanied by a decline in profits. Cost Cutting Programme In reaction to the situation, the Ace management instituted a programme which they felt would increase sales and profits and return them to their former position in the industry. A cost cutting programme was introduced. A cut in price was heavily emphasized in all their advertising and trade promotion. However, this led to a decrease in the quality of the trucks. Sales Recovery and Decline Sales recovered for a whole and then declined again. A general business downturn at the end of the 1970’s made matters worse. More cost cutting and price reductions were ordered, but this did not improve the situation. At the end of 1978 Mr. Jason Ralph, financial director of Ace Truck Company, called a meeting with the marketing department to discuss the problem. 15 83 EXHIBIT 2 (contd.) Assignment 5.1 The Meeting Mr. Ralph expressed his fear that unless something was done soon, the company would be in grave financial difficulty. He asked for suggestions. Mr. Smith, marketing director, said that his department believed that they could make a success of pick-up trucks and campers. He believed that it was necessary to diversify their product line by manufacturing a line which would appeal to small firms and the general public. He felt that the new line should go under the name “Ace” and that it should be distributed through the company’s own sales branches with adverts in general circulation magazines and emphasis on a competitive price. Mr. Ralph approved of the idea but thought that attention should also be given to re-establishing their image for diesel trucks. Also he felt that the promotion for the new line should stress quality and dependability. He felt that they had made a mistake by cutting costs in the first place! SEE COPY IN COURSE DIARY 16 84 ASSIGNMENT 6.0 - LECTURE ON ACE TRUCK CO. 6.1 STORY OF THE CASE Company was a leader in long-haul diesel truck manufacturing. It sold through its own sales branches and through independent dealers. Dependability, quality and infrequent product changes were emphasized. Sales and profits declined and a cost cutting programme was introduced. Advertising emphasis was changed. Sales and profits continued to decline. The company was now considering how to improve sales of the trucks and whether to diversify. MARKETING MIX BEFORE 1977 6.2 Product: Long-haul diesel trucks of high quality infrequent changes mn design; reliability and service. Price: High price consistent with quality. Place: Sold through branches and specialist dealers. Promotion: Emphasized quality, dependability and technical superiority; adverts stressed lack of changes in product; adverts were placed primarily in periodicals for the trucking industry. NOTE: Overall a balanced marketing mix which had satisfied the market’s needs. MARKETING MIX AFTER 1977 Product: Decrease in quality - less sophistication. Price: Price cutting. Place: Distribution channels same. Promotion: Lower price of diesels emphasized no attempt to retain image of quality. NOTE: Overall a marketing mix not compatible with the needs of the target market, in which they had built their reputation and strength. Ace is now competing with a marketing mix which is apparently more applicable to other target markets. 17 85 6.3 6.4 CRITERIA FOR PURCHASING LONG HAUL DIESEL TRUCKS (a) Objective rational purchase made by large truck companies. (b) Criteria - quality, dependability, reliance, availability service and up to date TECHNOLOGY! (c) Price of secondary importance because of comparatively large losses in revenue from breakdowns as compared to price. MISTAKE TO CUT PRICE? Yes; product has been degraded by de-emphasizing quality and dependability and by reducing quality. Price is not of prime importance, especially in the existing target market 6.5 CRITERIA FOR PURCHASING PICKUPS AND CAMPERS Primary purchasers of pick-ups are small businesses and farmers; purchasers of campers would primarily be families. Criteria include: Price - probably the main consideration in the purchase. Quality and Dependability - also important, but the small purchaser is less able to judge these. 6.6 THE NEW PRODUCTS Go or no go? Yes. The new products will make the company more flexible and less vulnerable; the new product can be distributed through already established outlets. They have the technical skills and know-how. 18 86 6.7 PLAN OF ACTION - EXISTING PRODUCTS (a) General - Attempt to recapture the long-haul truck market. Research the market to determine the buyers needs. Be consumer orientated. (b) Marketing Mix Product: Upgrade its quality to regain reputation for quality. Emphasize that the product has been brought up to date. Place: Streamline distribution Cut back company owned distributors, increase independents. Offer incentives. Price: Difficult to increase price before image is re-established. Promotion: Emphasize the quality and dependability: launch a promotion campaign to reach all those responsible for purchasing decisions Use varied media (direct mail, trade and general periodicals). Note: Create demand from consumer through media. Create desire to sell product from distributors through incentives and advertising allowances. 6.8 PLAN OF ACTION - NEW PRODUCT (a) Generally Does the market exist? Research market to determine buyers needs. Who is the competition? Is the market appropriate for the company’s resources and skills? Can the company use the “Ace” name to promote the product? (b) Marketing Mix Product: Quality dependability and reliability. Price: Emphasize a competitive price Place: Use both own outlets which are well established and different distribution channels suitable to the new target market’s needs, since pick up arid camper buyers may be differently located from long-haul buyers. Promotion: Choose media carefully and well distributed to general public. Provide incentives to distributors. Ride on the Ace image! Be consistent with the overall company. Image of quality. 19 87 6.9 LEARNING POINTS (a) Know the environment before making any decision. (b) Know the buyer - who makes buying decision; why is the decision made? why is the product needed - information necessary for proper marketing. (c) Plan ahead - examine all alternatives and make a rational decision. (d) Need for a consistent marketing mix - Price, Product, Promotion, Place. (e) It is easy to downgrade an image but hard to upgrade. (f) More than one person is often involved in a buying decision. (g) Past expenditures are not relevant for future decisions. (h) The market is constantly changing - keep up with its needs; do not stagnate. (i) A new product decision usually involves a substantial financial commitment. (j) Need for a constant pricing policy. (k) Need for a constant product policy. (l) Need to build a constant image - no image confusion. (m) Cannot downgrade a product and upgrade it subsequently. (n) Analyse each marketing problem in terms of the 4 P’s. PRODUCT, PRICE, PLACE, PROMOTION. Note: Plan ahead; examine all alternatives; make a rational decision; have a marketing mix which is consistent with the product and the purchaser. SEE COPY IN COURSE DIARY 20 88 69 (a) RESEARCH YOUR MARKET A40 6.9 (b) IMAGE STANDING 6.9 (c) INDUSTRIAL BUYER 21 89 6.9 (d) MIX CONSISTENCY SEE COPY IN COURSE DIARY 22 90 EXHIBIT 1 Assignment 7.1 (b) QUESTIONS ON PRODUCT AND PRICE 1. 2. 3. 4. Product X has a selling price of 200, variable cost of 120, allocated fixed cost of 100; therefore (a) it makes a loss and must be eliminated immediately; (b) it contributes 80 and should be retained indefinitely; (c) it only contributes 100 towards variable costs and should be eliminated; (d) it has a positive contribution but makes a loss in the accounts records. To decide whether to retain a product we should (a) evaluate the product in terms of sales, profits, marketing considerations, production considerations, and competition; (b) listen to what our sales staff are saying; (c) consider the loss of prestige sustained by dropping the product; (d) consider the life cycle of competitive products. To price effectively in a market with a limited number of buyers, we must (a) know the buyer’s demand function, cost structure and be flexible in pricing policy; (b) know what our competitors are going to do, in terms of price and product; (c) be willing to change our prices continually; (d) wait till all our main competitors have fixed their prices and then determine ours. What position can a seller take, as regards pricing, in respect to competition? (a) match them by quoting the Identical price; (b) price slightly below the competition; (c) price slightly above the competition; (d) any of the previous three. 23 91 QUESTIONS ON PRODUCT AND PRICES cont’d 5. EXHIBIT 1 (cont’d.) Assignment 7.1 (b) We should not immediately eliminate a product which shows an irreversible downward sales trend because (a) profit possibilities of running out the product are ignored; (b) it disrupts ties with the hard core of loyal customers who would otherwise keep on buying the product; (c) if we drop products repeatedly the firm’s image suffers; (d) all of these points. 24 92 ASSIGNMENT 8.0 - LECTURE - PRODUCT & PRICE (30 MINUTES) 8.1 PRODUCT MANAGEMENT AND POLICY (a) It is the key to the firm’s growth and survival. (b) It involves production, finance, labour, general management, as well as marketing. (c) Product planning: (d) - is an important competitive weapon - must be adapted constantly to the changing environment - seizes market opportunities in the face of competitive action - is used for the development of new products - has a great influence on sales volume and profit Policy must be: - consistent with the market and the firm’s potential - continually appraised and quantified - bold, quantitative and rist-taking - planned several years in advance - always providing for new product development EXHIBIT 2 Assignment 7.1 (d) 1. (d) 2. (a) 3. (a) 4. (d) 5. (d) 25 93 8.2 PRODUCT LIFE CYCLE Products move through a cycle in relation to the institutional and marketing environment. (a) (b) (c) (d) Introductory Phase: - sales volume is not sufficient to cover engineering and marketing development cost - there are often no, or very few, competitors - more often have to promote the product concept to our target market. Growth: - sales increase considerably and the product is first profitable - the major problem is to match the demand - competitors start moving into the market - we have to promote the brand name more and more and promote the product concept, on its own, much less. Maturity: - sales rise slowly in the face of mounting competition - more intensive marketing cause profits to decline. This can be offset by finding: new market segments for the product, and new uses by the same markets. - product differences between competitors become less obvious. Saturation and Decline: - the emphasis is on optimizing returns for each succeeding dollar at cost - there is now a need to control cost - eventual abandonment takes plan - we have to distribute the product into every possible outlet - the product differences between competitors are negligible. 26 94 8.3 NEW PRODUCTS We need continuing flow of new products to perpetuate profits. (a) Failure of new products is due to: - insufficient knowledge of the target market - inadequate planning of the product’s introduction - insensitivity to the product’s limitations. (b) Evolution involves: - 8.4 solicitation of ideas preliminary appraisal and selection of these ideas expansion of the ideas into product specifications development of a feasible product market testing and ‘test marketing’ full-scale production and marketing MARKET SEGMENTATION AND PRODUCT DIFFERENTIATION (a) Market segmentation - where products and efforts are directed towards individual market segments - they achieve market depth - it reduces confusion from alternate products. (b) Product differentiation - where emphasis is on the difference between our product and competing products; it is often used at the maturity stage of the lifecycle to extend the profitable life of a product. - it is accompanied by selling and promotional effort - it results in non-price competitive conditions. 8.5 PRODUCT SIMPLIFICATION, DIVERSIFICATION AND OBSOLESCENCE (a) Simplification - where we eliminate our weak products after a critical appraisal of: sales, profits, markets, production and competition. (b) Diversification - we develop a strategy to: - (c) increase growth in sales and profits exploit new markets stabilise sales and profits take risks gain competitive advantage from the product’s reputation exploit our financial resources Planned Obsolescence - during the product’s life we determine when its usefulness has terminated; product durability and changing technology lead to obsolescence. 27 95 8.6 PRICING POLICY Generally depends upon: - what the market will pay - this is the KEY POINT!! - leadership and competition - the life cycle - the position of the product and the length of the cycle - patent protection - cost and contribution - other influences 8.7 PRICING POLICY - LEADERSHIP AND COMPETITION (a) During workable competition, the most common situation is: - product differentiation - many buyers and sellers are operating - attempts to maintain a relationship between selling price and the cost (b) Price leadership exists when: - there are few sellers - the market share is safe from price competition - followers need not make pricing decisions NOTE: Number, size and importance of products, the competition and the buyers……..are key influences: 28 96 8.8 PRICING POLICY - LIFE CYCLE - POSITION AND LENGTH (a) Position in the Life Cycle. (i) Introduction We can use skimming or penetration pricing. Skimming: this is a high price position - it is used to maximise the recovery rate of a new product’s development and the high costs of research and development - it is used to maximise return before competitors counteract. Penetration: this is a low price position (ii) (iii) - it is used to saturate the potential market and discourage competition - it is used when there is an absence of patent barriers - it is used when production economies of scale are experienced. Growth - if we previously were skimming, then we must now reduce our price - if we previously were penetrating, then we will have to consolidate our firm market position with the lowest price level. Maturity: - (iv) Saturation and Decline: - (b) pricing must be at a minimum to be competitive non-price with promotions begin at this stage profitability starts to decline both sales and profit decline elimination of the product may result in customer alienation possible new product analysis is called for Length of Product Life Cycle. - we ask a higher price in the introduction stage than in maturity or decline - the price is lower when cycle shortens and rapid obsolescence occurs, so that we can move stocks. 29 97 8.9 PRICING POLICY - OTHER INFLUENCES (a) Market: When the customer is willing to pay what the product is worth to satisfy his needs - then cost becomes irrelevant. (b) Patent Protection: A higher price can be asked because the product - (c) 8.10 is safe from competition has a longer product life Government Controls: Price is controlled where price discrimination, anti -trust action, retail price maintenance, fair trade, etc. exist. PRICING POLICY - COSTS (a) (b) Costs: - cost is the lower limit of price, never the most important factor - we must define which costs are relevant to the pricing decision these costs depend on accurate data collection Fixed Costs: - (c) Variable Costs: - (d) these costs vary directly with sales output. Committed Costs: - (e) do not vary with volume, they are merely allocated by accountants. these costs relevant to decision Example of a product: cost and profit PRODUCT A Selling price 2.00 Less: Variable cost 0.68 Fixed cost 1.30 1.98 Profit 0.02 30 98 8.11 PRICING POLICY – CONTRIBUTION (a) For effective pricing, we seek contribution, not profit (which is confused by fixed cost allocation). PRODUCT A 2.00 0.68 1.32 1.30 Sel1ing price Less: Variable cost Contribution Less: Fixed cost (allocated) Profit (b) 0.02 Contribution depends upon volume, selling price and variable cost and thus Volume Unit Selling Price Unit Variable Cost Unit Contribution Total Contribution 100,000 2.00 0.67 1.33 133,000 150,000 1.50 0.67 0.83 124,000 (c) A higher contribution may be achieved at various volumes. (d) Short run contribution is computed: Selling price less short run variable costs. (e) Long run contribution is computed: Sel1ing price less long run variable cost. (f) Long run variable cost may be similar to short run total cost. NOTE: Only in the long run must contribution cover fixed costs. 31 99 8.11A 8. 11B BREAK EVEN ANALYSIS (a) Break even analysis is useful for considering the relation of revenue and cost (b) Total cost is segregated into fixed and variable cost (c) The B. E. P. is that volume at which cost is covered by revenue received (d) Will this sales volume be achieved? BREAK EVEN CHART SHOWING PROFIT & LOSS AREAS SEE COPY IN COURSE DIARY 32 100 8.12 PRICING POLICY – GEOGRAPHICAL Geographical differences in price must be part of the pricing system when transportation charges have a significant effect on price. 8.13 (a) F.O.B. pricing - the buyer pays the actual freight cost; used when competitors are widely scattered, and the seller is prevented from expanding the market except through price reduction. (b) Delivered pricing - the price includes transportation. (c) Postage stamp pricing - uniform delivered price to all buyers; this provides access to all geographical markets. (d) Basing point - the buyer pays charges from the nearest shipping point plus the price at the shipping point. (e) Zone or Grid pricing - each geographic zone has a different delivered price based on average freight costs. PRICING POLICY – PRICING DIFFERENTIALS Quantity Differentials (a) (b) Noncumulative - these are based on the size of the individual order - it overcomes the problem of small orders which are costly Cumulative - these are based on the total amount purchased over a period - it assures continued patronage - it does not penalize a large purchaser for an occasional small shipment. It is not useful for major equipment. Trade Discount - this is a discount from the list price to the distributor to cover operating expenses and profit. It is a means of controlling resale price. Cash Discount - these encourage immediate payment they avoid credit costs provide for more efficient use of working capital 33 101 8.14 PRICING POLICY – MARKETING OBJECTIVES Objectives determine the marketing mix, which includes the role of price. Relates price to the product and the objectives. Non-price aspects, however, may dominate. Pricing objectives include: - market share return en assets employed price stabilization mett, follow or prevent competition short-term objectives, consistent with long-term goals short-term contribution and long-term profit 34 102 8.15(a) PRODUCT LIFE CYCLE 8.15 (b) MARKET SEGMENTATION 8.15 (c) PRODUCT DIFFERENTATION SEE COPY IN COURSE DIARY 35 103 8.15 (d) PRODUCT DIVERSIFICATION 8.15 (e) PRODUCTPLANNING 815 (f) PRICE DETERMINAN’S SEE COPY IN COURSE DIARY 36 104 8.15 (g) PRICING AND LIFE CYCLE 8.15 (h) PRICE ALTERNATIVES SEE COPY IN COURSE DIARY 37 105 EXHIBIT 1 Assignment 9.1 FAYMICH COMPANY QUESTIONS (a) This case challenges you to relate Pricing Policy to the Marketing Mix over a period of time. Read the case carefully. Don1t be upset by the numbers. Pick out the figures from the table. (b) Role Assignments: Groups A, C, E Groups B, D, F Sales Manager Financial Controller (c) Work on each question in SG but keep notes individually 1. What are the four objectives in setting the price of product 124? Are they consistent with each other? 2. From the table given in the case, identify the unit variable costs, unit selling price and total contribution for volumes of 75.000 and 180.000 units. 3. What alternative prices and contributions could be examined? Suppose the company held its present volume (125.000) at a price of 2.00, what total contribution would be achieved? Is this better than a volume of 180.000 at a price of 1,30? 4. How reliable are sales managers estimates? 5. What Is the effect of increased volume on working capital required? 6. How Important is market share? Now? In the future? If the market declines? Why? 7. Are all costs relevant to pricing decisions? Short and long term. 8. How will competitors react to a cut in prices? How low could price competition go? As low as variable cost? 9. How is your decision affected by considerations of: market share contribution, financial requirements and long term profitability? What specific criteria shall we use to set the price? 10. Decide and justify your decisions. SEE COPY IN COURSE DIARY 38 106 EXHIBIT 2 Assignment 9.1 FAYMICH COMPANY Losing Market Share The Faymich Company was losing market share of chemical product 124 despite a reputation for quality and service, In October, 1978, the Sales Manager, Controller and Chief Executive met to decide on pricing policy for 1979. Price Competition Product 124 was produced in a special department for which no alternative use was available. It was essential to the product range because it had been a product leader some years before, until price competition reduced Faymich sales despite a growing market. Market share had been falling rapidly (1975-55% to 1978 20%). Most of the competitors were small and not financially strong. They usually followed Fayrnich price leadership but allowed a margin of safety for the difference in quality. Pricing Policy Faymich had held price in 1974 (2.00) but matched price decline in 1975 (1.50). However, in 1977 it raised prices again (2. 00) for better profit margins, hoping that competitors would follow the lead. Now, in December, 1978, management was worried because of the sharp decline in sales. Seles Manager’s Forecasts The Sales Manager, Mr. Peter Hyde, recommended an immediate price cut to 1. 50 and forecasted possible market share and contributions at different unit price levels as follows: Total Volume 000 Market Share % Unit Variable Cost Unit Fixed Cost Unit Total Cost Unit Sales Price Contribution Unit Total 000 Profit (Loss) Unit Total 000 75 125 125 130 180 11 16 16 19 26 .68 .66 .66 .66 61 1.30 1.13 1.13 1.94 .92 1.98 1.79 1.79 1.60 1.53 2.00 1.80 2.00 1.75 1.50 1.32 1.14 1.34 1.09 .89 99 143 167 142 160 .02 .01 .21 .15 (.03) 2 1 27 19 (5) 200 250 29 36 .63 .70 .88 .75 0.51 1.41 1.40 1.20 .77 .50 146 125 (.11) (.25) (22) (63) SEE COPY IN COURSE DIARY 39 107 Financial Manager’s Concern The financial controller expressed concern at a product unit price of 1,50 because: (a) The company was in a liquidity crisis and needed to economise on working capital requirements. (b) The product would be sold at a loss. (c) In the long run it would never again be possible to raise prices to cover cost of production and felt that perhaps they should discontinue the line SEE COPY IN COURSE DIARY 40 108 ASSIGNMENT 10.0 - LECTURE ON FAYMICH COMPANY (30 minutes) 10.1 STORY OF THE CASE Product is losing market share and may have to be sold below total cost to meet competition; product is necessary to complete the range. Should company reduce prices this year to gain market share, to provide contribution and yet economise on finance for expansion? OBJECTIVES IN SETTING PRICE Objectives include: (a) (b) (c) (d) Note: 10.2 market share contribution financial limitations long term profitability Is the product dying? Is it worth expanding? Is it necessary for strategic reasons? Does it fit the long term marketing policy of the company? Should the company seek expansion in such lines or in a promising field? ARIABLE AND FIXED COSTS, CONTRIBUTION AND PROFIT Table gives a breakdown of product fixed and variable costs. Contribution and net profit depend not only on price but on cost and volumes!! 10.3 Volume Unit Variable Cost Unit Selling Price Total Contribution 75.000 .68 2.00 99.000 180.000 .61 1.50 160.000 ALTERNATIVES Many alternatives must be tried out to test the data and reveal possible solutions; all depend upon assumptions. Contribution at 125.000 volume with unit sales price at 2.00 is 107.000. Similarly contribution of 180.000 volume at unit sales price of 1.30 is only 142.000 41 109 10.4 SALES MANAGER1S ESTIMATES Sales Manager is not unbiased; he wants to sell volumes and thus seeks amenable prices; he may not be profit orientated. He probably fears that a gap in the product line would invite competition and have an effect on the entire range. 10.5 WORKING CAPITAL REQUIRED As volume increases, the amount to finance receivables and inventory will increase. Such investment in working capital leaves less cash available for other projects. To reduce working capital, we try to achieve higher contribution at lower rather than at higher volumes. 10.6 MARKET SHARE This is important. It has been slipping for some years (55% to 20%) and despite the increasing market size, it may drop tol1% if the Sales Manager is to be believed. Do we seek market share in a loss product? Dying product? Product requiring so much effort to sell? In the long run, loss in market share will result in Faymich being forced out of the market 10.7 COST AND SELLING PRICE Under the company’s cost accounting system, the products have direct variable costs and are allocated some less direct fixed costs. Thus if it is sold at 1.50 product shows a book “loss” even though it makes a good contribution. (b) Should company continue to sell at a book “loss”? Are better products with better contributions available? (c) In the short run only variable costs are relevant! (d) In the long run sales prices must cover not only variable but all costs. (e) However, if the price is below cost now, can we ever raise it above cost? 42 110 10.8 COMPETITORS’ REACTION Competitors are resistant to our prices. They reduce price to gain volume and market share. Their weak financial position will motivate them to maximize contribution. Our variable costs are low - only .68, thus price competition could well continue to prices of not merely 1,50 but as low as .75 which produces a contribution. How will they react to our pricing? Hold up? Lower? Stable? 10.9 FACTORS RELEVANT TO DECISION (a) Alternative use of productive facilities is nil. The need to keep market share, contribution, economise on finance and yet achieve long term profits are all contradictory. Also the company has to consider the effect on the range of withdrawing the line. (b) Criteria: Reduce working capital Increase contribution Increase market share Make profit 10.10 - need a high price need a high or low price need a low price need a high price DECISION & JUSTIFICATION High volume will gain market share but require more working capital. However, if we mean to stay in the market in the long run we must at least hold our market share. Contribution may be achieved at any volume if the price is right. Long run profitability is only achieved if price exceeds the long run cost and the best estimate of that is present total cost. For long run market share and profit try to price above variable cost and even full cost if possible. Only price below full cost for short run provided it will not prevent a better long term price! The company cannot risk creating a gap in their product range for fear of establishing another firm’s reputation. Therefore: Price at 1,75 achieve volume, contribution and profit and yet satisfy reasonable financial needs! 43 111 10.13 LEARNING POINTS (a) Pricing depends on many objectives. (b) Market share, contribution, financial needs and long term profit may conflict. (c) Try various assumptions to test the sensitivity of the data. (d) We can achieve contribution at high or low volumes subject to assumptions. (e) Cost is relevant to price, particularly variable cost. (f) We can sell above variable cost to make a contribution. (g) Fixed costs are irrelevant but have to be recovered overall in the long run. (h) Allocation of fixed costs is only an estimate of the minimum contribution required. (i) Product life cycle is relevant to the pricing decision. (j) Sales estimates may be suspect since Sales Manager is often biased. (k) Sales at a ‘loss’ may merely be a bookkeeping loss but contribution could still be high. (l) Never eliminate a product producing a contribution unless you replace it with one giving a better contribution. (m) Today’s price should not spoil long term future price. (n) Forecast competitors’ reactions. If your competitors follow suit by cutting price you may not achieve anything!! (o) Our cost structure of fixed and variable costs indicates our competitors’ ability to cut prices to variable cost levels. (p) Costs are seldom correct but based upon assumptions. (q) Look at the past to help forecast future effects of price but recognise that the environment changes. (r) Seek all alternatives and set criteria before making a decision. SEE COPY IN COURSE DIARY 44 112 10.14 (a) Price Objective Conflicts 10.14 (b) Price - Profit – Contribution 10.14 (c) CONTRIBUTION TOWARDS FIXED COSTS AND PROFITS NOT PER UNIT – BUT TOTAL SEE COPY IN COURSE DIARY 46 113 10.14(1) Contribution Factors SEE COPY IN COURSE DIARY 47 114 ASSIGNMENT 11.0 - SUMMARY LECTURE FOR PART I (45 MINUTES) 11.1 INDUSTRIAL MARKETING Marketing is the business activity directed towards a common goal, to find and satisfy consumer needs utilising company skills and resources. Industrial goods produce or become part of other goods, or facilitate the operation of an enterprise. Industrial marketing is the marketing of industrial goods and services. 11.2 MARKETING MIX Marketing involves the selection of: product, price, place, promotion. 11.3 MARKETING MANAGEMENT CONCEPT It is consumer oriented; consumer needs are the determinants of firm’ survival and growth. We seek to achieve a profitable level of sales. Coordinate the direction of all marketing activities by formulating consistent interrelated strategies which are goal directed. 11.4 PRODUCT TYPES Distribution and promotion depend on product classification. - 11.5 Major equipment Minor or Accessory equipment Component parts Raw materials Operating supplies DEMAND FOR INDUSTRIAL GOODS Demand is derived from demand for consumer goods and services. Demand fluctuates more widely because of inventory policy and long life of capital equipment. Initial elasticity of demand for industrial goods can run counter to normal, but in the long term, elasticity is normal. SEE COPY IN COURSE DIARY 48 115 11.6 INDUSTRIAL BUYER He is motivated by profit considerations and has rational buying motives. The purchasing decision is often influenced by more than one person - so we must ‘sell’ all concerned. Quality, technical assistance and service are often more important than price. Increasing saving to buyers may increase demand. Assurance of continued supply is important to purchaser. Reciprocity is common between buyer and seller. 11.7 MARKET TYPES Vertica1 Market - covers only one or a few industries but is deep in these industries. Horizontal Market - all kinds of firms in many industries. 11.8 PRODUCT MANAGEMENT It is the key to survival and growth of firm - an important competitive weapon. We must adapt to the constantly changing environment. It involves consideration of production, finance, labour and general management as well as marketing. 11.9 PRODUCT LIFE CYCLE Introductory phase, Growth, Maturity, Saturation and Decline SEE COPY IN COURSE DIARY 49 116 11.10 PRODUCT PLANNING AND DEVELOPMENT We need sound product policy planned several years in advance and consistent with firm’s capabilities and the market potential. A sound programme requires: (a) (b) (c) (d) (e) commitment to a creative environment realization of risks continual self-appraisal reliance on quantitative decision-making tools formulation of new product processes. Commitment to a new product involves permanency and substantial investment. 11.11 PRODUCT DECISION Market segmentation versus product differentiation Product-line simplification Product- line diversification Planned obsolescence 11.12 MAJOR DETERMINANTS OF PRICE Costs - The lower limit, not the most important factor Market conditions - for buyers - for sellers - workable competition - price leadership Contribution Concept - The selling price must cover the variable costs. - Contribution therefore increases when volume increases. - Only in the long run need contribution cover variable and fixed costs. Marketing Objectives the need to relate price to marketing the company’s objectives. Geographical - F.O.B. pricing - Postage stamp pricing - Basing point pricing - Zone pricing Government and legal regulations - Price discrimination - Retail price maintenance SEE COPY IN COURSE DIARY 50 117 11.13 PRICING DIFFERENTIALS Quantity Differentials – noncumulative - this overcomes the high cost of small orders cumulative - to maintain continued patronage Trade Discounts – they cover the distributor’s operating expenses and profits Cash Discounts – immediate payment results in more efficient use of working capital 11.14 11.15 PRODUCT PRICING (a) With a new product Skimming - set a high price to maximize investment recovery rate Penetration - low price to saturate the potential market and discourage competition. (b) As competition develops As product matures - most decisions arise from competitive pricing action (c) As the product declines we should not clean house as quickly as possible but look at each practical alternative. PRODUCT AND PRICE CHECILIST (a) PRODUCT Does the product have - consumer acceptance? distribution breadth and depth? effective merchandising? satisfactory performance? economical performance? se of installation? adequate servicing? ultimate replacement? SEE COPY IN COURSE DIARY 51 118 11.15 PRODUCT AND PRICE CHECKLIST (continued) (a) PRICE - Where is it in the life cycle? Do we skim or penetrate? Should we be price leaders or followers? What is our required return on funds? What is our discount and quantity differential policy? Do government and legal regulations control price? What is our cost structure? 52 119 11.16 (a) INDUSTRIAL MARKIT1NG 11.16 (b) MIX 11.16 (c) PRODUCT LIFE CYCLE 53 120 WORK PACK - PART II 121 EXHIBIT 1 Assignment 1.1 SHORT QUIZ ON MARKETING MIX For a company marketing a brand of toothpast, indicate how the Marketing Mix (Product, Price, Place and Promotion) would probably change under the following conditions: In the spaces provided, enter: C to N to DK to indicate CHANGE indicate NO CHANGE indicate DON’T KNOW or CAN’T TELL NOTE: Choose the “most probable” solution. 1. Example: A competitor launches a new brand which affects the company’s target market 2. A competitor lowers his price by 20% 3. A competitor launches a new advertising campaign 4. Economy undergoes a recession 5. Company’s sales volume increases significantly each year despite limited production capacity 6. Two medium sized competitors merge their companies and replace you as the market leader. 7. Small cost error discovered in overhead allocation 8. Total sales force resigns 9. Major retail customer switches to competitor Product Price Place Promotion C C N DK USE THE COPY IN YOUR COURSE DIARY 10. New technical magazine is introduced. 2 122 EXHIBIT 2 Assignment 1.1 ANSWERS TO SHORT QUIZ ON MARKETING MIX 1. Example: A competitor launches a new brand which affects the company’s target market 2. A competitor lowers his price by 20% 3. A competitor launches a new advertising campaign 4. 5. 6. Company’s sales volume increases significantly each year despite limited production capacity Two medium sized competitors merge their companies and replace you as the market leader. Small cost error discovered in overhead allocation 8. Total sales force resigns 10. Price Place Promotion C C N C N C N C N N N C C C N C C C N C C C N C N N N N N N C C DK DK DK DK N N N N Economy undergoes a recession 7. 9. Product Major retail customer switches to competitor New technical magazine is Introduced NOTE: See Exhibit 3 for explanation of answers. Score: __________ out of 40 3 123 EXHIBIT 3 Assignment 1.1 EXPLANATION OF ANSWERS TO “QUIZ ON MARKETING MIX” NOTES: (a) The questions are of course simple - indeed over-simplified - to provide a basis for provocative discussion. (b) We present below some justification for the “correct answers”. Depending upon the particular market situation and the sophistication of the marketing argument, in some cases, alternative solutions could be acceptable. (c) If your SG all agree you may count alternative solutions as “correct”. 1. Improve your brand and be prepared to change the price to meet the threat of the competitor’s new brand. Distribution channels (place) remain the same since we are operating in the same product field. Promotion should change if Product and Price changes. 2. Change price in order to meet competitor’s lower price. Channels remain the same, but promotion will change. 3. Probably launch a new advertising campaign to counter the competitor’s new campaign. 4. Probably change the product, price and promotion (but not the ‘place’) to retain as much as possible of our existing contribution from this product and market. 5. Probably change product and price to maximize contribution from the product - we have limited production capacity and would therefore try to limit our sales but still get maximum contribution. 6. To regain market share it is necessary to change product, price and promotion. Place remains unchanged. 7. Absorb this small error and do not change any part of the Marketing Mix. 8. Change our distribution (place) and much of our promotional methods to counter the loss of our complete sales force. 9. What action we take on any of the 4 P’s depends on how important the customer is to us and why he has switched. 10. As marketers of a consumer product we do not normally use technical magazines for our product promotion and would thus not change any part of the Marketing Mix. SEE COPY IN COURSE DIARY 4 124 EXHIBIT 1 Assignment 2.1(c) QUESTIONS ON PLACE AND PROMOTION 1. Marketers who use mass media for conveying information: (a) (b) (c) (d) 2. A marketer achieves greatest success in achieving his sales and marketing objectives when he: (a) (b) (c) (d) 3. Do all of the following. Present information about a product. Arouse interest and build desire. Get consumers into a favourable frame of mind to try the product. The basic way to expand the demand for any product is: (a) (b) (c) (d) 5. Uses personal salesmanship, advertising and sales promotion in a combination. Has an enthusiastic force. Concentrates on the correct target markets. Gets regular feedback from the market. The objective of most advertising is to: (a) (b) (c) (d) 4. Are usually reaching a large number of potential consumers at low per unit cost. Hope that their message will penetrate the large amount of noise. Have to ensure that they get immediate direct feedback. Get well known amongst advertising agencies. By all of the following three methods. To get present consumers to use more. To tell present consumers about new uses for the product. To get new users or new markets. The distribution channel used by a manufacturer depends on: (a) (b) (c) (d) The nature of the product. The manufacturer’s financial strength. The unit value of the commodity. All of these. 5 125 ASSIGNMENT 3.0 - LECTURE - PLACE (DISTRIBUTION) AND PROMOTION (30 MINUTES) 3.1 CHANNELS OF DISTRIBUTION Channels are direct or indirect distribution lines used to transmit the goods to the consumer. Management of marketing channels entails: (a) (b) (c) (d) Selection Assistance Co-ordination Control NOTE: Need continual review of channels if distribution is to be efficient and effective. Watch long-term effects. 3.2 MARKET COVERAGE In selecting distribution channels a key factor is market coverage required for our market penetration goal. (a) Limited coverage - (b) Selective coverage - (c) limit number of outlets per trading area sites depend on sales and service requirements of product and density of customers “exclusivity” - authorised outlets only ideal for shopping goods select only profitable outlets easier for controlling the distribution allows better quality of outlets gives consumer better service creates a brand image used for speciality goods Mass distribution - used for basic food products stabilizes sales minimizes sales lost through inconvenience reaches mass markets used for convenience goods 6 126 3.3 DIRECT CHANNELS Where the company markets to the consumer with no middleman, agents, etc. Advantages (a) (b) (c) (d) (e) (f) (g) Control of sales, service, price, promotion, and presentation Company trained salesmen have greater knowledge of the product, and customer’s requirements Maintains closer contact with market trends Stimulates feedback of consumer reactions Can reduce marketing cost Permits more precise market planning Results in more marketing “push” Disadvantages (a) (b) (c) 3.4 Takes time and is costly to build direct distribution Results in long term commitment of funds. This is important if the market is concentrated or if we are selling directly to the geographic segment with the greatest potential only. If products have low unit cost, marketing costs become prohibitive. INDIRECT CHANNELS Companies market to the consumer through agents, middlemen, etc. Advantages (a) (b) (c) (d) Avoids large long financial commitment Middlemen often have greater knowledge and experience with local markets Gives access to new markets Valuable when selling direct is unprofitable or impracticable. Disadvantages (a) (b) (c) (d) (e) (f) (g) (h) (i) Middlemen may only be order takers Salesmen generally lack flexibility Sales staff generally devote insufficient time to our products Often reluctant to find new outlets Product knowledge of middlemen is often inferior Not as much “push” given to our products Middleman may be carrying competitors’ products too Company loses contact with consumer needs Image confusion can result if middlemen do not follow company guidelines EXHIBIT 2 Assignment 2. 1(c) ANSWERS 1. (d) 2. (a) 3. (a) 4. (a) 5. (d) 7 127 3.5 OUTLET SELECTION (a) To match our outlets with our consumer needs, we must: - (b) To achieve market share objectives we must: - (c) “Sell” our products to middlemen Make it attractive to them Keep product promises To set up formal agreements, we must define: - 3.6 Select an appropriate number of outlets Select large volume outlets Assist outlets Use a push/pull strategy To convince middlemen to accept our line, we must - (d) Know the consumer Understand the buying motives Know the purchasing routines of the target market Select outlet compatible with the products desired image Select outlets frequented by the target market Trade allowances The territory, responsibilities, and terms, etc. Assistance arrangements Termination arrangements ‘Exclusiveness’ if relevant OUTLET ASSISTANCE Types of assistance include: (a) (b) (c) (d) (e) (f) credit, billing and pricing advice about products and sales aids stock back-up and warehousing training for sales staff management consultation promotion in the form of: - local and national brand advertising store advertising point of sale material special offers 8 128 3.7 OVERALL DISTRIBUTION CONTROL REQUIRES - Constant reappraisal of consumer needs and purchasing patterns Predicting market trends Evaluating competitors Setting of efficiency targets in terms of: (a) (b) (c) (d) - 3.8 sales figures distribution costs market share market objectives Defining timely, effective and useful reports Creating a feeling of partnership between the company and its product outlets PROMOTION MIX We can promote through: 3.9 Advertising - press, T.V., cinema, magazines, radio, signs, horading boards, banners. Sales Aids - display units, dispensing units, product bins, shelf stickers, pamphlets, price lists, catalogues. Education - product demonstration, free samples, educational talks at schools, societies etc. Sales staff training STIMULATION OF SALES STAFF Is achieved by promoting selling confidence by giving them: - 3.10 Product knowledge Consumer knowledge Budgets - set by agreement Recognition and reward for achievement ADVERTISING AND SALES PROMOTION Products are promoted by creating selective demand for your product: - informing selected target customers of product consumer benefits stimulating consumer buying action introducing products to new market segments introducing special promotions 9 129 3.11 ADVERTISING The advertising media i.e. general magazines, newspapers, periodicals, radio, T.V. etc. to present your sales message to consumers in the target markets should be chosen in terms of its efficiency in: - 3.12 Selected market segments Selected consumer groups Presenting campaign strategy Meeting specific media objectives of reach, frequency and cost Compatibility of media image and desired advertising image ADVERTISING BUDGET Its size and composition can be determined by: (a) (b) (c) (d) 3.13 Flat sum - an arbitrary amount. This method is unsatisfactory; Percentage of sales past or present - it limits advertising to follow sales; advertising should lead to sales. Competitive parity - spend the same as competitors - not good market status is seldom the same. Objective and task method - this focuses attention on objectives - it encourages planning - it sets objectives - it sets measurement standards for evaluating the effectiveness of our advertising - it discourages waste MARKETING MIX (a) PRODUCT (b) PRICE (c) PROMOTION involves - advertising - sales promotion - budgeting - training (d) PLACE (DISTRIBUTION) involves - market coverage direct and indirect distribution channel selection assistance to outlets overall control of distribution 10 130 3.14 (a) CHANNELS 314 (b) COVERAGE 3.14 (c) PROMOTIONAL MIX SEE COPY IN COURSE DIARY 11 131 3.14 (d) SELECTION OF OUTLETS 3.14 (e) AIDS TO OUTLET CONTROL 3.14 (f) MEDIA SELECTION AND BUDGET SEE COPY IN COURSE DIARY 12 132 EXHIBIT 1 Assignment 4.1 MOTORING AMUSEMENT COMPANY QUESTIONS (a) This case challenges you to relate distribution and promotion to the Marketing Mix. Read the case carefully (Exhibit 2) (5 minutes) (b) Work on each question in SG but keep notes individually. 1. Does the car game fulfil a consumer need? Does it have unique benefits? Are there obvious substitutes? (10 minutes) 2. Do you agree with Mr. Smith’s identifications of the target market? (5 minutes) 3. Do you agree that Mr. Smith’s car game has tremendous potential? What are the buying criteria? 4. What distribution channel do you advise? Support your recommendations. (5 minutes) 5. Do you agree with Mr. Smith’s reasoning on push and pull strategies? Could he avoid promotional expense? (5 minutes) 6. What advertising media and timing do you recommend for the full marketing strategy. (10 minutes) SEE COPY IN COURSE DIARY 13 133 EXHIBIT 2 Assignment 4.1 MOTORING AMUSEMENTS COMPANY INTRODUCTION Mr. Smith, part owner and senior executive with a newly established company had designed a game which could be played by people travelling in motorcars. The game was quite simple to play; in fact, it was ideal for children. Mr. Smith believed there was a tremendous potential for this game if he could overcome the distribution and promotion problems, without incurring large costs. CRITERIA FOR SUCCESS When it was first decided to put a car game on the market, management established three main guidelines for this game. These were: it should be a simple game, it should be cheap, and should be easily available to the motoring public. Solutions to the distribution and promotion problems must recognise these guidelines and respect the constraints they impose. TARGET MARKET Tourists and people with children making a journey of about 100 miles or more were identified as the prime target market. PRICE It was thought the game would have a great chance of success if it could be sold to the consumer at less than 30 cents. The estimated costs at present were: 20 4 10 34 cents manufacture cents wholesaler cents retailer cents retail price If wholesalers could be eliminated the price could be reduced to less than 30 cents. However, it was believed that without wholesalers, the game could not get the depth of distribution thought necessary for success. Also, manufacturing cost was very sensitive to sales volume. If volume could be increased by 100% manufacturing cost would fall to 12 cents. DISTRIBUTION Ideally the product should be stocked and displayed by as many roadside outlets as possible. It was planned to get the product into the majority of petrol stations, roadside restaurants and motels, within three months from launch date. This was recognised as a difficult and expensive task. It would be necessary to use many wholesalers, since petrol stations, restaurants and motels were not catered for by the same wholesalers. Finding these wholesalers and managing their activities would take a considerable amount of Mr. Smith’s time. He was reluctant to devote the majority of his time to this venture. He began to consider large department and chain stores as potential outlets. He SEE COPY IN COURSE DIARY 14 134 was aware that they did not present the depth of distribution available through the other channels. On the other hand, they did have toy and game departments, and they presented a relatively easy-tocontact distribution network for him as a manufacturer, and for his target market. PROMOTION If petrol stations and roadside outlets were used, Mr. Smith intended using a push strategy based on in-store promotion. There would be display units, posters and window decals in each outlet. This material would be given free to the retail outlets on an introductory, self liquidating offer. Although the product would not make profit on the first sell-in, it would not incur an expense requiring long term capital. If department and chain stores were used to distribute, it was felt that it would be necessary to rely on a pull strategy. This would be expensive. In fact, projected profits for the first year would be spent on the launch campaign. Also a much slower sales take-off could be expected using a pull strategy. This worried the company because of the lack of capital and also because the game could be imitated quite easily. Thus a fortune could be invested selling the concept of a car game to the public, and a competitor might reap the profits. You are appointed by Mr. Smith to advise him. Note: A “decal” is a window sticker advertisement. SEE COPY IN COURSE DIARY 15 STOP DO NOT TURN THE PAGE 135 ASSIGNMENT 5.0 - LECTURE - MOTORING AMUSEMENTS COMPANY (30 MINUTES) 5.1 STORY OF THE CASE A new concept in travel entertainment has been developed that presents considerable distribution and promotion problems. 5.2 PRODUCT NEED Product promises to fulfil the function of entertaining children during long motor car journeys. However there are other means of fulfilling this need, radio, toys, etc. 5.3 TARGET MARKET Parents of children aged 5 - 11 years who undertake long motor car journeys with their children. 5.4 BUYING CRITERIA Availability, price, child boredom. Convenience of purchase is highly significant. This is a spontaneous purchase item with a low priority except when child boredom becomes an acute inconvenience. 5.5 ROLE OF DISTRIBUTOR This is a low cost, low volume item. It would not be profitable to set up a company owned distributor network to handle distribution to roadside retail outlets. A mail order system direct to outlet could be considered as an alternative. The volume goals set by the company will help to decide on the appropriate distribution network. Roadside outlets are ideally suited to large volume. 5.6 PROMOTION STRATEGY Mr. Smith is correct in his reasoning on the promotions he has in mind. 5.7 ADVERTISING MEDIA Family magazines, motoring and touring journals are appropriate media. However, they may not give the required frequency of message in the initial stages to build up product awareness. Daily newsprint would be required for this purpose. Radio is also quite appropriate but T.V. and cinema are excluded. T.V. because of cost and cinema because it is a young person’s media. 16 136 5.8 RECOMMENDATION The company should test market the game and distribution networks in a representative market area before committing themselves to the cost of a major launch. The game idea may not appeal to parents and may be much more costly to promote than expected. Also the company should have a number of car games to stimulate repeat purchase. Otherwise they may enjoy a successful launch and a disastrous failure over time. Company objectives and marketing goals should be set as a guideline for distribution and promotion activities. The company should not attempt to go national on limited funds. However, it should be recognised that a successful test market could attract adequate capital backing for this project. There should be plans for the medium and long term survival of the company. The possibility of imitation is very real, this can be minimised by planning ahead and by providing for followup products before launching the current car game. The price consideration should not be allowed to jeopardise the selection of the best distribution channel. Price attractiveness will not compensate for the wrong network. 5.9 LEARNING POINTS 1. To succeed a product must fulfill unsatisfied consumer needs. 2. A product must be presented to the target market in terms of consumer benefits. The consumer must be made aware of these benefits. 3. The relevance of distribution and promotion strategies can be assessed only in relation to the overall marketing objectives. 4. Don’t assume that you know the consumer. Test market your hypothesis and minimise risk. 5. Predict consumer needs and plan follow-up products. 6. Recognise that the purchaser may not be the consumer and cater for purchaser and consumer needs. 7. A successful launch is only one aspect of the marketing of a product. Plan product strategy into the future. SEE COPY IN COURSE DIARY 17 137 5.10 LEARNING PATTERNS (a) BUYER NOT ALWAYS THE CONSUMER 5.10 (b) PRICE NOT THE ONLY FACTOR 5.10 (c) MIX TO MEET CONSUMER NEEDS SEE COPY IN COURSE DIARY 18 138 EXHIBIT 1 Assignment 6. 1 BILL BROWN - QUESTIONS As Bill Brown, Industrial Marketing Consultant, deal with the following problems of your clients. Answer each question individually: 1. Johnson Corporation The market for switching locomotives is declining. In searching for new products to replace lost business, Johnson Corporation decided that the quickest and most economic way to add new products to their product range, was to acquire any other profitable businesses with established product lines. Is this a good policy to assure continued growth for the firm? 2. Arcweld Company A small manufacturer of arc welders was faced with the probable entry into the market of several large competitors. The industry had always been very competitive; inefficient plants were constantly going out of business. However, competition was “equitable”. Arcweld Company always had emphasised its “ingenuity, quality and service” against competitors’ advertising and prestige. How should Arcweld meet the potential competition? 3. Rust Pruf Corporation Rust Pruf Corporation controls the exclusive rights to a revolutionary new rust proofing process. It wishes to license its use to manufacturers and is planning an extensive advertising campaign. What media should be used? 4. Amalgamated Factories Amalgamated Factories is a newly-formed corporation manufacturing a wide variety of grinding machines and supplies. They have to decide whether to distribute directly or indirectly. As a new industry, their financial resources are limited. Should they distribute directly or indirectly? Why? SEE COPY IN COURSE DIARY 19 139 EXHIBIT 1 (cont’d.) Assignment 6.1 5. All-Star Fasteners All-Star Fasteners manufactures a complete line of industrial fasteners. In an attempt to increase sales volume, the marketing manager plans a 10% reduction in price. What do you expect the initial results will be? Why? 6. Industrial Supply Corporation The Industrial Supply Corporation, distributors of a general line of industrial supplies has been plagued in the last few years by frequent, but small orders. Profit margins have been reduced because of the small orders’ cost of processing. Moreover, most customers are slow payers, debtors have thus risen, while cash has not. The company has a policy of no discounts. What do you recommend? SEE COPY IN COURSE DIARY 20 140 EXHIBIT 2 Assignment 6. 1 BILL BROWN - ANSWERS 1. Johnson Corporation No. Acquisition may provide new products to bolster the firm’s declining sales but eventually sales of these products will decline also. This is only putting off the inevitable. For continued growth, we must continually search for new product Ideas which match our capabilities and the resources of the firm. Market and environment are constantly changing and the firm must keep up with them. There is no point in acquiring widely different businesses from the existing base activity. 2. Arcweld Company He should review his production facilities to see that they are as efficient as possible. Also he should strive to maintain the corporate Image of ingenuity, quality and service, and perhaps intensify advertising, stressing these qualities - both for the present and In the future. It is important that his product be kept technologically current. Distribution channels should be reviewed to be sure that they are serving both customer and manufacturer in the best possible way. The pricing policy should be reviewed. 3. Rust Pruf Corporation The campaign should probably be started with advertisements in trade and general business periodicals to generate awareness and interest in the product. This should then be followed up by a direct mail campaign which by its nature is more selective. 4. Amalgamated Factories No They should distribute indirectly. The product is standardised and will be used by many firms in many different industries. Probably little in the way of technical services is needed. There is also not much need for direct customer contact. It is better to distribute through an industrial distributor who handles MRO supplies. Also, direct distribution of the product would require a large sales force and a large financial commitment beyond the resources of the firm. SEE COPY IN COURSE DIARY 21 141 EXHIBIT 2 (cont’d.) Assignment 6. 1 5. All-Star Fasteners Initial reaction might be a reduction of demand as purchasers will wait to see if the price reduction is the beginning of a further downward trend. This is the initial counter elasticity of industrial goods demand. However, demand will then return to the former level and probably increase, depending on Its responsiveness to price changes. 6. Industrial Supply Corporation Institute a programme of noncumulative quantity discounts. This will encourage customers to plan their purchases carefully to take advantage of these discounts. When the programme is begun, inform customers of the potential savings from larger and less frequent purchases. Savings in order processing should more than pay for discounts. Allowing discounts for prompt cash payments may encourage customers to pay their bills promptly rather than delay them till the last moment. SEE COPY IN COURSE DIARY 22 142 EXHIBIT 1 Assignment 7. 1(c) QUESTIONS ON INDUSTRIAL MARKETING MANAGEMENT 1. Marketing strategies are concerned with: (a) (b) (c) (d) 2. A marketing planner should: (a) (b) (c) (d) 3. (c) (d) You cannot really measure marketing performances You only measure by the marketer’s efforts and lose sight of possible changes in the environment The marketer may not have a thorough knowledge of statistics for comparing results There may be many changes in your staff so that you do not have past performances against which to measure. Control is more important in marketing than in production or finance because: (a) (b) (c) (d) 5, Keep close to top management and have a creative imagination Be familiar with the various functional areas of the marketing organisation Not be too closely tied-up with any one functional area and have a firm belief in the philosophy of change All of these The limitations of using a marketer’s past performance as a standard are: (a) (b) 4. Getting customers to buy our products Maintaining market contact for our established products and securing markets for our new products Ensuring that our marketing department does its work well Keeping our market share despite competition by devising advertising and promotion programmes. All of these Marketing efforts rarely coincide with normal accounting periods The market place is dynamic and marketing mistakes are irredeemable by nature It is often difficult to equate marketing effort with accountants’ profit. A marketer faces problems in establishing standards because: (a) (b) (c) (d) The market place is constantly changing. Standards are not affected appreciably by factors beyond the control of individuals. His staff do not wish to work to standards Marketing is a constant changing business and standards are therefore not applicable. 23 143 ASSIGNMENT 8.0 - LECTURE INDUSTRIAL MARKETING MANAGEMENT 8.1 82 MARKETING MANAGEMENT CONCEPT (a) Consumer orientation Consumer needs determine the firm’s survival and growth we determine the actual and. potential needs of our consumers, and focus on satisfying them. (b) Profit orientation we seek to achieve a profitable level of sales. (c) Marketing Strategy Development we co-ordinate the direction of all marketing activities by formulating consistent interrelated strategies which are goal directed. we recognise intra- and inter-departmental implications and plan with other functions of the firm. it is dependent on innovative climate. MARKETING STRATEGY AREAS Product strategy - involves the product mix, and the amount of effort behind each product Market strategy we consider what markets should be cultivated and with what intensity Selling strategy we determine ‘what mixture of marketing tools should be used and in what proportions to bring our products and markets together to gain desired objectives. EXHIBIT 2 Assignment 7. 1(c) ANSWERS 1. (b) 2. (d) 3. (b) 4. (a) 5. (a) 24 144 8.3 ASSESSMENT OF MARKETING OPPORTUNITY (a) Broad understanding of the company In terms of - (b) Market research to: - (c) measure our markets analyse our sales results forecast our sales gather information about our customers study our competitors To identify corporate objectives: - (d) its strengths and weaknesses its market position its resources and capabilities itself and its competitors relate the company strengths and weaknesses to the external environment develop objectives which are consistent and attainable. analyse profit opportunities to determine the market within which the company may achieve its objectives. Continuous assessment assures that the company: - is dynamic in marketing and production operations - identifies challenges and problems - is better prepared to meet the changing market opportunities - stresses market opportunities as a key factor regulating the company’s activity. 25 145 8.4 PLANNING MARKETING EFFORT (a) Types of Plans Long range, which are generally the company’s objective Short range - which are more detailed Individual projects (b) Steps in Planning (i) Statement of objectives, which are - (c) explicit challenging recognising constraints related to broader and more specific objectives at both higher and lower levels. (ii) Set up alternative courses of action - BE CREATIVE: (iii) Evaluation of these alternatives (iv) Selection of a course of action (v) Implementation of the plan - in terms of the Marketing Mix. Features of Sound Plan Unity there should be no conflict with other plans Continuity - the generation of one strategy from another Flexibility - the ease of adjustment to changing personnel Relevance - to the firm’s objectives Measurability - of the results for control purposes Compulsion obtain all participant’s support. (d) Planning Commitment How far ahead should a plan commit the firm? Depends on the nature of the firm, its market, and the type of plan. Remember to consider: - the lead time for action the amortization of capital future market prospects future availability of raw materials and components 26 146 8.5 PURPOSES OF MARKETING PLANNING. This is necessary for efficient functioning and planning of the entire enterprise. Marketing planning will - 8.6 co-ordinate effort aid in our finance planning promote sounder decisions distribute responsibility facilitate control CONTROL, EVALUATION AND ACTION (a) Stages of control (i) setting standards for performance measurement (ii) create tools for recording the performance and comparing them with the standards set (iii) take action upon results (iv) control should be objective-oriented for directing the organisation (b) Standards of Marketing Performance These must be closely related to the firm’s objectives. (c) Types of Standards marketing plans marketing budget past performance market potential marketing cost analysis Productivity (d) Evaluation takes place by observation statistical reports (e) Action - by using only significant facts head off and determine the causes of failures causes self-examination guide planning NOTE: The control must be constructive never punitive. 27 147 8.7 (a) MARKETING PLANNING 8.7 (b) ASSESING MARKETING OPPORTUNITY 8.7 (c) PLANNING SEE COPY IN COURSE DIARY 28 148 8.7 (d) CONTROL SEE COPY IN COURSE DIARY 29 149 EXHIBIT 1 Assignment 9.1 THE EYEGLASS COMPANY QUESTIONS (a) This case challenges you to relate the marketing strategy to the overall corporate objectives. Read the case carefully. (10 minutes) (b) Work on each question in SG but keep notes individually. 1. Identify the new target market, the buying criteria and the company’s key corporate objectives. (3 minutes) 2. What was the company’s marketing strategy before 1979? Identify the four P’s. (5 minutes) 3. What is the proposed strategy after 1979? Is it consistent with the company’s skills, resources, strengths and weaknesses? (5 minutes) 4. Critically evaluate the company’s expansion plan. Assess its potential and highlight any major weaknesses. (10 minutes) 5. Advise the company on what they should do. Present your recommendation in four sections, each dealing with one of the four P’s. Relate these to the corporate objectives. (12 minutes) SEE COPY IN COURSE DIAR 30 150 EXH1BIT 2 Assignment 9.1 THE EYEGLASS COMPANY INTRODUCTION In 1979 the Eyeglass Company has decided to expand its activity into new markets. Plans have been formulated to expand from the high priced prestige section of the spectacle frames market into the larger less individualist medium priced market section. Within the company there are many misgivings concerning this change. Critics of the plan point out that it will mean the development of a completely new marketing plan, new channels of distribution, new product design, new price structures and that all these changes will affect the company image and maybe the success of the current product line. The critics feel that the risks involved in expansion are intolerably high. However, they are in full agreement with their colleagues that if the Eyeglass Company is to survive in a fast growing competitive market they must expand sales and improve their declining return on investment. CORPORATE OBJECTIVES Management had agreed the following corporate objectives: (a) Improve profitability. They intend to halt the current trend of declining profits during the next twelve months and have set themselves a goal of double current annual profits per year in three years. (b) Increase sales volume. Sales volume has been static during the last few years but the market has grown steadily during this period. To achieve profit goals management estimated that they need a 25% increase in sales volume. This would bring the manufacturing capacity up to approximately 90%. It is considered unwise to attempt greater production without considerable investment in new plant. (c) Provide better working conditions for employees. The company had experienced labour unrest because of the lack of improvement in working conditions. Management were keenly aware of the fact that, they had not kept pace with market improvements and had agreed that it was their duty to do so. This decision was not based solely on consideration of improved productivity but was provoked by a respect for staff and the recognition that many of them were long term employees. (d) Maintain and strengthen the company’s identity in the spectacle frames market. The Eyeglass Company had been in the spectacles frames market for 80 years. Until recently the company was family owned and managed. Although this was no longer so, the spirit of the family and their deep respect for social responsibility continued to influence management. IMAGE The company had a very favourable image among consumers, and within the trade in the spectacle market, this was viewed by management as one of the major competitive strengths the company enjoyed and they wished to build on it. 31 STOP! DO NOT TURN THE PAGE 151 EXHIBIT 2 (contd.) Assignment 9. 1 DISTRIBUTION The company currently sold exclusively to opticians who use the spectacle frames for conventional glasses and sunglasses. Expansion into the middle priced high volume market would involve manufacturing sunglasses and selling them direct to department stores, chemists and stationery stores. This fact was discussed with some current customers and the thought that the Eyeglass Company was considering the possibility of supplying direct competitors with sunglasses created great annoyance and indignation. Opticians pointed out that they had been emphasising the quality of Eyeglass Company frames as a competitive selling strategy during the last number of years when trying to sell against chemists and department stores. CONSUMER BRAND AWARENESS Because of the relatively small market share enjoyed by the company, only a small proportion of potential consumers were aware of the product. Those that were had a very high regard for the quality and individuality of the product. PURCHASING CRITERIA FOR SUNGLASSES Consumers were very discriminating in the medium priced sunglasses market. Styling, shade, fit and price were all significant factors. The market was highly competitive thus it would be difficult to obtain retail support if a new product did not compare favourably with competition. Brand image was important to retailers and consumers. This fact was evident in the wide price range experience in this market segment. PROMOTION Most of the leading brands used a pull/push strategy. Direct consumer advertising was supplemented by instore display units and attractive posters. EXPANSION PLAN The company was considering entering the top section of the medium price market segment. Thus they would provide a high quality, relatively expensive product. Distribution would be limited to chemists and high quality department stores using the current sales force who would also call on opticians. A dual advertising campaign would be launched to consumers and traders. The association with the Eyeglass Company would be emphasised as a major appeal. PROFITABILITY The unit profit on sunglasses would be 50% higher than that currently earned on frames. Provided there was not a significant fall off in business through opticians, the company would reach their profit and volume goals at around 10% of the new market. PRODUCTION Lens for sunglasses would be bought in the company, did not have the skills or resources necessary to produce them at their plant. SEE COPY IN COURSE DIARY 32 STOP! DO NOT TURN THE PAGE 152 ASSIGNMENT 10.0 - LECTURE - THE EYEGLASS COMPANY (30 MINUTES) 10.1 STORY OF THE CASE A company wished to expand into new markets. The expansion requires new product design, new distribution channels, and a new marketing strategy. Management is concerned about the likely effects this new venture will have on the company’s established products and on the corporate image. 10.2 PRODUCT The Eyeglass Company is a manufacturer of high quality spectacle frames. They want to manufacture high quality sunglasses and enter the sunglasses market. 10.3 TARGET MARKET Until 1979 the company catered for upper income people who bought expensive spectacles and sunglasses through opticians. The new target market would be upper income people who buy expensive sunglasses through chemists and prestige department stores. 10.4 BUYING CRITERIA - CONSUMERS Style, shade, fit and price. 10.5 PROMOTION Pull/push strategy using print advertising and instore displays. 10.6 CORPORATE OBJECTIVES Improve profitability through increased sales by entering the sunglasses market. Maintain a high quality product in keeping with the corporate image. 10.7 COMPANY MARKETING STRITEGY BEFORE 1979 Price - high consistent with quality and product image. Product - high quality, specialised in the spectacle market, differentiated. Place - clear market segmentation Promotion - company salesman, very little paid advertising. Depended on a push strategy and close personal contact with customers. 33 153 10.8 PROPOSED STRATEGY AFTER 1979 The company intends to operate in two market segments. They will cater for the upper income groups in both segments and will concentrate on quality and prestige image. 10.9 (a) Skills -The company is established in the spectacle frame market; it is technologically sound to enter the sunglasses market. However they will be dependent on an outside supplier for lenses. Also they do not possess skills in assessing the quality of their product. If the quality of the bought-in lenses is not consistent with the quality of the company’s frames the market image in both market segments could be lost. (b) Resources -The company has had falling profits during the last few years. They are not in a position to diversify out of the spectacle market. Expanding into the sunglasses market is a good idea. It utilises spare plant capacity and minimises new capital investment. (c) Strengths -The company has a favourable image among consumers and traders. (d) Weaknesses -The current customers may become very upset and change their supplier. COMPANY EXPANSION PLAN (a) The decision to enter the sunglasses market is product orientated. No attempt has been made to research consumers reactions to the proposed sunglasses. Also an evaluation of competition in this market was overlooked. There may not be a market gap in the top end of the proposed market. It is possible that current brands in this market are fighting for survival. (b) The inherent assumption in the expansion plan is naive!! Will consumers who have bought and have been satisfied with spectacles obtained through opticians on a marketing push strategy, also be enticed by a pull/push strategy through chemists and department stores to buy the new product? Opticians have greater influence on their clients’ purchases than sales staff in a chemist or department store. The recommendation of an optician is rated as professional advice, the suggestions of sales staff is rated as ‘hard sell’. (c) The sunglasses venture may succeed but this will be a matter of good luck not professional consumer orientated market planning. 34 154 10.10 RECOMMENDATION Consumer reactions should be researched. If these are favourable a market gap analysis should be conducted to establish the market potential for the product. On the assumption that the market does exist, the company is advised to expand. However a strong promotional campaign should be launched to consolidate the optician market first. Opticians can be assured that the market for sunglasses with ground lenses and the market for casual sunglasses does not overlap significantly. Also it should be emphasised that the Eyeglass Company will be maintaining a high standard that will be favourable to the current product image. During the sunglasses launch period, a special offer should be presented to opticians to distract them from changing suppliers during a moment of annoyance. 10.11 MARKETING MIX Price - Should place the product in the prestige section of the market. This is consistent with the objective of a small market share and comfortable profit. Product - Must be consumer orientated. Fit, shade and style must be indicative of product quality and individuality Place - As suggested, high class department stores and chemists. Exclusive selling rights should be granted to select stores to protect the product image and help capture the patronage of these stores. This strategy will also minimise distribution costs. Promotion -The emphasis should be on high quality instore displays and posters. Advertising in exclusive magazines should be used seasonally only and at the time of launch. Merchandising salesmen should be used to ensure that the product is displayed to advantage at retail outlets. The relatively small promotional budget will not dilute profits. It will concentrate on exposing the product to the consumer in an environment that will enhance its quality. SEE COPY IN COURSE DIARY 35 155 10.12 LEARNING POINTS - Establish corporate objectives to guide marketing strategy. - Concentrate on consumer needs, not product features when searching for new products. - Don’t assume that market gaps exist - research them. - Have courage, there is always opposition to change - find solutions to these problems. - Make certain that the Marketing Mix is consistent with the corporate objective. - New product developments are long term involvements; don’t rush forward without consolidating your position. - Match company skills, resources, strengths and weaknesses with company plans. - Marketing is an integrated function involving all aspects of the company’s activity. SEE COPY IN COURSE DIARY 36 156 10.13 a DIVERSIFICATION REDUCES RELIANCE 10.13 b PLAN MUST HAVE OBJECTIVE. 10.13 c PROMOTION MUST BE CONTINUOUS SEE COPY IN COURSE DIARY 37 157 10.13 d PLAN MUST BE MEASUREABLE SEE COPY IN COURSE DIARY 38 158 ASSIGNMENT 12.0 - SUMMARY LECTURE 12.1 OBJECTIVES OF THE PROGRAMME (a) (b) (c) (d) (e) 12.2 To understand the language and concepts of industrial marketing. To appreciate the importance of the Marketing Mix. To develop skills in setting marketing objectives, using marketing techniques. To communicate effectively with marketing specialists, To motivate further study. MARKETING EVALUATION - A CHECKLIST IN TERMS OF THE MARKETING MIX (a) PRODUCT Does your product have - (b) consumer acceptance? satisfactory performance? economical production? ease of installation? adequate servicing? PRICE Find out: - where is the product In the life cycle? do we skim or penetrate? do we want to be price leaders or fol1owers? what is the return desired on funds? what discount funds should we follow? are there any Government or legal regulations which governs the price? what is the cost structure? Fixed, variable costs? what competitive reaction may be expected? what alternative prices are available? what contribution may be achieved? SEE COPY IN COURSE DIARY 39 159 12.2 MARKETING EVALUATION (continued) (c) PLACE (DISTRIBUTION) Decide on: - (d) what market coverage is required effectiveness and efficiency of your channels whether your outlets are relevant to consumer purchasing demands what amount of ‘push’ you need by marketing directly to the cost of so doing your channel consistency with other aspects of your ‘mix’ PROMOTION Decide: - how best to inform consumers about your product’s attributes how much money to spend whether to use personal selling, advertising, or sales promotion whether your salesmen are an efficient part of your promotion 40 160 12.3 (a) LEARN LANGUAGE MARKETING 12.3(b) MIX 12.3 (c) Develop Planning Skills SEE COPY IN COURSE DIARY 41 161 12.3 (d) 12.3 (e) Communicate with Specialists More Study SEE COPY IN COURSE DIARY 42 162 12.4 FINAL CONCLUSIONS (a) Marketing is finding out what the needs of your target market are and satisfying them. (b) To get organised for marketing you must be consumer orientated. (c) Make all your existing facilities attuned to one basic concept - to satisfy the consumer and his needs to the best of your ability. (d) The overall marketing man must be the general manager - there can he no marketing orientation unless he subscribes to it. (e) He becomes a marketing man by realising that any company can only on long term exist if it satisfies the needs of its target markets better than its competitors. (f) You have the right marketing mix when you are satisfying the needs of your target market better than your competitors and are making your planned profit. (g) Marketing men have to be optimistic and creative but you control them by making them personally responsible for the achievement of their goals. (h) Mathematical models in marketing are becoming very important because they are very useful tools to help you in planning the marketing mix better. (i) There is no substitute for marketing “f1air” but a11 other members of the management team should be increasingly marketing oriented in order to ensure not only the shortterm but also the long-term survival of the firm. FINAL NOTES THIS ENDS OUR PROGRAMME, WE HOPE IT HAS INSPIRED YOU TO DEVELOP YOUR SKILLS BY PRACTICAL APPLICATION. WE THANK YOU FOR YOUR INTEREST AND HARD WORK. KEEP YOUR GLOSSARY AS A DAILY REFERENCE FOR INDUSTRIAL MARKETING LANGUAGE AND CONTINUE YOUR STUDIES!! WE HOPE YOU ENJOYED THE AGL EXPERIENCE. 43 163 GUIDE FOR TRAINER Assignment Sheet Programme - Part I 1 Introduction 2 Quiz 3 P.L. 4 Lecture: 5 Case: Ace Truck 6 Lecture: 7 P.L.: 8 Lecture: 9 Case: Faymich 10 Lecture: Faymich 11 Summary Lecture Basics of Marketing Basics of Marketing Ace Truck Product and Price Product and Price 164 1.8 INSTRUCTIONS (15 minutes) (a) Assemble in SG’s to introduce yourself, indicate your past experience in marketing and what you hope to contribute to and gain from the course. (b) Complete page 1 of the Course Diary. NOTE: Check that you have a full set of learning materials NOW. 1 165 ASSIGNMENT 2.0 - QUIZ (45 MINUTES) 2.1 INSTRUCTIONS - INDIVIDUAL WORK (a) Assemble in SG. (b) Answer the quiz of 100 questions; mark your answers a, b, c or d with a clear X on the special form provided in the Course Diary. (c) Work as quickly as possible but don’t guess - leave blanks. (d) Hand in your answer sheet to the Organiser who will mark it and give you a quantitative measure of your marketing knowledge at the start of the course. 2 166 ASSIGNMENT 3.0 – PROGRAMMED LEARNING - BASICS OF INDUSTRIAL MARKETING (60 mins.) 3.1 INSTRUCTIONS (a) Assemble in SG. (b) INDIVIDUAL WORK - Locate the Glossary for reference. Then quickly read chapter 1. Do in writing chapter 2 of Industrial Marketing. (c) SG Work - Answer the questions in Exhibit 1. (15 minutes) (d) Discuss your answers to the questions in SG and then check with Exhibit 2 (below). Recheck any doubtful points in the reading. (e) Record key points in your notebook. EXHIBIT 2 1. 2. 3. 4. 5. (d). (a). (d). (d). (a). 3 167 4.11 INSTRUCTIONS (15 minutes) (a) Reassemble in SG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each key point with your SG and record key points in your notebook. (5 minutes) (d) Carry on with the case study which follows. 4 168 ASSIGNMENT 5.0 - CASE ANALYSIS OF ACE TRUCK COMPANY (30 + 30 MINUTES 5.1 INSTRUCTIONS (a) SG Work (30 minutes) - Quickly read the case, study if carefully. - Analyse all the key problems. - Answer each question systematically in SG. - Formulate a plan of action. - Need not all agree but you must decide! (b) CSG Work (30 minutes) Groups combine as follows: A B C with with with D E F ) ) ) A, B and C will act as “Dealers”, i.e. they make a short presentation. - giving the answers to the questions - lead CSG discussion - record key points on ‘flipchart’ - lead CSG to a definite range of decisions (c) Reassemble in MG when the bell rings. NOTE: Don’t look at answer page until end of the lecture on the case. No ‘cheating’ here please! No checking’ either! 5 169 6.10 INSTRUCTIONS (15 minutes) (a) Reassemble in CSG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each key point with your SG and record key points in your notebook. (5 minutes) (d) Reassemble in MG when the bell rings. 6 170 ASSIGNMENT 7.0 - PROGRAMMED LEARNING PRODUCT AND PRICE (60 minutes) 7.1 INSTRUCTIONS (a) Assemble in SG. (b) INDIVIDUAL WORK. Read quickly chapters 7 (25 minutes) and 8 (20 minutes) (but not pp. 161-166, 197- 201). (If short of time, concentrate on summaries at end of each chapter.) Do in writing chapter 3 of Industrial Marketing. (c) SG work - Answer the questions in Exhibit 1. (15 minutes) (d) Discuss your answers to the questions with your SG and then check with Exhibit 2 (below). Recheck any doubtful points in the reading. (e) Record significant points in your notebook. (f) Reassemble in MG when the bell rings. EXHIBIT 2 Assignment 7.1(d) 1. (d) 2. (a) 3. (a) 4. (d) 5. (d) ANSWERS 7 171 8.16 INSTRUCTIONS (15 minutes) (a) Reassemble in SG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each key point in SG and record key points in your notebook. (5 minutes) (d) When the bell rings, carry on with the case study which follows. 8 172 ASSIGNMENT 9.0 - CASE ANALYSIS - FAYMICH COMPANY (45 + 45 minutes) 9. 1 INSTRUCTIONS (a) Individual and SG work (Exhibits 1 and 2) (45 minutes). (b) CSG work (45 minutes). Groups will be combined as follows: A B C (c) with with with E F D ) ) ) “Dealers” D, E and F Reassemble in MG when the bell rings. 9 173 10.15 INSTRUCTIONS (15 minutes) (a) Reassemble in CSG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each key point with your SG and record key points in your notebook. (5 minutes) 10 174 11.17 INSTRUCTIONS (30 minutes) (a) Reassemble in SG now (b) Study this note and learning patterns very carefully (c) Discuss outstanding questions with your SG (d) Record significant points in your notebook (e) Do the following work in your own time: (f) (i) Complete your Course Diary for Part I including notes on each case and the key points learned (for review later) (ii) Read your copy of the summary lecture for Part I in the Course Diary (iii) Do the reading outlined by the Organizer (iv) Review the Glossary Hand in the Daily Work Pack for Part I to the Organizer in SG THIS ENDS PART I OF OUR PROGRAMME. THANK YOU FOR WORKING SO HARD! PART II BEGINS IMMEDIATELY ‘DOWNHILL ALL THE WAY”! 175 AGL 27 Assignment Sheet Programme – Part 1 Review and Quiz 2 P.L.: 3 Lecture: 4 Case: Motoring Amusement Co. 5 Lecture: 6 Bill Brown 7 P.L.: 8 Lecture: 9 Case: Eyeglass Co. 10 Lecture: 11 Quiz 12 Summary Lecture Place, Distribution and Promotion Place, Distribution and Promotion Motoring Amusement Co. Management Marketing Management Marketing Eyeglass Co. 176 ASSIGNMENT 1. 0 - REVIEW AND QUIZ (45 MINUTES) 1.1 INSTRUCTIONS (a) Assemble in your NEW SG. (b) Discuss the work completed in Part I, your summaries of key points and any outstanding questions. (15 minutes) (c) Do in SG the “Short Quiz of 10 questions on the Marketing Mix” (Exhibit 1). Don’t look at the solution. (d) Check your answers (Exhibit 2) and discuss questions arising. (15 minutes) ASSIGNMENT 2.0 - PROGRAMMED LEARNING PLACE AND PROMOTION (45 minutes) 2.1 3.15 INSTRUCTIONS (a) Assemble in SG. (b) IND WORK - Read Dodge chapters 10 (15 minutes) and 14 (omit pp. 338343) (10 minutes) and summary chapter 13 (5 minutes). Do Chapter 4 in writing Consumer Marketing. (c) In SG answer the following questions in Exhibit 1. (15 minutes) (d) Discuss outstanding questions with your SG and record key points in your notebook. INSTRUCTIONS (15 minutes) (a) Reassemble in SG. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each key point with your SG and record key points in your notebook. (5 minutes) (d) When the bell rings, carry on with case study which follows. 177 ASSIGNMENT 4. 0 - CASE ANALYSIS OF MOTORING AMUSEMENT CO. (30 + 30 minutes) 4.1 5.11 INSTRUCTIONS (a) Assemble in SG now. (b) SG work. (Exhibits 1 and 2) (30 minutes) (c) CSG work. (30 minutes) (d) Reassemble in MG when the bell rings. INSTRUCTIONS - CSG WORK (15 minutes) (a) Reassemble in CSG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each point with your CSG and record key points in your notebook. (5 minutes) ASSIGNMENT 6. 0 - CASE OF BILL BROWN (30 minutes) 6. 1 INSTRUCTIONS - INDIVIDUAL WORK (15 minutes) (a) Assemble in SG. (b) Answer all questions (Exhibit 1) , then discuss answers with your SG. Don’t look at the answers yet. 6.2 INSTRUCTIONS - SG WORK (15 minutes) (a) When the bell rings, check your answers with the correct solution (Exhibit 2). Record score in Course Diary. (b) Discuss outstanding questions with your SG and record key points in your notebook. NOTE: Use your notebook - do not mark the Daily Work Pack. 178 ASSIGNMENT 7. 0 - STUDY - MARKETING MANAGEMENT 7.1 INSTRUCTIONS - INDIVIDUAL AND SG WORK (a) Assemble in SG. (b) Individual work. Do Consumer Marketing Programmed Learning Book, chapter 5. (20 minutes) (c) In SG answer the questions in Exhibit 1. (5 minutes) (d) Review glossary and list any words you still do not immediately understand. (5 minutes) (e) Discuss outstanding questions with your SG and record key points in your notebook. EXHIBIT 2 Assignment 7.1 (c) 1. (b) 2. (d) 3. (a) 4. (a) 5. (d) ANSWERS 8.8 INSTRUCTIONS (15 minutes) (a) Reassemble in SG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss each point with your SG and record key points in your notebook. (5 minutes) (d) When the bell rings, carry on with case study which follows. 179 ASSIGNMENT 9. 0 - CASE - THE EYEGLASS CO. (45 + 30 MINUTES) 9.1 INSTRUCTIONS (a) Assemble in SG. (b) SG Work (Exhibits 1 and 2). (45 minutes) (c) CSG Work. (30 minutes only) (d) Reassemble in MG when the bell rings. 10.11 INSTRUCTIONS - CSG WORK (15 minutes) (a) Reassemble in CSG now. (b) Study this note and learning patterns very carefully. (10 minutes) (c) Discuss key points with your SG and record key points in your notebook. (5 minutes) ASSIGNMENT 11. 0 - QUIZ (45 MINUTES) 11.1 INSTRUCTIONS - INDIVIDUAL WORK (a) Assemble in SG. (b) Do the quiz of 100 questions; mark the special answer form provided. (Individual work - no cheating!) (c) Check answers with the solution card provided by the Organizer and record your score in your Daily Course Diary. (d) Reassemble in MG when the bell rings. 180 APPENDIX A _ GLOSSARY (add new words as needed) Accessory equipment Equipment needed for operation of major equipment. Low price, charged as current operating expense. Advertising Paid promotion of ideas, goods, or services. For industrial products may be through trade magazines and papers, direct mailing, etc. See promotion mix and marketing mix. Agent Firm which negotiates purchases or sales, but does not own the goods in which it deals. Usually paid by commission or fee. Assembling Bringing supplies, or assortments of goods, or services together to make sales or purchases easier. Basing-Point Pricing Delivered sales price consists of a quoted price at the basing point plus transportation charges from the basing point, regardless of shipping point. Branch House See sales-branch Branch Office See sales-branch without stock Brand A name, term, sign, symbol, or design, or combination of these, which is intended to identify the products (or services) of a seller and to differentiate them from those products or services marketed by competitors. Brand Manager Responsible to marketing manager for a group of products - usually mainly individual in promotion rather than using the full mix. 181 Break-Even Analysis Analysis to determine at the point that total sales revenue equals total cost. Based upon assumptions of: sales volume/ prices and variable/fixed costs at such volumes. Indicates sensitivity of profit to: sales volume/price/cost. One chart is usually not valid for all volumes, since the variable/fixed costs will change. Useful tool for understanding sales/costs relationships. Broker Agent without physical control of the goods, representing buyer or seller in negotiating deals. Budget Plan or target in quantative/financial terms and in non-quantative terms. Set a target or standard of required performance. May be a total operating budget (sales, costs, and profit) or a more limited departmental budget. May relate to cost, profit or investment centres. Can be developed by inter-action, as a "creative" (rather than a "defensive") motivator for managers. Directly related to the organizational culture of the enterprise. Usually has both formal "rational" effects and informal "psychological" effects on how managers behave throughout the organization. Buying Power See purchasing power Cash and Carry Wholesaler Wholesaler dealing for cash, without delivery service. Cash Discount Discount for retail payment Channel of Distribution Structure - internal and external - to market commodity, product, or service. Includes sales-representatives, agents, wholesalers, etc. 182 Commission House Agent with physical control of sale of goods. Obeys instructions issued by principal. Arranges delivery, extends credit, deducts fees, and remits the balance to principal. Commodity Exchange Organization owned by members, providing market for specified commodities. Similar to co-operative. Competitive arenas The business and geographic arenas, where the company will compete in the future. Part of competitive strategy. Competitive Strategy How the company intends to achieve a sustainable competitive advantage. One of the three constituents of corporate strategy. There are three major competitive strategies: overall cost leadership, differentiation, and focus. Competitive strategy involves how the company intends to achieve a sustainable competitive advantage in its chosen product markets, with a variety of strategic thrusts. Component Parts Products installed as part of the final product. Consumer Goods Goods for ultimate consumers (public) or households, and used without commercial processing. Consumer and Industrial Marketing Consumer marketing is the marketing of goods and services to the ultimate consumer - the public. Industrial marketing is the marketing of good and services to industrial consumers, who may in turn manufacture goods and services for the public. Industrial goods and services produce or become part of other goods or facilitate the operation of the enterprise. Consumer Marketing 183 Business of directing the flow of goods and services to the ultimate consumer. Does not service or form part of any subsequent product. See industrial marketing. Consumer Research See marketing research. Contribution Excess sales price over variable cost. Contributes to fixed overhead and profit. Requires analysis of cost into fixed and variable. Contribution maximized at various sales volumes dependent upon sales and cost. Distinguish contribution per unit from total contribution. Corporate mission Tool for developing corporate strategy. Statement of what role the company will seek to play in order to achieve its vision: what needs does it wish to satisfy in which markets with what products/services against which competitors and how will it measure its success. Corporate strategy Overall business strategy with three components: corporate mission, product market strategy and competitive strategy, which interact all the time. It is easier to build up a coherent, unified business strategy from a synthesis of these three components, which provide the basis for measuring its internal consistency. The the strategy must be consistent with the company's "vision", with its resources AND with it's special distinctive competencies or sources of competitive advantage. To develop corporate strategy: a VISION leads to a VIEW of what the future holds, identifying COMPETITIVE arenas, and SOURCES of competitive advantage. This leads to development of a corporate MISSION, from which POSITIONING can enable a COMPETITIVE strategy and a PRODUCT/MARKET strategy. 184 Cost Cost of product. Vague term! See manufacture cost, total cost, variable cost, fixed cost, opportunity cost, differential cost, true cost. Cumulative Discount Discount given on total purchases over a period of time. Dealer Buys and resells merchandise at either retail or wholesale level. Delivered Priced Price based on the point of destination - the opposite of f.o.b. pricing. Derived Demand Demand for a product not generated directly but as a result of demand for other goods and services of which the product is a basic part. Demand for industrial goods is derived rather than a direct demand. Differential Costs Added costs resulting from a change in business activity.Increased costs. Costs that change as a result of some decision. Relevant costs. Usually variable costs. Direct Marketing Channel Manufacturer marketing directly to consumer, not using agents or wholesalers. Direct Selling Producing firm sells to the user, ultimate consumer, or retailer, without intervening middlemen. Discount Allowance reducing sales price. Percentage of sales price. May be cash discount, trade discount, or quantity discount. Distribution See industrial distributor. Diversification 185 Marketing a varied line of products. Reduces risk. product-line may be more economic to duplicate. Large Drop Shipment Direct shipment of goods from producer to buyer. Elasticity Variation in demand due to change in prices. Normal elasticity-low price, high demand. Industrial goods have abnormal short-term elasticity but normal long-term elasticity. Equipment Industrial goods which form part of the physical product. See major equipment, installation, accessory equipment. Exclusive-Outlet Selling Sale of products or service confined to one retailer or wholesaler in each area, on a contractual basis. Fabricated Materials Goods partly processed which require more work before becoming part of the finished product. Facilitating Agencies in Marketing Agencies which perform some marketing functions. No title to goods. Negotiate purchases or sales: e.g. banks, railroads, advertising agencies. Factoring Specialized financial function whereby producers, wholesalers, and retailers sell their receivables to financial institutions, usually at a high discount. Fair Trade Retail resale-price maintenance imposed by suppliers of branded goods. Fixed Cost Cost affected by reasonable changes in the volume of sales or production but changing only with very substantial changes in sales or production volume. Cost that does not vary in total with the volume of sales or production. In the long term, all costs are variable, e.g. rent, office salaries, etc. 186 F.O.B. (Free On Board) Pricing Pricing in which buyer pays freight costs. Focus - strategic thrust A competitive strategy involving: special product line, target to a special market segment or limitation to a specific geographical area. etc. Functional Discount See distributor discount Grading Predetermined standards of product quality. Gross Profit See margin. Horizontal Market Market of all kinds of firms in many different industries. Incremental Costs See differential costs. Indirect Marketing Channel Distribution system in which there are intermediaries between the manufacturer and the consumer. Industrial Distributor Full service wholesaler selling primarily to the industrial market, performing all, or most, of the marketing functions. Jobber. Industrial Goods Goods for use in producing other goods. Not goods sold to ultimate consumers. Includes equipment (installed and accessory); component parts; maintenance, repair and operating supplies; raw materials; fabricating materials. Industrial Market Characteristics Narrow industrial markets which involve only a particular trade or industry are referred to as "vertical". By contrast, "horizontal" industrial markets involve goods and services for a many different kinds of companies and in many different industries. 187 Industrial Marketing Business of directing the flow of goods and services from producer to a user who in turn produces other goods and services, or facilitates the operation of an enterprise. See consumer marketing. Inside Salesmen Salesmen working for industrial distributors and manufacturers in sales-branches, not field salesmen. Installation Major equipment of significant size, closely allied with construction, e.g. blast-furnace. Interdependent Pricing Pricing of products in conjunction with other products in the same product-line. Jobber See industrial distributor. Limited Market Coverage Working only one or a limited number of outlets per trading area. Low cost - strategic thrust A competitive strategy involving: experience curve payoffs, no-frills products, product special design, raw-material sourcing, low-cost distribution, lowering labour costs, government subsidies, location changes, production innovations, buying competitors, automation, reducing overheads etc. Mail -Order Wholesalers Wholesalers who perform the selling service entirely by mail. 188 Major Equipment Items of high unit-price which are capital assets. Manufacture Cost The total amount of money spent on direct labour, material, and manufacturing overhead during the production of a product or products. Manufacturer's Agent Agent who operates on extended contractual basis, often sells within an exclusive territory, and possesses limited authority with regard to prices and terms of sale. Authorized to sell a definite portion of his principal's output. Margin Percentage of sales price. Difference between sales price and cost of goods purchased; e.g. cost 100, sales price 125 - margin 20%. See mark up. Market a) Total of forces or conditions within which buyers and sellers make decisions that result in the transfer of goods and services. b) Total demand of the potential buyers of a commodity or service. See also vertical market, niche market and horizontal market. Market Analysis Sub-division of marketing research dealing with measurement of market and determination of its characteristics. See marketing research. Market Coverage Number of outlets per designated trading area. Market Research See marketing research. Market Segmentation Division of the market into smaller homogeneous segments by user type. 189 Market Share Sales potential. Company's sales as a percentage of the total industry sales on either an actual or potential basis. Often used to designate the part of total-industry sales a company hopes, or expects, to get. Market Testing Testing product in part of target market to see performance under actual market conditions. Part of new-product development. See also market testing. Marketing Budget A statement of the planned financial sales and planned marketing costs for a specified future period. Marketing Channel See channel of distribution. Marketing - Cost Accounting Allocation of marketing costs according to customers, marketing units, products, territories, or marketing activities. Provides essential quantitative data for marketing decisions. Marketing - Cost Analysis Evaluation of the relative profitability or costs of different marketing operations in terms of customers, marketing units, commodities, territories, or marketing activities. Marketing Function Major specialized activity in marketing. Marketing Management Satisfying customer needs by building profitable relationships. The goal is to build customer loyalty. customer Planning, direction, and control of the entire marketing activity of a firm or division of a firm. Includes formulation of marketing objectives, policies, programs, and strategy. Commonly embraces product development, organizing and staffing to carry out plans, supervising marketing operations, and controlling marketing performance. 190 Marketing Management Concept The concept is to be consumer-oriented; consumer needs (or perceived needs) are the determinants of the company survival, growth and profitability. Seek to achieve a profitable level of sales; to be profit oriented. Coordinate the direction of all marketing activities by formulating consistent inter-related strategies directed to one common goal of: "profitably satisfying the needs of the target consumer". Customers do not buy a product; they buy what the product can do for them; they buy services! Marketing Means directing all company activities towards one common goal. The goal is to discover and satisfy the present and potential needs of a target customer, using company skills and resources. Use company resources to satisfy a target market profitably. Create and retain profitable customers. Finding out what the target markets' needs (either conscious or subconscious) are, and satisfying them to the best of the company's ability. Marketing Mix Marketing is concerned with the selection of a proper marketing mix: Positioning - how should our target market perceive us? Product - what kind of goods and services? Price - how much and on what terms? People - who should we target and how to segment the market? Place - where and how to distribute our goods and services? Promotion - how to get the buyers? In 2005 the new marketing mix has 6 (not 4) "P's". Marketing Planning Setting objectives for marketing activity, and determining and scheduling the steps necessary to achieve such objectives. Marketing Research 191 Systematic gathering, recording, and analyzing of data about marketing problems for goods and services. Internally or by outside consultants. Marketing Strategy Strategy concerned with maintaining or achieving market-acceptance for established products and designing means for securing markets for products. Designed to fulfil the customer's needs. Mark On See mark up. Mark Up Margin expressed as percentage of cost of goods purchased; e.g. cost 100, sales price 125 - mark up 25%. See margin. Mass Distribution Using maximum number of outlets per trading area. Media Means of communication, e.g. newspapers, television, etc. advertising. See Merchandising Choice of channels, the packaging of the product, its pricing, and its presentation and sales promotion. Merchant Business that buys, takes title to, and resells merchandise. Middleman Business that specializes in operations directly involved in purchases and/or sales between producer and consumer. Middlemen are of two types: merchants and agents. Missionary Salesman Manufacturer's salesman who calls on customers of his distributors. Develops goodwill. Stimulates demand. Promotes sale of employer's goods. Trains salesmen. Takes orders for delivery by distributors. Monopoly 192 Market with only one seller. Monopsony Market with only one buyer. Motivation Research Techniques of behavioral scientists used by marketing researchers to discover psychological factors influencing marketing behavior. M.R.O. Maintenance, repair, and operating supplier. See operating Multi-Purpose Equipment Equipment utilized by different industries without modification National Brands Manufacturer's or producer's brand, usually enjoying wide territorial distribution. Net Profit Sales less costs (including overhead expenses) equals net profit. See gross profit. New Marketing Mix 6 P's instead of 4 P's. See marketing mix. Niche Market A narrow segment of the overall market, with a common characteristic that will make the product or service especially attractive to them. Non--Cumulative Discount Discount based on quantity purchased at one given time. 193 O.E.M. Original-equipment manufacturer, as opposed to replacement-part manufacturer. Oligopoly Market with few sellers. Difficult to enter. One to One marketing Satisfying customer needs by building individual relationships with customers using databases to get closer to the customer. Operating supplies Goods used up in production process or operations of any enterprise. Sometimes known as M.R.O. Opportunity cost Cost or value of an alternative course of action. Outlet Unit selling product to consumer. Penetration pricing Low-price strategy designed to gain as much of the potential market as possible within a short time after the introduction of a new product. Personal selling Verbal selling to potential purchasers. Place Distribution channel. See marketing mix. Planned obsolescence Policy of determining, during development, how and when a product's usefulness will be terminated. Point-of-origin-pricing See f.o.b. pricing. 194 Positioning The picture that the target market has of the company. What is the minds of the customers. The position that a company owns in the marketplace is the net result of the interaction of all the experiences, beliefs, feelings, knowledge and impressions that the market has accumulated about the company. Positioning is a strategic issue - it is the first element of any marketing strategy aimed at a target market. Positioning is a strategic statement about how the company/brand wants to be "seen" on the marketplace. It is based on a "vision" of what the company wants to be and how it wants to be perceived by its stakeholders. It thus guides the development and execution of the total marketing strategy Postage-stamp pricing Charging a uniform delivered price to all buyers, regardless of location. Price See marketing mix. Price of product or service. See skimming and penetration pricing, f.o.b. pricing, basing-point pricing, zone pricing, postage-stamp pricing. Price leader One or two firms in an industry, or product field, who dominate. Price usually followed by rest of firms in same field. Pricing policy Part of marketing mix. Decision on the price of product related to objectives, market share, contribution, competitive action, product life-cycle, patentability, etc. Producers' co-operative marketing Involves sale of goods or services of the producers who are members. May perform only assembly or brokerage function. May extend into processing and distribution of the members' production. Product 195 End result of companies' manufacturing process. See marketing mix. Product differentiation - strategic thrust Emphasizes differences between a product and competing products. A competitive strategy involving: product quality, performance, durability, conformance, features, name, reliability, serviceability, fit and finish, service quality, reliability, responsiveness, competence, credibility, empathy, courtesy, communication etc. Product life cycles The product life cycle as a strategic market driven tool with five phases: introduction, growth, maturity, saturation and decline. Each phase has special characteristics. Product-line Group of closely related products satisfying class of need, used together, sold to the same customer groups, marketed through the same outlets, or falling within given price ranges. Product management Planning, direction, and control of all phases of the life-cycle of products, screening of such ideas, coordination of research and physical development of products, packaging and branding, introduction on the market, market development, modification, discovery of new uses, repair and servicing, their deletion. Product/market strategies Tool for developing corporate strategy. Strategies to optimize product sales in selected markets. Alternatives include: concentrate on existing markets, new market development, new product development, innovation based on existing resources, buying direct competitors, joint ventures, vertical integration, buying synergistic businesses etc. Product mix Group of products offered for sale by a firm. Product planning See merchandising. Product policy 196 Part of marketing mix. Decision on product type, quality, life-cycle, planned obsolescence, new-product development etc. Product strategy Strategy concerned with the creation of products to meet changing needs of customers, or to attract new customers. Promotion See marketing mix. Promotion mix Combination of advertising, personal selling and sales-promotional techniques used to gain acceptance of the product by the target market. See marketing mix. Publicity Stimulation of demand for a product by news in published media or favorable radio, television, or stage presentations. Purchasing power Buying power. Capacity to purchase of individual buyer, or group of buyers, in an area or a market. Quantity discounts Discount based on quantity purchased - may be cumulative or nonRaw materials Unprocessed goods. Reciprocal trading Practice of buying from those suppliers who are also customers. Resale-price maintenance Control by a supplier of selling prices of branded goods at subsequent distribution. Contractual agreement, under fair-trade laws or other devices. 197 Resident buyer Agent specializing in buying, on a fee or commission basis. Retailer Merchant or agent selling directly to the ultimate consumer. Retailing Selling directly to ultimate consumers. Sales-agent See selling agent. Sales analysis Sub-division of marketing research. comparison of sales data. Systematic study and Sales-branch Establishment maintained by manufacturer away from headquarters, used to stock, sell, deliver, and service products. Sales-branch without stock Manufacturer's establishment away from headquarters used to sell products or provide service without carrying stocks. Sales budget Part of marketing budget concerned with planned financial sales and planned selling costs during budget period. Depends upon assumptions. Sales-forecast Estimate of sales, in money or physical units, for a future period under proposed marketing plan. Depends upon assumptions. Sales management Planning, direction, and control of personal selling activities. Sales manager Executive who plans, directs, and controls salesmen. Sales planning 198 Part of marketing planning concerned with sales-forecasting, devising programs to achieve sales target, and making sales budget. Sales potential See market share. Sales promotion Marketing activities that stimulate consumer purchasing and dealer effectiveness, such as display, shows and exhibitions, demonstrations, and various non-recurrent selling efforts not in the ordinary routine: not personal selling, not advertising and publicity. Sales quota Projected volume of sales for use in the management sales efforts for a specified period. Expressed in money or physical units. Sales research See marketing research and sales analysis. Salvage goods Material extracted from wreckage or destruction. Selective market coverage Restriction of outlets, usually to those which can serve the manufacturer profitably. Selective selling Policy of selling to limited number of customers in the market. Selling Process of persuading prospective customers to buy goods or a good service. Selling agent Agent who operates on a contractual basis, selling all of a specified line of merchandise or the entire output of his principal, with full authority on prices, terms, etc. of sale. Service wholesaler Wholesaler who renders all normal services expected in the wholesale trade. 199 Services Activities, benefits, or satisfactions offered for sale, or provided with the sale of goods. Customers for a product are really buying the "services" that the product provides. Skimming pricing High-price policy for introduction of a new product, to get largest possible recovery of new-product investment. Special-purpose equipment Equipment designed to perform a single-duty operation. Standardization Specifications for manufactured goods on products of agriculture and extractive industries. Stock or inventory control System to maintain stocks of goods at desired levels. Storage Holding goods between production and final sale. Strategic Marketing Strategic marketing is part of corporate strategy, which has three interacting components: the corporate mission, the product/market strategy, and the competitive strategy. The corporate mission depends upon a "Vision" for the company which concentrates energies on a common goal, and yet lets opportunities emerge. Visions that awake extraordinary performance have three things in common: a noble purpose, a sense of urgency, and clear boundaries. Product/market strategy defines markets, products and services, and the means to develop them. Competitive strategy deals with how the company intends to achieve a sustainable competitive advantage in its chosen product/markets. Sunk costs Costs from decisions already made; they are irreversible. relevant to pricing decisions. Not 200 Test marketing Sale in part of target market to test effectiveness of marketing mix in achieving objectives. Follows market testing. Total cost The total amount of money spent on cost of manufacture, selling expenses, and administrative overheads in the production of a product or group of products. See manufacture cost. Trade discount Discount for sale to another business in the same trade or industry, but not a cash discount. Trade-mark Brand name given legal protection. Trading area District determined by the boundaries in which it is economic to sell and/or deliver goods or services from a specific point. Traffic management Planning and direction of transportation in marketing. Truck wholesalers Wholesalers who combine selling, delivery, and collection in one operation. True cost A charge which is impossible to determine - cost must be defined for a specific purpose. Ultimate consumer One who buys and/or uses goods or services for final use, not industrial though. Usually the public. Value analysis System for determining most economical means of producing a product to perform specific functions. Variable costs Costs which vary directly with the volume of production or sales. See contribution. Relevant to pricing. 201 Vendor analysis Rating of potential suppliers as to performance and capabilities. Vertical market Narrow market for a particular trade or industry. See niche market for the consumer equivalent. Vision Tool for developing corporate strategy. An energizing picture, based on a view of the future, of what top management wants the company to become. View Tool for developing corporate strategy. View of what the future holds; what are the anticipated regulatory, competitive, economic and geopolitical environments in which the company must compete. Wholesaler Firm which buys and resells merchandise to retailers and other merchants and/or industrial, institutional, and commercial users. Does not sell to public. Zone pricing Pricing by specific zones, each with a different delivered price. 202 APPENDIX B - QUIZ Choose the most correct answer and mark the answer sheet a, b, c, d, with an ‘X’. DO NOT MARK THE QUIZ. 1. The public is affected by the market mainly by: (a) (b) (c) (d) 2. Products are classified as consumer or industrial according to their: (a) (b) (c) (d) 3. need to have stocks on hand cost of transportation affects cost of finished article problems in moving bulk loads necessity to have sound transportation programme To make consumers aware of a fabricated plastic material used in men’s clothing, manufacturers often use: (a) (b) (c) (d) 7. not being limited to one industry product life price repair services Economical raw material transportation is important because of: (a) (b) (c) (d) 6. promotion price distribution channels sales and service needs The market for multi-purpose as opposed to special purpose machinery differs mainly in: (a) (b) (c) (d) 5. nature - type of product technology price seller The marketing mix emphasis for major equipment (like computers which are installed) differs from the mix for smaller machines mainly in: (a) (b) (c) (d) 4. the price of products how well the products are engineered the suitability of consumer products available the nature of the industrial market itself trade magazines excessive guarantees advertising directed at the consumers trade fairs Component parts increase the value of a final product only if they: (a) (b) (c) (d) are absolutely necessary are technically desirable are a nice colour provide consumer user benefits 2 203 8. Marketing of manufacturing supplies and hardware goods for the general public are similar because of: (a) (b) (c) (d) 9. Any difficulty in measuring the size of the consumer market for insurance arises from: (a) (b) (c) (d) 10. vertical market horizontal market purely government market foreign market A horizontal market is normally a market for: (a) (b) (c) (d 15. an honest one an in-depth market in a few industries a limited market a horizontal market A manufacturer of jet aircraft instruments normally has a: (a) (b) (c) (d) 14. he then fears the future it must mean that business is bad his salesmen will lose initiative they are his final market A vertical market is: (a) (b) (c) (d) 13. industrial demand is derived rather than direct industrial prices fall more slowly than consumer prices industrial markets are less perfect industrial buyers are more rational Cutbacks by consumer goods manufacturers affect the industrial equipment manufacturer because: (a (b) (c) (d) 12. doing incomplete market research lack of government statistics lack of agreement on its definition obscure demand During recession industrial demand falls faster than consumer demand because: (a) (b) (c) (d) 11. price wide-spread markets similar salesmen advertising retreading machinery leather-working machinery meat hooks industrial lighting Industrial manufacturers of specialised equipment such as water valves do not normally follow the geographic decentralisation of their customers because of: (a) (b) (c) (d) economics and practicality low transportation costs relative to selling price the number of customers material transportation costs 3 204 16. Industrial purchases are divided up among approved suppliers in order to: (a) (b) (c) (d) 17. Emotional motives are important in consumer purchasing of whiskey when: (a) (b) (c) (d) 18. exploration screening market research sales training Market strategy always involves: (a) (b) (c) (d) 22. sexy advertising aggressive selling appropriate marketing mix new product development Under the marketing concept for soap products, the following are all part of new product development, except: (a) (b) (c) (d) 21. use only specialist salesmen find the most suitable market for his product limit sales and keep up price ‘divide and conquer’ Sales volume of men’s clothing is achieved under the marketing concept by: (a) (b) (c) (d) 20. prices are equal the seller knows the buyer personally all rational considerations are equal the amount of purchase is small Market segmentation enables the consumer marketer to: (a) (b) (c) (d) 19. ensure delivery ensure long-term relations with all of them improve quality make buying easier creation of new products selection of Marketing Mix selection of advertising mix selection of market segment To achieve lower costs we cannot increase product of children’s toys indefinitely because we will: (a) (b) (c) (d) run out of raw material need excessive engineering staff have lower profits not have enough storage space 4 205 23. If you pay too much attention to current industrial market problems, it often leads to: (a) (b) (c) (d) 24. A serious problem that top management faces in initiating sound industrial marketing planning is: (a) (b) (c) (d) 25. (d) co-ordinating all marketing efforts towards a common goal recognising departmental limitations personal selling technique selection of the marketing mix The marketing mix mainly is concerned with: (a) (b) (c) (d) 29. customer needs determine the firm’s survival and growth determine the actual and potential needs of customers and satisfy them continuously reshape marketing efforts to meet opportunities and demands more effectively produce the best engineered products possible Marketing strategy involves all of the following except: (a) (b) (c) (d) 28. competent sales staff proper price effective promotion and distribution marketing mix Under the marketing management concept, consumer orientation means all of the following, except: (a) (b) (c) 27. lack of communication about marketing objectives product obsolescence lack of enthusiasm excessive competition Marketing basically involves selection of a: (a) (b) (c) (a) 26. foreign competition coming in your missing out on potentially very worthwhile markets complexity of market segments your finances becoming weak volume profit the four P’s achieving top management objectives Demand which is usually widespread and requires a broader market normally concerns: (a) (b) (c) (d) convenience goods heroin and similar products basic essentials shopping goods 5 206 30. The demand for consumer goods is: (a) (b) (c) (d) 31. “In a consumer market, products not fulfilling the market’s needs have little chance of success. “This statement is: (a) (b) (c) (a) 32. correct or incorrect fixed or variable actual or standard true or false Under price leadership, the advantage of being a follower is mainly: (a) (b) (c) (d) 36. cost plus pricing independent pricing marketing pricing inter-dependent pricing When many products are manufactured, product costs are best classified for pricing purposes as: (a) (b) (c) (d) 35. always the key factor generally the key factor never the sole factor seldom the key factor In a line of radios with different grades, we normally adopt: (a) (b) (c) (d) 34. always true sometimes true half true false In the marketing strategy for a consumer product, “price” is: (a) (b) (c) (d) 33. direct from housewives direct from engineers derived from manufacturers derived from consumer needs economy of administrative costs undercutting assured market share by knowing how to price assured profit In a market with a limited number of buyers, pricing policy is very dependent on: (a) (b) (c) (d) the demand for his buyer’s products the buyer’s cost structure flexible pricing stable pricing 6 207 37. A pricing policy designed to have the same price to customers in a specific area is: (a) (b) (c) (d) 38. All of the following are normally functions of pricing policy except: (a) (b) (c) (d) 39. aggressive selling should be applied the product should be eliminated as soon as a better alternative can be found the product should not be eliminated too quickly sellers have got to get together to “fix” the market! The product development department budget is best justified in terms of: (a) (b) (c) (d) 43. lower price below total cost limit market to specific segments set up long term arrangements with major retailers any of these If a product takes an irreversible downward trend in sales and seller is not recovering variable costs: (a) (b) (c) (d) 42. full cost cost plus what the market will pay a fair profit To avoid competition, the firm could: (a) (b) (c) (d) 41. achieving target return on investment helping salesmen sell with no difficulty maintaining or improving market share avoiding competition Except when a line of industrial products with different grades are marketed, price is generally related to: (a) (b) (c) (d) 40. zone pricing competitive pricing basing point pricing f.o.b. pricing product sales necessity of product developments for long-term company survival product net profit personal needs of the development manager When sales volume of a food product is increasing and profits increasing, this is the period of: (a) (b) (c) (d) growth maturity saturation heavenly blue 7 208 44. When sales volume is very slowly rising and profits are falling, this is the period of: (a) (b) (c) (d) 45. A marketing -oriented executive views product development as: (a) (b) (c) (d) 46. mainly research taking an intelligent chance on new products a company-wide activity under the direction of marketing a company-wide activity under the direction of engineering Marketing segmentation is: (a) (b) (c) (d) 47. growth maturity decline sadness the same as product differentiation similar to product differentiation dividing the market by customer aimed at dividing the market by product We can justify retaining a product in the short run if it: (a) has involved large Research and Development (b) contributes and aids the product line (c) does not earn a contribution (d) satisfies customers 48. Planned obsolescence is: (a) (b) (c) (d) 49. The main reason for product diversification is to: (a) (b) (c) (d) 50. boost company morale achieve greater rate of growth of sales and profits follow competitive companies use excess company funds effectively Product policy is concerned with: (a) (b) (c) (d) 51. justified if the customer will stand for it always profitable a necessary part of technological change generally profitable product deletion all of these the character and number of product lines product, quality and guarantees Product planning involves all of the following except: (a) (b) (c) (d) developing competitive weapons requiring adjustment to shifting market opportunities avoiding risk taking cognisance of environmental changes 8 209 52. Product mix is mainly broadened to: (a) (b) (c) (d) 53. The key feature in new product development is: (a) (b) (c) (d) 54. stabilizing of sales volume standardization of product catering for consumer purchasing patterns achieving higher company prestige There is a general tendency to market directly because middlemen, amongst other things: (a) (b) (c) (d) 58. consumer purchasing patterns distribution costs competition all of these The basic premise of mass coverage is: (a) (b) (c) (d) 57. sometimes true false true not relevant to marketing Market coverage or the number of outlets in a trading area is determined by: (a) (b) (c) (d) 56. new product ideas co-operation in setting target dates commitment to substantial investment adequate channels of distribution “In the long run price of a successful product must cover total cost. “ This statement is: (a) (b) (c) (d) 55. utilize by-products meet competition make salesmen more effective fit customer requirements all of the below fail to seek out new customers do not devote enough time to manufacturers’ products or customers do not ‘sell’ - just take orders Manufacturers market indirectly: (a) (b) (c) (d) not to make a large financial commitment on a long-term basis to lessen selling expenses to gain access to market segments from which they are otherwise barred all of these 9 210 59. A manufacturer would use a sales branch without stock rather than with stock: (a) (b) (c) (d) 60. In selecting the major type of outlet to be used, a manufacturer should consider, in the first instance: (a) (b) (c) (d) 61. building primary and selective demand making immediate sales introducing products to new segments of the market introducing new special events A consumer marketer, in developing a favourable marketing image, is trying to establish: (a) (b) (c) (d) 65. because advertising is a continuous process because advertising agents lose motivation because the budget has already been set because customers expect you to advertise All of the following are specific promotion objectives except: (a) (b) (c) (d) 64. tracing salesmen paying salesmen well joint calls to enhance the prestige of the normal salesman using them to prepare the way for the regular salesmen It is risky to disrupt the continuity of the advertising effort (a) (b) (c) (d) 63. outlets used by competitors the needs of his target market relationship with his sales force product price The manufacturer can ahieve the greatest success with missionary salesmen by: (a) (b) (c) (d) 62. to avoid additional financial burden if customer service is not performed at branch level if customers do not buy often and/or in small quantities all of these that the firm’s products fulfil the marketing needs best that the firm is large enough to handle customer orders the firm is growing that he has an attractive personality A pull/push promotion strategy has the following objectives: (a) (b) (c) (d) to increase profits to attract consumers and influence their purchasing decision to keep traders happy to segment the market 10 211 66. “Successful advertising reduces the overall cost of selling.” This statement is: (a) (b) (c) (d) 67. Deciding the advertising media to use involves all the following except: (a) (b) (c) (a) 68. the customers are changing the products are changing each new decision requires a fresh evaluation of all the factors involved the external environment is changing Planning for industrial marketing is: (a) (b) (c) (d) 72. advising us on how to develop new products competence in copy, layout and media selection advising on sales training liaison with other specialists It is dangerous for a marketer to rely too heavily on past experience in making marketing decisions because: (a) (b) (c) (d) 71. flexibility in territorial coverage all of these control over timing audience selectivity In practice the key function of an advertising agency is: (a) (b) (c) (d) 70. media reach in the target market media frequency of exposure the media we prefer media cost per thousand The advantage of direct mail selling is: (a) (b) (c) (d) 69. true false sometimes true irrelevant to marketing statement of objectives definition of assumptions a whole series of steps including the three mentioned here evaluation of alternatives Research and Development strategy seeks to: (a) (b) (c) (d) direct R & D efforts towards the market co-ordinate R & D efforts with production measure the productivity of marketing disorganize the R & D function 11 212 73. In marketing control seeks to: (a) (b) (c) (d) 74. Control is essential in marketing because: (a) (b) (c) (d) 75. price and product product and marketing product and selling consumer orientation Market research seeks mainly to: (a) (b) (c) (d) 80. it is always based on past costs and prices it is relevant only for limited sales volumes it pretends that costs are fixed or variable all of these Marketing should involve strategies for: (a) (b) (c) (d) 79. they are made for tame accountants they fail to recognize “opportunity” value of marketing management information personal whims play a major role in keeping the reports they report only in money The biggest drawback to break-even analysis is: (a) (b) (c) (d) 78. want to be conservative relate it to total industry sales know it is usually complicated use it as a performance standard Accounting reports are not normally useful for marketing because: (a) (b) (c) (d) 77. marketing staff do not work without it you cannot make money without it it is the means of keeping an operation going according to plan inefficiency is normal Our target of market share should be automatically adjusted when we note increased competitive actions because we: (a) (b) (c) (d) 76. balance authority and action improve decision making and planning by a rapid feedback of results promote creativity and effectiveness limit information flow to responsible authorities provide management data for marketing decisions gather information measure markets analyse sales results Continuous assessment of marketing opportunities assures that a company will be: (a) (b) (c) (d) dynamic in marketing and production prepared to meeting changing marketing opportunities able to identify challenges and problems profitable 12 213 81. Penetration pricing implies that the firm: (a) (b) (c) (d) 82. Skimming pricing: (a) (b) (c) (d) 83. will encourage small orders are useful when lower distribution cost is a function of the size of order do not penalize the large buyer who makes an occasional small purchase are useful in marketing major equipment Cash discounts to customers: (a) (b) (c) (d) 87. do not hold the loyalty of buyers should be employed when lower distribution cost is related to the size of the order do not penalize the buyer who makes a series of small purchases probably will eliminate small orders Non-cumulative quantity discounts: (a) (b) (c) (d) 86. is a high degree of price elasticity are substantial economics of scale is an absence of patent barriers all of these Cumulative quantity discounts: (a) (b) (c) (d) 85. means setting a high price to maximize initial return implies that the firm wants to saturate as much of the market as quickly as possible is a means to exploit a specific segment of the market is a sound strategy when there are high R & D costs Penetration is a sound strategy when there: (a) (b) (c) (d) 84. desires to exploit a specific market segment wants to maximize the recovery rate on a new product investment wants to saturate as much of the potential market as quickly as possible wants to establish a long-term market position encourage immediate payment reduce price all of these pass on savings to the buyer Price competition is most important during which stage of the product life cycle: (a) (b) (c) (d) introduction growth maturity decline 13 214 88. Contribution pricing means pricing above: (a) (b) (c) (d) 89. A firm can have greater say in fixing its prices with: (a) (b) (c) (d) 90. there are more buyers prices are lower there are more products of inventory policies Demand for industrial goods is derived because: (a) (b) (c) (d) 95. marketed directly by manufacturers not identifiable in the finished product marketed by middlemen major purchasing decision Demand for industrial goods fluctuates more widely than demand for consumer goods becuase: (a) (b) (c) (d) 94. planning principles post-mortem promotion Operating supplies for a manufacturer are always: (a) (b) (c) (d) 93. variable fixed true still too high! The marketing mix involves: Product, Price, Place, and: (a) (b) (c) (d) 92. extensive distribution strong salesmen a good reputation product differentiation In pricing we are mainly concerned with product costs that are: (a) (b) (c) (d) 91. total cost fixed cost variable cost material cost it is affected by top policies it is dependent on consumer demand it depends on the wholesale price index none of these A sudden market price rise of an industrial product will probably: (a) (b) (c) (d) bring a growth in total demand bring a decline in total demand not affect total demand cut back supply 14 215 96. In a vertical market: (a) (b) (c) (d) 97. Vendor analysis: (a) (b) (c) (d) 98. information gained by your sales force advice of all the executives concerned all the corporate resources examples from other successful products Rational buying motives imply: (a) (b) (c) (d) 100. concerns the buyer’s characteristics concerns the seller’s characteristics concerns both buyer’s and seller’s characteristics picks the best coffee machine In the development of a product policy one has to use: (a) (b) (c) (d) 99. a large sales force is necessary there are many customers an extensive distribution system is needed a change in the buying pattern of a single customer can cause wide variations in sales concentration on price only a high degree of guesswork buying in the open market consideration of many factors as well as price Sound consumer marketing is dependent on: (a) (b) (c) (d) good products keen prices sound marketing planning strong sales force 216 Our Answers to the Quiz I-c 2I - d 4I -d 61 - a 2-a 22 - a 42 - d 62 - b 3-d 23 - c 43 - c 63 - c 4-a 24 - a 44 - d 64 - d 5-b 25 - d 45 - a 65 - b 6-c 26 - a 46 - c 66 - a 7-d 27 - c 47 - d 67 - b 8-b 28 - b 49 - c 68 - c 9-b 29 - a 49 - a 69 - a 10 - a 30 - b 50 - d 70 - c II-d 3I - c 51 - b 71 - b 12 - a 32 - d 52 - a 72 - .4 13 - c 33 - b 53 - b 73 - a 14 - b 34 - b 54 - a 74 - d 15 - c 35 - a 55 - a 75 - b 16 -d 36 - c 56 - c 76 - d I7 - b 37 - c 57 - d 77 - d 18 - d 38 - c 58 - b 78 - b 19 - b 39 - b 59 - c 79 - d 20 - a 40 - c 6o - c 80 – c 217 APPENDIX C – FURTHER STUDY- 218