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Unit 1: Early Marketing Thinking ideas Principles of Marketing (MM101) Definition of Marketing Kotler (1972) defines marketing as a social and managerial process by which individuals and or groups obtain what they need and want through creating and exchanging products and value with others. Key terms in the definition Social process – marketing involves interactions of human beings during the exchange Managerial – it involves fundamentals of management which include planning, organising, leading, implementation and control Process – ongoing activity, never ending, not sporadic Individuals and groups – marketing activities take place involving parties either as individuals or groups Needs – state of felt deprivation, drive which propels action towards achieving a certain objective, a need is usually expressed in a general mode Wants – a want is expressed in a more specific way and usually in a luxurious mode Value – refers to how something is worthy usually expressed in monetary terms. It also refers to the amount of benefits that accrue to the parties less expenses incurred in obtaining such benefits. CIM – defines marketing as a management process responsible for identifying, anticipating and satisfying customer requirements profitably. Identify key terms in the Chartered Institute of Marketing (CIM)’s marketing definition. Role of Marketing Identifying customer needs and wants Providing market information on product development projects Providing interface between the organisation and the market Gathering information about market dynamics (competitor activities) Distribution of products from where they are produced to places convenient for the consumers Promotional activities Evolution of the Marketing Concept It evolved from the primitive bartering process Barter trade involved exchanging products for other products of equal or equivalent value Conditions for Bartering process There must be at least two participants Each party must have something desired by another party Items exchanged must be of equal or equivalent value Marketing as we know and practice it today evolved through several stages/eras/philosophies as follows: Production orientation Began around 1600 Marketing was disregarded and mgt believed that consumers would on their own accord look for products and services they needed Adam Smith (1776) criticised this approach in his book the Wealth of Nations, when he said “Consumption is the sole end and purpose of production” This approach was ignored until much later Before mechanization families could produce goods for consumption Certain families started developing skills to specialise producing specific goods on order and for bartering process Only products needed could be produced, a clear indication that the process was market driven, However after the industrial revolution this attitude was abandoned as goods were produced in mass by machines. Management was concerned with production problems and all management efforts were dedicated towards this. Supply eventually exceeded demand Gradually, stocks of goods began piling and accumulating bringing mgt to realise the importance of getting rid of accumulated stocks Product orientation Other businesses are guided by this concept, which holds that consumers favour those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time, assuming that buyers can appraise quality and performance. Juran (1954) fitness for use-design, conformance, availability, safety and field use Crosby (1979) conformance to requirements Deming (1989) conformance to a set of standards, (b) a product that meets customer wants and needs Selling Orientation It began around 1900 Management realised that something had to be done to get rid of the piling stocks During this time seller’s market became a buyer’s market Ads were placed to inform consumers on the availability of products Sales reps were employed to push products to the market However much producers tried to push the products, goods could not sale fast and management instituted unethical selling strategies. Camels were used in transporting goods to far and near places Growing complaints emanating from unethical selling practices led to the birth of consumerism in the USA Consumerism is a social movement aimed at protecting the rights of consumers against exploitation by unscrupulous producers or service providers. Marketing concept The marketing concept, based on central tenets crystallized in the mid-1950s, challenges the three business orientations we just discussed. The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets. Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: “Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.” The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and profitability. Societal Marketing concept Some have questioned whether the marketing concept is an appropriate philosophy in an age of environmental deterioration, resource shortages, explosive population growth, world hunger and poverty, and neglected social services. Are companies that successfully satisfy consumer wants necessarily acting in the best, long-run interests of consumers and society? The marketing concept sidesteps the potential conflicts among consumer wants, consumer interests, and long-run societal welfare. Relationship Marketing concept/Mega Marketing orientation 1to1 marketing Moving away from transactional marketing focusing on a relational approach New ideas and thinking e.g. CRM, KAM Unit 2: The Marketing Environment Internal Environment 6 Players i.e customers, competitors, shareholders, employees, suppliers and the media External Environment PESTEL/PESTLEG Unit 3: Market Segmentation, Targeting and Positioning Unit objectives To explain the concept of market segmentation To highlight prerequisites for effective market segmentation To explain the bases for market segmentation To highlight the merits and demerits of segmentation To explain the term “target marketing” To outline factors considered when selecting a target market Introduction The marketing concept calls for marketers to develop a market offering that is capable of satisfying customer needs, demands AND PREFERENCES. In an ideal situation, marketers are expected to provide a customized product, a separate price and unique promotion and an exclusive place for every potential customer in the market. However, this is not feasible as it becomes far too expensive and demanding especially in a highly heterogeneous market. Marketers realised that trying to satisfy each and every customer in the market is very costly and unrealistic, therefore they decided to generalise the needs of the heterogeneous market. Moreover, marketers realised that they cannot be “all things to all people” but they have to focus on satisfying specific customer needs and to concentrate on what they do best for them to remain competitive on the market. The Aggregate market Before the concept of market segmentation, most companies were pursuing a market aggregation strategy. In this approach, companies would develop one product and supplied to the market hoping that such a product would appeal to every consumer in the market place. Henry Ford pursued this strategy where he manufactured one standard model car the ‘T Model’ and the pay off line was “you can get it as long as it is in black”. This strategy completely ignores the differences exhibited by different consumers in the market. Before 1950, Coca Cola also pursued a market aggregation strategy by offering one standard product to all the masses of consumers throughout the world. Before 1980, banks throughout the world were also offering one or few banking services believing that these could appeal to the customers. Today the situation is different as banks are now offering a variety of services appealing to the babies, school children, pensioners, professionals and investors among others. Taking a Zimbabwean perspective, identify companies that were as well as those that are still pursuing a market aggregation strategy. Segmentation defined. Van Der Walt (1996) defines market segmentation as a process of dividing a heterogeneous market into fairly homogeneous subsets of customers. Each segment is assumed to have homogeneous needs and will respond in a similar fashion to the marketing strategy. Delta beverages market can be segmented into the following segments: Lager segment Carbonated soft drink segment Sorghum or Chibuku segment NB above segments can still be subdivided into small subsets e.g the lager segment can be subdivided into premier lager market (bohlingers, Pilsener, Zambezi, etc.) and low cost lagers (Eagle, Lion, Castle, Black label) Merits of segmenting the market Allows marketers to focus more accurately on customer needs The differences exhibited on the market can easily be identified and respond accordingly A greater degree of customer satisfaction can be realised Easy to identify opportunities in the market Allows for customisation of the market offering Facilitates resource allocation Choice of promotional tools is facilitated Demerits of segmenting markets Developing products for each segment and separate marketing strategies becomes expensive Limited market coverage Excessive differentiation may lead to proliferation of products and services resulting in cannibalisation (This is a situation where one product takes away the market share for another existing product of the same firm.) Requirements for effective for effective segmentation It must be borne in mind that market segmentation should satisfy mainly two stakeholders i.e customers - offering products that create satisfaction and shareholder (through profitability). When segmenting markets, consideration should be given to the criteria suggested by Kotler (1992) in Van Der Walt (1996). Requirements include:(1). The market must be measurable – consider factors such as market size, purchasing power, potential profit and profile of the market must be measurable. (2). It must be large enough – Normally a segment that is too small may not be profitable as compared to a large market. (3). It must be accessible – the marketer must be able to reach the segment either through physical or electronic means. Also think of the promotional tools that can be used to communicate with the target audience, e.g people in the rural areas in Zimbabwe may not be accessible through internet or online advertising (4). It must be actionable – it must be possible to develop separate products for each segment. The firm must have staff and resources to serve the segment (5). It must be differentiable – customers in different segments must exhibit different needs and desires. For example, married women and unmarried woman must respond differently to the marketing strategy (Sale of perfume) if otherwise it can be treated as one segment Q. Africa Sun wants to segment its hotel market into five sub markets. State and describe the submarkets. Discuss the steps that are followed when a marketer wants to segment a market. What are some of the weaknesses of the multiple segmentation approach? Segmenting Consumer markets Geographic segmentation The market is divided according to geographic variables such as nations, regions, states countries or locations. This is important because consumers in different locations exhibit different needs and wants. For instance consumers in hot countries require motor vehicles with cooling system while those in hot countries require vehicles with warm facilities. With segmentation marketers can customize the marketing mix and marketing strategies. Size of the city or town (under 10 000, 10 000-20 000, under 1000000, 1000 000 etc Density (urban, rural, suburban Climate summer rainfall, winter rainfall, very hot, humid, very hot and dry Demographic segmentation Market is divided on the basis of variables such as age, sex, gender, family size, income, occupation, education, religion, race, generation, and nationality. These variables are believed to be the most popular variables employed by marketers in segmenting consumer markets. Gender (female/males) Age (youth, teenagers, middle aged, elderly, etc) Family size (under five children, above 5 and below 10, ten plus) Family life cycle (young, married, without children, young married with children, older married with children , empty nest) Income less than US$500, Below $1000, US$1500-$2000, $5000 and more Occupation (professional, managerial, clerical, white colour, farmers, students, house wives, unemployed, retired Religion (Hinduism, Budhaism, Christianity, Shintoism, Jewish Race (black, coloured, white, Asian) Education (professors, doctorate holders, masters degree, First degreed, diplomas, none) Psychographic segmentation Divides the market based on variables such as Social class (upper class, upper middle class, lower middle class, lower class Lifestyle – trend seekers, status, casual, air travellers, holiday makers Personality – dependant, independent, authority, gregarious, ambitious Behavioural segmentation Market is divided on the basis of variables such as Purchase occasion regular use, special occasion) Benefits sought (economy, convenience, prestige,, speed User status – non user, ex-user, potential, user, regular user) Usage rate (heavy user, light user, medium user) Loyalty status, (none, medium, strong, absolute) Sensitivity segmentation Quality, price, service Bases for segmenting industrial markets Q. State and outline three bases that companies use when segmenting industrial markets. Target marketing In selecting which segment to enter the marketer has to examine opportunities and threats in the various segments. The firm has to decide the number of segments it can serve and this is done after an assessment of the attractiveness of the segment. The following factors must be considered before qualifying a segment Segment size Growth potential of the segment Segment structural attractiveness (level of competition in the segment, existence of potential substitutes may limit price freedom, and profits that can be earned from that segment, relative power of buyers affects segment attractiveness, will try to force prices down) Company resources and objectives Expected profitability Assessing the attractiveness of segment Attractiveness factors Rating* Weight** Score Large Market size 5 8 40 Growth rate of segment 4 9 36 Good Access to raw materials 5 8 40 Favourable Regulatory climate 4 6 18 Fewer competitors 4 7 28 High prospects of Profit potential 5 8 40 Investment intensity 2 4 8 Total score 200/350 It can therefore be concluded that above segment is fairly or relatively attractive since the total score is above half. Decision can be that of penetrating the market. NB. *Rating is on a 5 point scale, 5 = very attractive **Weight on a 10 point scale, 10 = very important Selecting the target market There are basically 3 broad approaches namely concentrated, differentiated and undifferentiated marketing (1). Concentrated marketing / Niche marketing Most suitable when a company has limited resources Concentrating one offering to the segment or niche(s) Greater knowledge of consumer needs A company targets one or few segments which it can fully serve in terms of customising products, and other marketing mix variables This is predominantly a strategy followed by smaller firms Firm can achieve greater customer satisfaction The challenge is that a firm’s eggs are all in one basket The strategy leads to greater expertise in production, distribution and promotion Risk of product failure is high If competitors enter that market the market can finds itself in the cold Q. Identify a company in Zimbabwe that pursues niche or concentrated marketing strategy and discuss the merits and demerits of this strategy (2). Differentiated Marketing Enterprise selects two or more segments developing separate strategies for each segment Allows the firm to cater for specific diverse needs of the different segments General Motors follows this strategy and is developing cars for each ‘ purse, personality and purpose’ Expensive strategy since the firm has to develop separate strategy for each segment (production costs, admin costs, promotion costs, inventory costs since a greater variety of products have to be maintained.) Undifferentiated marketing/mass marketing A firm disregards differences on the market and targets the whole market with one offer Strategy focuses on what is common rather than on what is different Firm develops a product and strategies that will appeal to the majority A firm may have problems in competing with firms that focuses on particulars segments with specific marketing mix strategy Micro marketing Is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations It includes local marketing and individual marketing Local marketing involves tailoring products and services to the needs and wants of local customers (customers in different cities may require different services and attention) LM can drive up marketing costs and reduce economies of scale A brand’s overall image might be diluted if the product message vary greatly in different locations Helps the firm to market effectively in the face of pronounced regional and local differences in demographics and lifestyles Helps the company to meet the needs of first line customers (trade) Individual marketing Also known as mass customization/ markets of one/one to one marketing Involves customising products and marketing strategies to suit specific needs of the individual customers Dell manufactures custom-configured products Q1. Identify companies in Zimbabwe that pursue this strategy and discuss whether the strategy enables such companies to command a market leadership position. Q2. Explain how companies identify attractive market segments and choose a target marketing strategy Product Positioning Refers to the way consumers perceive a product in terms of its characteristics relative to competition It has to do with competitive differentiation It involves implanting the brand’s unique image, benefits and differentiation in the minds of consumers Positioning methods Attribute positioning e.g Benson and hedges position their cigarettes in terms of lightness and taste Benefit positioning – emphasizes unique benefits consumers get from using a product .eg Gillett blades promise an even closer shave User/application positioning- position in terms of product use e.g Grac’a wine position wine as a wine to be enjoyed at all kinds of occasions User positioning – position products with users in mind, e.g thrill seekers, fun seekers, status seekers Competitor positioning – against competitor offerings, Kana usina drosky hauna chigayo, car rental USA “wioe are number two” Quality/price positioning – affordability, exceptional quality through high price, unbeatable prices. Payless at payless. Product Mix Refer to all the products which the enterprise offers to its target markets in order to satisfy their needs It is also known as the product offering/ product portfolio Includes all the product ranges, product items and product lines Product Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need A product can also be known as a service A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything Levels of product Formal product Refers to a physical object or service offered to the market place e.g a television set, a motor car, educational programme. All formal products are characterised by certain technical attributes, material composition, level, packaging, trade marks Core product Refers to the actual essential benefit or need satisfaction that consumer get from using a product A mother buys a detergent not because of its chemical composition or other attributes but she buys hygiene and praise from friends. Similarly a lady who buys Revlon products is actually buying beauty Augmented product Includes all the benefits that consumers receive experience in perceiving, utilising , obtaining and applying the formal product All after sale services such as packaging, customer advice, delivery , warehousing and other extras that converts a formal product into an augmented product Installations Warranties – guarantee, a written assurance that some product or service will be provided or meet certain services Expected product What a product is capable of satisfying in the future Capable of modification Product and Service classifications Products can be classified broadly into consumer products and industrial products Consumer products Refer to products or services bought by final consumers for personal usage Can be classified as convenience, shopping, speciality and unsought goods Classification of consumer products and their marketing considerations Marketing Convenience Shopping Speciality considerations Unsought Customer buying behaviour Frequent, little planning, shopping effort, low customer involvement Less frequent purchase, much planning and shopping effort, lot of comparison on price, brands, quality, style Strong brand preference, special purchase effort, little comparison of brands, low price sensitivity Little product awareness, knowledge, little or negative interest Price Distribution Low price wide spread distribution, convenient locations Mass promotion by the producer High price Selective distribution in fewer outlets High price Exclusive distribution Varies Varies Advertising and personal selling by both producer and retailers Targeted promotion Aggressive ads, personal selling Promotion Examples Examples of convenience Toothpaste Magazines Laundry Shopping products Major appliances Televisions Furniture Clothing Specialty products Luxury goods Unsought goods Life assurance, red cross, Blood donations Industrial products Products which are purchased for further processing or use by organisations to produce other products Distinction between consumer products and industrial products is on the purpose for which the product is bought New product Development strategies Objectives To show the meaning of a new product To identify different sources of new product ideas To explain why firms introduce new products To explain the new product development process through 8 stages To explain challenges faced companies when developing new products `1 What is a new product? A new product refers to: A product that is original which represents a complete innovation (new to the world) Product improvements Product line extensions A product that is new to the company e.g acquisitions of a company or product A product that is new to the market Examples of new products developed over the past 40 years Computer CDs DVDs Television Calculator Soft ware products Sources of new product ideas According to Gustav and Larson (1950) the following constitute sources of new product ideas Internal sources Research and development programmes Employees Management External sources Competitors e.g reverse engineering Customers Suppliers Distributors Why firms introduce new products? Developing new products is a part of the firm’s marketing strategy to achieve the following: Firms introduce new products in order to increase market share To enhance the firm’s competitive edge Firms may introduce new product as a response to customer demands, preferences and needs Firms introduce new products as part of the firm’s innovation strategy to remain pioneering in the industry Why new products fail? Market size having been over estimated Failure to incorporate customer needs during the design state Delay in time to market Improper product positioning Wrong prescription and manipulation of marketing variables (mix) e.g high price, too low price, inappropriate promotional strategies The new product development process There are several stages that firms follow in the process of coming up with new products. The following are common stages Idea generation This involves generating ideas for the development of new products Brainstorming of ideas is done in tying to gather as many ideas as possible Method and madness normally allow companies to generate as many ideas as possible Firms get ideas for new products from both the internal and external sources Employee empowerment normally encourages innovation and creativity Bootlegging – working on projects of personal interest Idea screening Involves dropping unprofitable ideas and adopting those that are worthwhile Technical feasibility is considered when screening ideas On generating ideas, a firm may have over a thousand ideas and these have to screened Firms normally establish a new product development steering committee and the committee can be mandated to evaluate the ideas generated For ideas to be adopted they have to be consistent with company resources and objectives Concept development and testing Attractive ideas that survive the screening process have to be developed into a product concept A product concept is a detailed version of the product idea which is normally expressed in consumer terms A low fuel consumption car appealing to the low income people A four wheel drive land rover suitable for mountainous terrains Groups of consumers will then be invited and asked about what they think about a prospective product. The concepts are presented to the consumers either symbolically or physically. Consumers can be shown the pictures of the proposed cars, the size, colour, and make. Consumers are expected to give their inputs on what they think is good on that product. It is important for a number of concepts to be tested so that consumers have wide choice. Marketing strategy development After concept development comes marketing strategy development. This stage consists of 3 parts namely (1) description of the market – e.g professionals, high income individuals, large families e.t.c ]\(2) The planned positioning e.g economical to operate, fun to drive. (3) The projected sales e.g Toyota is expected to sell 2000 units of Fortuna in the first quarter of 2011of which US$500 million can be realised. In the second year Toyota is expected to sell 200 000 of Fortuna CARS and a profit of US$50 million is expected to be generated. Other strategies can relate to distribution, promotional strategies e.g heavy advertising budget for the cars. Business analysis This involves a review of sales, expected costs (cost of production, costs, storage costs, distribution costs, promotional costs, cost of labour e.t.c, profit projections Review of sales history of like products of the company is also made Forecasting of sales, profits and cost projections Opportunity and risk assessment Assessing the general expected attractiveness of the product on the market is also done at this stage. Product development Here a product concept is translated into a prototype A physical product is produced Actual engineering takes place where attributes spelled out during morphological analysis are incorporated Test marketing Product/ service is exposed to a carefully chosen sample/population before its full scale launch Unit 4: Consumer Behaviour (CB) Why study the field of CB? Determinants of demand Buyer roles Decision making process Adoption process Stages in the adoption process Q. Unki mines wants to segment its market in order to achieve maximum efficiency and effectiveness in creating and delivering value to its customers. To achieve this it has to segment its organisational customers. State and outline the variables that Unki has to employ in segmenting its platinum market. Q. There external and internal variables that affect consumer buyer behaviour. State and outline 2 variables in each category. Q. The world has become a global village, discuss four major challenges of global marketing. Demographic, purchasing characteristics, purchasing approaches, situational factors, personal characteristics, Q. Petrotrade Zimbabwe is in the distribution of petroleum products. Discuss the factors that affect its distribution decisions. Q, Discuss the industrial decision making process Q. CBZ bank pursues micro marketing strategy in its banking products. Using examples, discuss the pros and cons of this strategy Q. SeedCo, a seed manufacturing company in Zimbabwe wishes to segment its market into 5 sub markets. (1). Discuss how geographic segmentation variable will facilitate the segmentation process. (2). What are some of the weaknesses of this multiple segmentation approach.?