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Level
3.0 PROFESSIONAL DIPLOMA IN SALES AND
MARKETING
MANAGEMENT
Module
11 FINANCIAL AND INFORMATION MANAGEMENT
Professional Diploma in Sales and Marketing Management
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Professional Diploma in Sales and Marketing Management
Content
1 MANAGEMENT INFORMATION
Marketing Information System
Types of Organizational Information
2 INFORMATION & COMMUNICATION TECHNOLOGY SUPPORTING
Computer in Marketing
Control of Stocks
3 FORECASTING INFORMATION FOR MARKETING
Financial Feasibility
Break-even Analysis
Product Pricing Methods
4 FINACIAL INFORMATION TO SUPPORT MARKETING DECISIONS
Developing & Managing Customer Relationships
Types of Customer Relationship
5 MARKETING RESEARCH INFORMATION APPLIED TO MARKETING
The importance of information
Marketing Research
Customer communication
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1 Management Information
Marketing Research and Marketing Information Systems
To operate effectively in the marketing environment, it is necessary to obtain adequate information before
and after making decisions. There are many reasons why marketing information should be collected when
construction, implementation and revising a firm’s marketing plan or any of its elements. It is an undisputed
fact that systematic information gathering would increase the probability of success for marketing. The
conventional wisdom about the evaluation and use of marketing research by marketing managers suggests
that in future managers will use marketing research appropriately in the decision environment to reduce
uncertainty and to make decisions better than the ones they would make in the absence of relevant research.
Research findings are essential in planning and developing marketing strategies. Information about target
markets provides vital input on planning the marketing mix and controlling marketing activities. It is no
secret that companies can use information technology as a key to gaining an advantage over the
competition. In short, the marketing concept/philosophy of customer orientation can be implemented better
than adequate information about customers is available.
Marketing research and Information systems provides insight for carrying out the marketing concept.
Without adequate information and research, the marketing concept cannot be effectively implemented. With
the intense competition in today’s market place, it is not wise to develop a product and then look for a
market where it can be profitably sold. Marketing Research and marketing information helps firms avoid the
assumptions and misunderstanding that could lead to poor marketing performance and often product
failures. Implementing the marketing concept through effective marketing intelligence enhances a firm’s
ability to compete successfully in internal and external markets as well. In fact, marketing intelligence is an
absolute necessity when a firm is entering foreign markets for the first time.
It was stated in an earlier chapter that marketing is a blend of art and science. Most marketing decisions,
even today, are based on the manager’s own experience and judgment without any scientific basis or
support. Such decision-making represents the art of marketing. By contrast, when faced with decisions of
great importance, managers generally ask for more information.
Gathering, interpreting and reporting that information represents the most scientific aspect of marketing.
Marketing Information System (MKIS)
Before proceeding further, it may be stressed here that the MKIS is part and parcel of a still wider concept
know as Management Information System (MIS). In other words, formal procedures for generating and
receiving marketing information are part of the organisation’s overall management information system.
Marketing managers are also recipients of benefits of such a system along with their counterparts in
production and finance.
Marketing Research
An elaborate definition for the term has been given by AMA, which reads as follows:
“The systematic gathering recording and analyzing of data about problems relating to the marketing of
goods and services. Such research may be undertaken by impartial agencies or by business forms or their
agencies for the agencies for the solution of their marketing problems and the inclusive term which
embraces all research activities carried out in connection with the management of marketing work. This
definition emphasizes that to be effective, Marketing Research should be:
1. Systematically carried out
2. Considered as one involving a series of steps or a process (e.g. it includes data collection, recoding,
analysis etc.)
3. Based on data made available form different sources
4. Applied to any aspect of marketing that requires information to as decision-making.
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There is a wrong presumption that marketing research is a costly and time-consuming process. This is not
fully true. Because a decision to used marketing research does not mean that it should always be extensive.
The firm may achieve personnel. What marketing research does require is a systematic approach and
adherence to principles of objectivity, accuracy, and thoroughness. The amount and cost of marketing
research depend, to a large extent, upon that amount of information required, the formality of research, the
level of new data that must be collected, and the complexity of analysis.
Aims and Objectives
The aims and objectives of Marketing Research may be summed up as:
To define the probable market for a particular product and to find out general market conditions
tendencies.
1. To assess competitive strength and policies
2. To estimate potential buying power
3. To indicate the distribution methods best suited to the product and market
4. To know customer acceptance
and
Thus Marketing Research is the vehicle by which information is obtained about present and potential
customers, their reactions to present and prospective marketing mixes, the changing character of the external
environment and the degree to which existing marketing programmes are achieving their goals.
Elements of Marketing Research
1. Market Research. It covers the aspects regarding size and nature of market including export markets,
dividing the consumers in terms of their age, sex, income (market segmentation). It may include market
share, market potential.
2. Sales Research. It realities to the problem of regional variations in sales, fixing sales territories,
measurements of the effectiveness of a salesman, evaluation and impact of sales methods and incentives
etc.
3. Product Research. It relates to the analysis of the strengths and/or weaknesses of the existing product,
product testing problems relating to diversification, simplification, trading up and trading down (i.e., all
product lien decisions), etc.
4. Advertising Research. In essence, it is a part of product research. But recent development in packaging
and its contribution to advertising has led it to occupy an important position in marketing. To know the
impact and its response in the market has become an independent research field.
5. Advertising Research. It undertakes a study relating to the preparation of the advertisement copy (copy
research), the media to be used (media research) and the measurement of advertising effectiveness.
6. Business Economics Research. Problems relating to input-output analysis, forecasting, price and profit
analysis, and preparation of break-even charts are the main fields of this research.
7. Export Marketing Research. This research is intended to study the export potentials of the product. In
such cases any or all kinds of research mentioned above become necessary. (The list is not conclusive
but is only illustrative).
Scope and Uses of Marketing Research
Marketing research is of comparatively recent origin. It is stated that the first formal marketing research
organisation was established in the U.S.A. in 1911. Though it made a slow beginning, its growth in a short
span has been tremendous. Traditionally, market research was limited to a fact-finding exercise related to
the market. Its prime functions concerned were market identification, market size, market share, market
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segmentation and marketing trends. But as the scope of marketing has broadened, the nature of demand for
information also has changed. A similar broadening has taken place in the range of products for which
market research is now considered appropriate. Originally restricted to consumer products, research into
industrial markets is now common, and research into markets for professional services is growing fast.
Further, a revolution in management information has taken place due to developments in computer and
methodologies in the application of statistical techniques and behavioural science concepts. Its uses and
advantages could be summarised as follows:
a. It ascertain the position of a company in a specific industry
b. It indicates the present and future trends of the industry and thus points out how the company’s affairs
are to be managed
c. It helps in the development and introduction of new product
d. It offers guidance for improving the current product of the company
e. It helps in the in assessing and enhancing the effectiveness of sales management
f. It can reduce the risk involved in marketing decisions.
The above uses could be restated as follows: marketing Research helps the company in knowing the market,
fitting a product to the market and finally selling the product. This is evident in the words of Dr. Albert
Blankenship (in how to conduct and opinion research) who described marketing research as “an ancillary
service that allows the management to manufacture with a better idea of what can be sold, and how much be
sold and to market with a better idea of how to combine the various tools of selling to minimise waste”.
The usefulness of marketing research has become still greater under the present pattern of large-scale
production. The production of the right type of goods is possible only when the manufacturer knows not
only the exact needs of the consumer, but also the price at which he can market his goods. Besides, it would
be useful to assess the relative merits of various methods; for example, whether changing the existing
channel of distribution or altering it would obtain the best results or not. The manufacturer, however, should
safeguards his marketing interest through marketing research, in the same way as the pilot of an aeroplane
uses a number of sophisticated instruments to navigate and fly. In short, because of marketing research the
manufacturers are able to take correct decisions, “distinguishing the wood from the trees”.
Thus, the term ‘marketing research’ covers the provision of management information in all aspects of the
marketing process. It includes among its main components advertising, promotion, product, packaging,
sales, and distribution, pricing and retailing research.
The functions of marketing research can be best summed up in two words:
Consumer’s Preference. Marketing research has proved to be an intelligent and intelligible guide toa. The production of marketable goods
b. The distribution of marketable goods
c. The size nature and organisation of sales
d. The demand creation activities
These are only a few of the limitless functions of marketing research. It is the balancing wheel of the
marketing systems which harmonise the supply and demand factors. Properly organised marketing research
is capable of eliminating waste in the process of distribution. It is a panacea for all marketing ailments and
hence is regarded as one of the basic tools of modern marketing.
Classification of Forms of Marketing Research
Meriting research may be classified into:
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1. Ad hoc Research. This refers to situations where the identification of research problem leads to a
specific information requirement. For example, if one particular brand of a firm’s product fails in the
market, specific study will have to be made. This needs not to be a permanent affair.
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2. Continuous Research. (Ongoing research). Market research is also on a most permanent basis to collect
information about the market place, product performance, etc. consumer goods falling under the
category of shopping goods and convenience goods need such continuous information.
3. Exploratory Research. It is pilot testing before a full-fledged research. Such a research would reveal the
areas in which the research should concentrate finally.
4. Conclusive Research. It is the research which is both expensive and time consuming. It would be based
on detailed scientific procedure. This type of research brings out a few alternative courses of action. For
long-term decisions this form of research is preferred.
Marketing Research Process
Mere collection of information does not complete marketing research. The information must be collected
and processed in a scientific manner to make it more meaningful and useful. It is here that marketing
research is applied and it calls for a high degree of competence and training.
There are seven principal steps that are to be taken in this process.
1. Problem Formulation. The precise definition of the problem helps in determining the techniques to be
used, the extent of information to be collected, etc. simply stated, one should be clear in his mind what is
exactly required. Marketing elements of the problem should be isolated and identified in most precise
terms.
2. Decision on Fact Gathering Procedure. After defining the problem the second step is to find out the
best procedure for getting the information. In technical language, this is known as planning the research
technique. The procedure requires the following steps:
a. Establishing the facts that are available at present and the additional facts required
b. Determining the reliable data;
c. Setting an organisation for the collection of additional information required.
3. Data Collection. When the available data are insufficient, fresh data have to be collected. Usually
‘survey’ techniques are used for gathering information. It need not be an elaborate survey, for a sample
survey would be quite sufficient. This is the method of obtaining information from a sample of
respondents (groups). The sample is supposed to represent a larger group of people, i.e the universe,
sometimes all the people.
4. The Marketing Sample. The sample is a small group taken from the total group. The total may be a
city, a state, a nation or the whole world. Sampling is essential to substantiate and interpret the data.
5. Data Evaluation. Locating the source and collecting the information is only a part of the job. The data
collected cannot be simply accepted because they might contain unnecessary and/or over or underemphasised facts. The remark “figures do not lie, but liars figure” is apt here. This form the same set of
facts; different interpreters will draw different conclusions, depending upon their individual viewpoints,
their interests and their individual biases.
6. Interpreting the Data. This is an important stage in the process of research. It is at this level that
unorganised and unscientific research fails. The best fact-finding study would become useless by wrong
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or improper interpretation of facts. Technical competence, broad understanding, inmate knowledge of
the problem at hand are some of the prerequisites for the correct interpretation of the data.
7. Report Preparation. The final step in marketing research is summarising the result of research and
making a report.
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The findings and recommendations are put in such a manner that the recipient of the report can
understand them clearly enough to use them effectively. In general, the reports are classified into four
kinds:
a. Executive Report. This report is meant for an executive to carry out the plan as quickly as possible. He
need not interpret the facts once again and make a thorough study of it.
b. Technical Report. Such a report will contain the statement of the problem, the methods used in the
research (methodology, the proof of the findings, etc). The sole purpose of the technical report is to
collect and present necessary technical information.
c. Data Report. It is a peculiar report for it does contain any interpretation. It merely presents the findings
in tables and charts, but does not seek to interpret what these findings or data mean. For example, it may
give the sales volume in a particular area for different periods without adding any reason for their
fluctuations.
d. Popular Report. It is also known as persuasive report. It is non-technical and hence of no value in
commercial field. Narration of an incident is a kind of persuasive report.
(Some authorities group the above-mentioned seven under three heads: information, interpretation and
recommendations.)
Creating a Research Design
Marketing research is the basic source of information on the markets. The success of marketing data
research lies in the fact that how effectively marketing data be converted into marketing information. One of
the problems that faces many firms is that they have no shortage of ‘marketing data’, but marketing
information’ is in short supply. This calls for a proper research design.
The following are the suggested steps in this connection:
1. Choosing the approach
2. Determining the types of data needed
3. Locating source of data
4. Choosing method of collecting data
The first two aspects are closely related to the problem that needs researching and hence may vary from firm
to firm. The remaining aspects are discussed below in detail.
Sources of Data
One of the important tools for conducting marketing research is the availability of necessary and useful data.
Data collection in many ways, more of an art than a science. Sometimes the data are available readily in one
form or the other and sometimes they are to be collected a fresh. In the case of marketing research data
collection may occupy only a minor part or sometimes it may be a most expensive and time-consuming
affair. The sources of information fall under two categories: primary sources and secondary sources.
Internal Sources. A business organisation has definitely to keep certain records such as financial
accounting records, sales records, reports form salesmen etc. these records provide ample information which
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an organisation usually keeps collecting in its own working. Sales analysis is one such important use of such
information. The sales analysis can be split into three parts:
a. Product Analysis. Records of sales would give varied information such as total annual sales, regional
wise, the weal and strong sales centers product wise, etc.
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b. Territorial Analysis. This is more specific and is used when research is to be conducted on region wise of
territory wise sales. Salesmen’s efficiency to the effectiveness of advertisement could be studied more
systematically under this method.
c. Customer Analysis. This is rather vast is possible only in such organisations where customer wise
records are kept. It is practically impossible in the consumer goods field but is possible in the case of
industrial goods.
External Sources.
When the internal records are insufficient and the required information is not readily available, the
organisation will have to depend on external sources.
The external sources of data for marketing research fall into two broad sub-categories: primary and
secondary data.
Primary Data
The data for marketing research or for particular problem in original is known as primary data. It consists of
all answers obtained firsthand. There are various sources and methods by which primary data are collected.
Secondary Data
The data collected from the published sources, i.e not originally collected for the fist time, is called
secondary data. Suppose we want to know the population of a city, we need not go from house to house to
collect the same but can refer to census reports.
Sampling
As stated earlier, it is not always necessary to collect data from the whole universe. A small representative
sample may serve the purpose. Before attempting to discuss the various sources through which data can be
collected, let us first know more about the sampling methods.
Sampling Methods. Whatever be the method adopted for collecting data, it is quite impossible to meet one
and all or to collect the information from the whole population. The only possibility is to make a selection
from amount the whole body (termed as ‘universe) thus reducing the number to a handy minimum called
sample.
Thus ‘sample’ means reducing group taken from a large lot. The small group selected should be a miniature
cross-section and really ‘representative’ in character. This selection process is called ‘sampling.
Sampling is based on two fundamental principles of statistical theory which are usually termed “the law
holds statistical regularity” and ‘the law of inertia of large number’. The first law holds that any group of
objects taken from a large group of such subjects will tend to possess the same characteristics as the large
group. The second law holds that large groups are more stable than small groups owing to the compensating
effect of deviations in opposite directions.
Qualities of a Good Sample. A good marketing sample must have the following attributes if it is to
represent the universe faithfully.
It must be random. ‘Random’ means that everybody in the group has an equal chance to represent the group.
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It must be representative. It means that the sample must include all-important kinds of units in the total
universe.
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It must be proportional. The sample selected should contain various segments in the same proportion in
which they appear in the whole lot. (For example, if population of a country is 90 per cent native and 10 per
cent foreign, the same proportion must be reflected in the sample also.)
It must be adequate. The larger the sample, the more nearly correct would be the result.
Types of Samples
Basically, samples are two types: probability or random samples, and non-probability or purposive samples.
Probability or random samples are those samples which are selected in such a manner that every member of
the universe has an equal chance of such a manner that every member of universe has an equal chance of
being included/excluded in it and in which the probable error that may creep in the studies or results in
mathematically known in advance. These samples are more or less general in character. The word ‘random’
does not mean ‘haphazard’. It definitely refers to an arranged and pre-determined method of selection.
Non-probability or purposive samples are made to meet the specific requirement of a special nature.
Systematic Sampling. Under this method, first unit of the sample is selected at random. For example, if a
survey is to be conducted on college student’s habits, all the students studying in first year at fixed intervals
the sampling is extended to other students as well. Thus the random selection is followed by systematic
sampling.
Stratified Sampling. These samples are useful especially in industrial marketing research. This kind of
sampling is made when certain factors are known and are significant in the study. For example, the volume
of output is a known factor for a manufacturer. Where the population is heterogeneous, this kind of
sampling is adopted. The population is divided into blocks of units in such a way that each block is
homogeneous as possible. Each of these blocks is then sampled at random.
Cluster and Area Sampling. It is a survey conducted on a group simultaneously. This reduces cost and time
to a group. Clusters (groups) may be selected on the basis of predetermined strata. Similarly the areas also
could be grouped of clustered.
However, in this kind of sampling there is normally there is normally an increase in sampling error due to its
deviation form the strictly random sample process.
Multi-stage Sampling. This is, in fact, a development of the principle of cluster sampling. Here sampling is
done at various stages or levels for example, one may start in the first stage with a sample of nation as was
whole. Within the nation, sample is later drawn of different states. The process may be broken up and
narrowed down into smaller and more manageable parts. This is called multi-stage sampling.
Sequential Sampling. This method is somewhat complex in nature. The difficulty is due that the ultimate
size of the sample is not fixed advance. The size is determined only later and that too according to some
mathematical basis.
Non-probability or purposive samples are more popular in the field of marketing research. The various kinds
of such samples are:
a. Convenience Sampling. This consists in the collection of information from any convenient group whose
views may be relevant to the subject of enquiry. In it ‘on the spot sampling without fixing the group or
size earlier. Because of this, errors might be greater.
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b. Judgment Sampling. This slightly more refined technique than the fist one. Here the group to be
interviewed is selected in advance. But the method of selection is not scientific and is haphazard in
nature.
c. Quota Sampling. Quota sampling is a distinct improvement over the above two approaches. Samples are
often selected on a convenience basis, but maintaining an overall structure of the sample. These samples
are referred to as quotas. Within these quotas, a further selection is made to form the ultimate sample.
Sampling as a general method of marketing research has its own advantages and disadvantages.
Merits
Quick Results. Collection and dissemination of data is quicker. Better results. The sample is selected most
carefully, skill analysis, Sampling is based on scientific methods and Lower costs. Errors could be assessed
mathematically. (Sampling procedures are the best insurance now against errors). Practical method is used.
Demerits
Personal bias Might Creep In: errors are narrowed down but not completely avoided. Irrelevant samples
are likely to make the whole process faulty and fruitless.
Sources of Primary Data
The sources are divided into basically internal and external source analysis is commonly referred to as sales
analysis. The external source includes the salesmen, dealers and consumers. On the bias of requirement,
information is collected from any one or all the three sources.
Methods of Collecting Primary Data.
The collection of firsthand information is referred to as primary method. On the bias of requirement a
particular method is to be adopted in collecting the information. There are various methods which may be
adopted to collect the primary data and these can broadly be categorized as survey methods and
experimental methods.
a. Survey Method
A survey is a complex operation which requires some technical knowledge. Survey methods are mostly
persona in character. In making a survey various methods are adopted. Depending on the information
required, there are at least six major types of surveys:
 Factual survey-collect only fact.
 Information survey-broader than the first one.
 Opinion survey-opinions on various problems collected.
 Attitude survey-determines the attitudes of the consumers
 Future inventions survey-used to find out or discover future trends
 The reason why survey-seeks to determine why a person has done something or intends to do something
in future.
One survey may combine several types since it may give several and better kinds of information. The
various kinds of survey are carried through different methods. Usually three general methods are used for
conducting a survey:
 Personal interview survey
 Mail survey
 Telephone survey
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1. Personal Interview Survey. In this method, the enumerator makes personal contacts with the
informants, directly, with the help of mail or telephone. Personal interview survey is done adopting any
one of the following methods:
a. Direct personal observation method. This method implies that one who has to collect the data should
personally study the problems and obtain first hand information. The enumerator, in this case, makes
personal observation of the subject of enquiry. He personally collects the answers and the information
required.
Merits
 Easy and intensive method
 Reliable information
 Serves information
 Serves specific requirements
 Avoid unnecessary details
Demerits
 Personal prejudices may be destroy the authenticity of conclusions.
 Extensive use not possible (which alone would be more accurate).
b. Indirect oral investigation method. Here also the enumerator makes a direct contact with the informants.
But the special characteristics of the method are that the collection of data is made by making indirect
inquiries (questions). This is adopted to ascertain the reality without harming the sentiments of the
informants. Commissions and enquiry committees appointed by the government generally find the
method suited to their needs.
Merits
 Useful for providing direct and positive answers. Creates personal intimacy between the collector and
the giver.
Demerits
 Invites incorrect answers
 Time consuming
 Success depends on the skill of the enumerators (collectors)
a. Direct written enquiry. Under this system, the enumerator prepares a list of questions and circulates it
among the informants (the persons who give the information). The questions are selected in such a
manner that they could be easily answered. The same questions are repeated to a number of persons or
groups.
Merits
 Simplicity
 Lesser degree of inaccuracy
 Easy comparison due to the same set of questions
Demerits
 Personal biases or prejudices in selecting information influence results.
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All the methods of collecting information discussed above are personal in character. The person who
requires the information directly meets the respondents and collects the information needed. As a general
method it has certain merits and demerits.
Merits
 Makes planning easy
 Greater control
 Flexibility
 More information
 First hand information (information when passed through different hands may be distorted).
Demerits
 High cost
 Skill and technical knowledge essential
 Time consuming
Personal biases very often make the information one sided. In spite of the demerits, the method of holding
personal interviews has gained favour in recent years. This has been mainly due to the refinement of
personal interviewing known as depth interview.
Motivation Research. This is another most useful analysis recently added to marketing research. Even now
a difference of opinion exists on its usefulness in the file of marketing. This research is designed to discover
underlying motives and desires of human behaviour under varied circumstances. Of late, motivation
research is successfully applied to problems such as product design, package design, advertising and
pricing.
Depth Interview. This method allows the interviewer to explore the areas of information and to direct his
conversation to certain topics only. This method gives a free chance to the interviewed even to express his
opinions and attitudes. This method is capable of giving deeper insight into the problems. It uncovers new
ideas and helps to explain things more quickly.
The depth interview, however, is not the ultimate answer to all marketing research problems. Such
interviews are costly and call for a considerable knowledge on the part of the operators.
2. Mail Survey. From the point of view of administration, the mail survey is easier to handle. In this method,
a questionnaire is sent along with a letter explaining the purpose of the study. A request is also made to
send back the answered questionnaire to the sender. It is easiest method and hence popular. If the
customers are literate and are scattered this is the only method that could be easily adopted.
Merits
 Cost is relatively less. (But evidence on this is far form clear).
 Speedier than all other methods.
 Widespread use; could be used extensively.
 Convenient to respondents.
 Simplicity; where lists of respondents are available, the method of establishing contact is simple.
Demerits
 Poor response in most cases the reply may not come. The proportion of those who answer mail
questionnaires is usually low (in most cases it rarely exceeds 30 per cent).
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 Limited use; Only a limited amount of information could be collected by this method. Furthermore, such
information is relatively useless for qualitative studies.
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 Inflexibility. The questionnaire once prepared cannot be altered or amended.
 Preparing the mail list is difficult.
 Answers may not be received back in time
 All questions may not be proper and correct
The main defect of this method lies in the poor response by informants. No pressure can be exerted on them
for getting a prompt reply. To improve the percentage of response various methods are followed:
1. Stamped and self-addressed envelopes are sent
2. Sample of products are sent and then answers are solicited, and
3. Gifts are provided as incentives
Permanent Mail Panels. This is another popular method adopted to increase the response to questionnaires.
Permanent mailing list (panel) is fixed and questionnaires are sent to the persons into his list at regular
intervals. These panels are random samples but in most cases they are balanced. Experience shows that the
responses from such panels is greater and yields returns of 70 to 80 per cent. Comparison of answers given
at different periods enables the manufacturers to know the change in consumers’ habits.
Requirements of Good Mail Questionnaire. Formulating a questionnaire and testing questions to ensure
that they are properly understood, sometimes take a great deal of time and effort. One must always keep in
mind the people to whom the questionnaires are to be sent to their place of residence, education and income
level. The types of questions asked will vary with different groups of people. But there are certain principles
observed in preparing a questionnaire, some of which are given below:
1. Ask only what you need to know
2. The respondent should be able to answer the questions with the data readily available
3. Questions must be simple, short and easy to handle.
4. Avoid misleading questions
5. Avoid questions which are highly technical or have dual meaning
6. Avoid ambiguous questions
7. Arrange questions in logical order
8. Arrange questions so that answer to one does not bias the answer to the next
9. Questions should be numbered serially.
3. Telephone Survey. Survey conducted with the help of telephone is yet another personal interview
method. Contacts with the respondents are made over the phone. Today telephone occupies a pivotal
role in business communication and is frequently used for conducting research. This kind of survey
gives a relatively quick result with lesser cost. Selecting a random sample from the telephone directory
is easier than drawing random sample of personal interviews.
Merits
 Less expensive
 Increased sped
 Flexibility
 Simplicity
 Immediate response
 Orderly-the questions could be asked in a planned manner
 Personal contact
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Demerits
 Possibility of personal bias
 Very little time is available for the respondent to answer questions
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 So the questions should be very few.
 The persons who do not have telephones are completely omitted thus rendering the sample imperfect.
 Product inspection by the respondent is not possible
 Extensive geographical coverage is out of the purview of telephone surveys.
b. Experimental Method
This method is more related to the production aspects of an organisation. The quality of product is the
ultimate result of continuous research and experiments. Large organisations have their own Research and
Development Departments (R $ D). Their main job is continuous evaluation of process and product. The
same is now extended to Marketing Research also.
The various forms of experimental methods are discussed below:
a. Product Testing. This is a basic element of the product policy. There are various risks a product has to
face when introduced in the market. Most of these risks arise from the factors operating in market. The
market information would be able to give an idea about these risks but it is valid only theoretically.
Therefore, field-testing should be made to precede the decision of large-scale production and marketing.
As mentioned earlier, the product is a bundle of attributes, such as colour, size, shape etc. some of these
consumer’s preference. These preferences could be understood only through a trial in the market. The
purpose of product testing is to find out the practical use of the appraisal of product performance without
using any package, brand name of even a price (i.e exclusive of all marketing mix). As far as marketing
research is concerned, these terms offer only one meaning, viz, to measure the effectiveness and
acceptance of the product in a market. But these methods could be applied successfully only when the
market conditions are ‘normal’.
b. Psychological Techniques. Of late, various practices and techniques developed in psychological have
been applied in marketing research.
For example, a researcher who is trained in psychology can test the sub-conscious emotions of a person.
This method will clearly bring out the consumers’ attitudes and prejudices. The psychological
techniques, obviously, are sophisticated in nature. They are beyond the ability of the average researcher
and require experts in the filed.
c. Consumer Panels. This is yet another modern innovation in the field of marketing research. The use of
consumer panels is fast attracting the attention of market researchers because of its simplicity and
inexpensiveness. In this method a group of persons is called ‘panel’ and is highly representative in
character. This same group is interviewed at different intervals to know the changing trends. This offers
the best comparison of change form one period to another. This method also is not free from defects.
Repeated questioning makes the panel to give ready made answers which might be far from the truth.
The panel, in the long run, may cease to become representative in character. Experimental methods, as a
whole, are new in their approach and an evaluation of their merits and demerits cannot be made exactly.
Sources of Secondary Data
As stated earlier these data already exist, but might have been collected originally for some other purposes
and by some other institutions. These data usually compiled by the government, semi government, or nonofficial and are available somewhat freely.
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Collection of secondary data is most suitable when the time at the disposal for the enquiry is comparatively
low. These data are quite different from the firsthand data, i.e primary data.
The main sources of secondary data are:
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a. Government reports. The government undertakes some ad hoc and routine investigations in various
fields of activity and collects valuable data information. Some of them are regularly published also.
These data are available freely and hence used extensively. Reports of various committees also offer
plenty of information, e.g. Santhnanm committee’s report on co-operative movement in Tamil Nadu
b. Technical, economic and commercial journals, magazines and dailies all types of data and statistical
information are published. These data are collected by their own enumerators and are comparatively
accurate and fairly constant.
c. Information gathered by professional organisations and associations. These bodies collect various
information exclusively for their members. Chambers of commerce, various trade associations such as
IJMA (Indian Jute Mills Association) are examples of such organisations. Stock market reports also
could be included in this category.
d. Published or unpublished thesis. During the course of a research work a great deal of varied information
may be collected. These materials offer a lot of dependable statistical information.
e. Data collected by universities; colleges and research organisations. This is permanent source of getting
secondary data. The research scholars gather a lot of information for their specified purposes. These are
extremely reliable and could be used as safe secondary data.
f. By-products of administration. In some branches of civil and military administration different types of
information are collected. Some part of this is actually used, while the rest is considered as by-product.
g. Data collected by different organisations. For their specific purposes various organisations may collect
information. Once their use is over others conveniently use such data.
Precautions in Using Secondary Data. Secondary data should be used only after careful and searching
enquiry and due assessment.
It is never safe to take them at their face value without fully ascertaining their meaning, purpose and
limitations. Before using the secondary data the following points should be considered carefully.
1. The scope and object of the inquiry conducted by the original person/research organisation
2. The method of collection adopted
3. The degree of accuracy desired
4. The suitability of their application and to the given problem
5. If the answers to the above inquiries are satisfactory, such information could be utilised for the purpose
of the enquiry at hand.
Marketing Information
The Nature of Organisational Information
Before considering marketing information especially it is useful to discuss organisational information
generally and to establish marketing information as a part of it. This involves appreciating that there are two
distinct categories and three different types of organisational information. The two categories are labelled
tangible and intangible and the three types of identified as direct operational, indirect operational and
marketing.
Tangible and Intangible Organisational Information
Evidence of tangible information can be seen throughout all types of organisation stored in filing cabinets,
desk drawers, cardboard boxes in achieves and on computer files. It is often classified by business function.
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Hence there will be files containing accounting information, personnel information, operational/production
information, design information’ as it can be seen and moved or downloaded form electronic files.
The tangible information within most organisations is impressive in terms of the space it occupies.
However, this is because most of it is the stored record of past activities which has to be kept to comply with
legal and other regulations which apply to all organisations.
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Usually only a small proportion of the stored tangible information is actually needed for the regular day-today activities of the organisation. Much of it is historical business record, but it will probably also include a
statement of the procedures a company needs on order to operate effectively. By establishing a learning
culture, organisations are able to benefit form the experience gained through past successes and avoid
repeating past mistakes, both operational and marketing.
There is also an entirely different type of information which cannot be separated from the individuals who
use it. This is because it involves their individual skills, the approach these individuals have to their work
and relationships between them. Since such information cannot be seen or moved it is called ‘intangible
information’. Whilst intangible information is a feature of all organisations, its importance varies between
functional departments with organisations. A lot of marketing ‘known-how’ is intangible, in particular there
is the instinctive ‘feel’ a successful marketers rely on intangible sources, there is always a role for marketing
research and for re-visiting relevant past reports in order to take better marketing decisions.
Types of Organisational Information
It is not only important to appreciate the difference between tangible and intangible information, it is also
essential to appreciate the fundamentally different characteristics of the three different types of
organisational information.
Direct Operational Information
Direct operational information is the information or knowledge an organisation needs to provide a service or
manufacture a product. For example, it would be essential for a business set up to trade over the Internet and
to have staff with programming skills and a knowledge of computing. This is the direct operational
information. The work for the company so would to maintain records of the customers who contact it and
the items bought and prices paid. This will probably involve setting up a database that can be used for
accounting and stock control purposes. This is an example of tangible direct operational information, but
very often there is a tension between the operational needs of a business and the information required for the
planning of future marketing.
For a manufacturing organisation such as major car manufacturer there are clearly more examples of
tangible direct operational information than there is for a doctom company. The type of intangible direct
operational information will also be very different. There are nevertheless two common characteristics that
are important in all cases:
 First, both tangible and intangible direct operational information is very specific to the service or
product being offered.
 Second, direct operation information has to be complete even though it may be tangible, intangible or a
combination of both.
For example a dotcom company would not be able to offer a complete service if, for instance, none of its
staff had knowledge of designing a website. The situation is even worse for a car manufacturer.
Indirect Operational Information
Being effective as an organisation involves more than simply manufacturing a product or providing a
service. Most physical items manufactured have to be packed and shipped to the customer who ordered
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them. Furthermore, information is required not only to deliver notes and invoices. Similar issues involves
companies that are solely service providers. Information, again usually in the form of routines and
procedures, is also needed to process orders received from customers, to place orders with suppliers, pay
accounts, pay accounts, pay wages, meet the requirements for dealing with Value Added Tax (VAT), and
similar tasks.
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There could be a requirement to produce monthly statements for each customer, and there is generally a
need to measure the financial standing of the supply organisation. This is just as essential as the direct
operational information.
Like direct operational information it can be either tangible or intangible and has to be complete for the
organisation to function. Hence it is for some reason the organisation did not have the information needed to
determine the deductions which need to be made form employees’ wages to cover income tax and National
Insurance contributions its future would quickly be threatened. Unlike direct operational information,
indirect operational information is not specific to the product or service being offered.
Thus a wages clerk who knows to calculate tax and National Insurance contributions could work for either a
dotcom company or a large car manufacturer.
Marketing Information
In addition to direct and indirect operational information, organisations need a third type of information.
This is the information which ensures the organisations actually produces and promotes products or services
which are required by sufficient customers (or clients) to make the organisations viable. This is called
marketing information. This can be defined as any information relevant to, or that affects, the profitable
exchange of a product/service between an organisation and its customers.
It includes information on the market environment; customers and potential customers; direct and indirect
competitors; the features required in a total product offering’; distributors; and all aspects promotion.
For a manufacturer of street clothes the essential marketing information required to trade successfully might
include a knowledge of customer’ fashion trends, forecasts of future demand and perhaps information about
other manufacturers who could be considered competitors. Similar marketing information might also be
required by a new Internet retailer specialising in street clothes. However the retailer would use the
information in a slightly different way. It would need the information to ensure it was manufacturing the
right products.
There is an essential difference between operational information and marketing information. In order to
accomplish the task for which an organisation exists it must have “all” of the direct and indirect operational
information required. This is not the case with marketing information. Indeed all organisations have to
operate with incomplete marketing information, although that information is actually required in order to
make decisions regarding activities in dynamic markets. What is important is that an organisation has
relevant marketing information as this is essential for it to continue to meet the needs of its customers.
Like other types of organisational information, marketing information can be either tangible or intangible. In
many organisations there is little evidence of tangible marketing information. Furthermore, unlike tangible
operational information, tangible marketing information is often dispersed within an organisation.
Departments such as sales, design or advertising may have formal files. In addition, many managers are
likely to have their won file labeled ‘Completion’, containing catalogues collected at an exhibition or other
similar event.
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Marketing information is also extremely time dependent, it is useful only when it is relevant and current but
it can easily go out of data as markets evolve. Therefore it is often discarded when it is out of time since
there is no legal requirement to store it. This can make it extremely difficult or even impossible to collate
the information needed to show, for instance, long-terms trends in market preferences.
Marketing as business activity has developed as a result of recognizing that the success of an organisation
depends upon creating and retaining customers. In the short term these decision are likely to be concerned
with meeting the needs of future customers efficiently.
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In the longer term they are likely to focus more on the organisations need to respond to the ever-changing
expectations of the users of its products and/or services.
On another level the term ‘getting close to the customer’ can be a very sophisticated operation.
Organisations in direct contact with their customers such as many ‘business to business’ (B2B) companies
and direct mail operators have gained considerable competitive advantage by developing comprehensive
customer databases. These are used to improve their understanding of consumer needs, and to support the
development and marketing of new products. The mail order company Grattan gathers information on the
personal characteristics and buying patterns of customers, as well as more general information on noncustomers.
They use this information to select “prospects” for sample mailings and to analyse the response and to
identify the specific characteristics of those who purchased. They then use the analysis to identify other
customers with similar characteristics for a general and usually very successfully direct marketing offer.
Indeed, it is because such data is often effectively uncontainable that many marketing decisions have to be
made without adequate information or based on incorrect assumptions.
For instance, it may be logical to assume that since the estate version of the vehicle looks larger than any of
the models, most estates sold would have the larger engines. Equally, this could be entirely wrong since
buyers of the estate model might consider it a utility vehicle and so rate its performance as relatively
unimportant.
Raw Data and Information
It is important to distinguish between data, the facts collected about a situation, and information that is
based on an analysis of that data. Most systems set out to capture data but, taken on its own, this is just the
raw material for analysis. The gathering of required data is an essential first step but it must then be
evaluated and combined with other data in order to create the marketing information that can be used for
making marketing decisions. The data comprises the facts and other collected details from which things can
be deduced, whereas the marketing information is the synthesis of that raw data. A fact is a measurement of
anything that actually exists or has existed. An example of a fact is that our company sold 4,000 units last
month (tangible fact), or 8 out of 10 cat owners say that cats prefer Whiskas Cat Food (intangible).
Much marketing information will comprise issues other than basic facts because, for marketing decisions, it
is likely that a company could need information on:
 What people know, true of false (knowledge)
 How customers perceive our products/service and other relevant attitudes or beliefs (opinions)
 What consumers intend to do, and the strength of those intentions and
 Why people behaves as they do (motives)
Sources of Marketing Information
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The information an organisation has about its market comes to it in a variety of ways, both formally and
informally. All organisations have a fund of ‘internal’ knowledge available both from the people who work
for it and in the records accumulated over many years. For example, any member of staff when reading
through a technical magazine could notice an article about developments at a competitor’s plant. Maybe this
is to allow for a new product or to improve efficiency. If this information is passed to the appropriate
department within the organisation it could be very useful. Although there can be a problem of an excess of
such information, the most important issue is that all employees should know where to send such
information. It would then be the responsibility of that department, usually marketing, to decide what to
keep, what to check out properly, and what to ignore.
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No organisation has complete knowledge about its markets, customers or competitors. At best it is like a
mosaic or jigsaw, where the picture can still be clear, even though a large number of pieces are missing. It is
quite common for past information to be merged with more recent input in a form of marketing intelligence
system. This can then be interrogated whenever any future marketing initiative system. This can then be
interrogated whenever any future marketing initiative is being considered. Sometimes it would be helpful to
acquire more information to make the picture clearer. However, information is often expensive so is only be
remembered that marketing information does not replace decision taking it is at best an aid to help to take
batter decisions. Therefore the purpose and value of information gathering must always be set against the
cost of obtaining and processing that information.
Generally, the knowledge provided by marketing information changes over time. Thus, returning to our
analogy of a mosaic, the colours of some of the pieces will fade over time. To revive the pattern, these
pieces must be replaced as new ones become available. This is why it is important to update any marketing
intelligence system. When information is used for marketing, it must be current: out of date information is
likely to result in bad decisions. Again, like the pieces used to make a mosaic, marketing information has to
be obtained from different sources and whenever possible alternative sources should be used to improve the
overall reliability of the information collected. It is very easy to download masses of data from a search on
the world wide web (www), and this becoming increasingly common. However this can lead to disaster it
insufficient attention is paid to the quality of such data.
Sources of Marketing Data
Useful marketing information can be obtained from any of the following sources:
 Undirected observation. Informal, unstructured collection of information from any source. It includes
casual reading of magazines and newspapers, meting with contact, TV, reports and many other chance
events.
 Conditioned viewing. Formal searching but sometimes with unstructured collections. This can be done
using on-line database or a CD-ROM, maybe searching form some key word. It could involve setting up
a specific department to scan publications and extract interesting articles to circulate within the
marketing management team.
 Informal searching. A structured way of capturing vital information, such as a system of receiving sales
force to ensure reports. The information might present itself in an informal way but the system to ensure
it reaches the relevant managers is structured.
 Formal searching. This utilises formalised marketing research techniques. It is a specific study
undertaken to fill in some of the gaps in the mosaic of information available. It involves the collation,
analysis and presentation of appropriate, available and required data.
Research can be defined as the use of investigate techniques to discover non-trivial facts and insights that
lead to an extension of knowledge. There are well established techniques for undertaking marketing
research as a formal business activity and these are described in many specialize texts.
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Quality of Data and Information
It will already be apparent that information must be accurate and up to data (current), but there are other
criteria that are equally important when considering the quality of data. The analogy of a mosaic can still be
applied and while the mosaic is unlikely to be complete, a certain number of critical pieces are essential for
picture to be seen. Similarly it is essential to have the specific data needed to support any marketing
decision. This means the information must be directly relevant, which is not always as easy as it sounds. For
instance, government statistics often cover a large category of products, but if the decision relates only to
one small specific subsegment it may not be possible to separate this accurately form the total data, which
could be misleading or irrelevant. It is essential that all data used in both valid and reliable.
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Reliability is associated with data being consistent although coming from a number of independent sources
or repeated measurements. When either different sources or measurements disagree, which often happens,
the differences need to be evaluated to establish which information source should be used.
Validity is often an issue where data is obtained using a small sample in a formal market research survey. It
refers to the extent to which the survey findings are in line with the research problem or hypothesis. Usually
it is a measure of whether the findings can be extended to the whole population or the market being
considered. This involves using appropriate statistical theory to establish confidence levels and is covered in
most standard marketing research texts.
While there is no direct link between good decisions and good quality, there is a real risk of poor decisions
being taken if the information fails to be:
 Reliable (accurate)
 Valid
 Relevant
 Sufficient
 Current (up to date)
There has been a massive increase available to marketers in the last few years. Access to data stored on the
World Wide Web is relatively easy when utilising one of the many available search engines (e.g.
<copernic.com>); the Internet has changed data collection forever. However, it is as well to post a warning
regarding the ease of collection and the apparent quality of data available:
 First there is a problem of volume, the volume of data available. This can lead to what one commentator
called ‘paralysis by analysis’, or maybe the quantity available could just overwhelm the recipients so
that no analysis places.
 Second there is often no way of checking on the original sources of much of the data. It is possible that
he some of the data is not very reliable. The real problem is that there is no way of knowing because
little is known about the methods by which such data was obtained before it was posted on the Net.
It is very to be impressed by the quantity of data, but good marketing decisions rely on the quality of the
information obtained as a result of a data search. Good analysts known when to stop searching and to start
trying to understand the impact of any issues discovered. They are then to produce quality information that
will, hopefully, lead on to quality marketing decisions.
Categories of Marketing Information
It is useful to classify marketing information in terms of the five main categories mentioned earlier. These,
respectively, relate to:
1. The environment and market in which the product or services is produced, provided, supplied and used
(termed the environment (level 4). This includes the technological environment.
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2.
3.
4.
5.
The target customers, clients, or users served by an organisation (and other key stakeholders).
Competitor information
The product or service being provided
How that product/service is communicated to the target customers.
The Marketing Environment
The are many specialist textbooks that cover the analysis of the marketing environment. Some are basic
economics texts, but more specialist marketing references can be found in palmer and Worthington (1992).
Over the last fifteen years, the use of scenarios has become an accepted method of evaluating the
microenvironments. A scenario is a qualitative description of the future and the approach involves
developing a range of different scenarios each based on defined assumptions.
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Usually these include a ‘most likely’ scenario and a ‘worst case’ scenario. The use of scenarios was
developed by the Royal Dutch Shell Company after the dramatic oil price movements in 1978. This
technique has helped shell and other organisations to study the likely effect of future plans in various
different future situations.
Customer Information
Customer information is central to the concept of marketing. Many existing business, especially those
providing services, have direct contract with the people who use their service. For instance, hairdressing can
judge from this direct contact whether their clientele is getting older or younger, as well as more prosperous
or less prosperous. By consciously recognizing such trends, hairdressing can maintain the future of their
businesses either by ensuring that the service offered is changed to match the changing needs of the clientele
or to attract another category of clientele. Customer information obtained through direct contact, although
intangible, is likely to be the best available.
The management of larger organisations, even those who essentially provide services such as banks, can
easily lose direct with their customers. To avoid this, managers need adequate tangible marketing
information such as up to date customer satisfaction surveys. Without it, they will have no option but no
make decisions based on the information, perhaps now out of date, they gained prior becoming managers.
The problem is even worse for the manufacturers of products. Very often these be making decisions without
having any contact with their finals customers and users.
Customers information can be either qualitative or quantitative information might involve opinions or
reasons for a particular action. This can as useful in the context of marketing decisions as quantitative facts
such as that 8 out of 10 people buy a particular brand of cat food.
Information can be obtained as a one-off (ad hoc) study. It can also be tracked over a period of time, perhaps
using a consumer panel to measure changes in behaviour. An interesting and radical new approach to
customer information and analysis, virtual shopping, has become available through ongoing development in
computer modeling. Though methodologies can vary, a typical virtual shopping (or ‘virtual store’)
experiment might involve having target consumers track their way, on screen, through a virtual shopping
environment, or floor area, select products to buy, examine displays, record levels of interest and so forth.
The virtual approach has obvious value in product development and testing settings. Research specialists
and agencies, especially in the USA, are developing more comprehensive and integrated programmes (e.g.
wish advertising exposure), and more dedicated applications such as for car showrooms and travel agencies.
The results of two US validation studies on virtual shopping are discussed in detail in an informative article
in the Harvard Business Review (march April 1996).
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Competitor Information
It is important to appreciate that the success of a product is dependent as much upon the alternatives
available to a potential customer as upon the product itself. It is the appreciation of these alternatives, and
the impact that they are likely to have on the acceptability of a product/service to the potential customer,
which often requires specific marketing information.
Most successful organisations will continually update a comparative profile of all their direct competitors.
This will include what those competitors are doing, what products they are offering, as well as when, why
and how they are performing and any other relevant information. It will often include some form of SWOT
analysis that can highlight the strengths and weaknesses of those competitors.
It should again be stressed that marketing is related to the future activities of an organization and therefore it
is important to develop a feel for what competitors are likely to do in future.
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Product/Services Information
Marketing information on products or services cannot be isolated from customers or competitors.
Specifications can be compared but is the degree to which an offering matches the future needs/wants of the
customers which is of major importance to a marketer. This is be considered under the headings of
acceptability, affordability, and availability.
Acceptability
Whilst it may be necessary to conduct a new product research study using blind (blinded product to which
the actual marketing decisions apply. Existing products can, or course, be assessed in direct comparative
situations to evaluate how a product or service offering is perceived alongside competitive offerings with
respect, for instance, to its acceptability in a specific situation. Indirect competition tends to be much more
difficult to forecast. But very often it is not actually recognized until identified as a result of research
initiated, for instance, as a result of significantly reduced sales of a product or group of products.
The development of the Sony Walkman as a new product is an interesting example of a product which, at
least for a time, affected the market for some apparently unrelated products. One example was the market
for good quality pens. Both Walkmans and quality pens were similarly priced gift items for young people
and were therefore competitors in the gift market.
Affordability
Within this category of study will come the price of an offering. The determination of what a supplier can
charge for a product depends on many external variables. Issues regarding value require a study of the actual
prices charged for comparative products. This is an area where the facts can be obtained quite easily in
consumer markets although it is sometimes more difficult to get information in some industrial markets. In
some markets there is an indirect distribution channel so product are first sold to an intermediary who then
resells to the final consumer. Data about the differences between retail prices charged to final consumers
and the trade prices will lead to important information about distributors’ margins.
Price has many associations with quality, image, and value for money. Prices as evaluated by a customer is
at the heart of any consideration of affordability for price. However, price is a very difficult topic to research
in situations when customers are not actually buying a product. Thus the establishment of price elasticity,
that is how many customers will buy at each different price point, is often impossible because the data relies
on customer’s stated intentions and not on the actual behaviour in a competitive market place.
Availability
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Decisions on distribution channels are critical to success and, once set up, require careful monitoring. This
area of trade research is often carried out as part of a continuous study by major research agencies such as
the A.C Nelsen organisation. In terms of physical distribution across the entire supply chain, Wheatly
(1996) illustrates the increasing role of sosphictated IT based logistics systems and software solutions.
These utilise technical developments such as those associated with barcoding, electronic point of sales
(EPOS) and electronic data interchange (EDI). In short, growing competition, on the demand side, and
technology developments, on the supply side, have encouraged manufacturers to focus on the competitive
advantage which can be gained through improved delivery, response and service levels, whilst maintaining
cost, productivity and quality targets.
The biggest change in terms of reaching customers in the 21st century is the Internet. Many companies are
trying to decide the advantages of using this new channel.
Setting up a website is not difficult but marketing managers must monitor the advantages and disadvantages
of such a channel both with respect to their own company and for competitors.
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As technology allows for better interactions between suppliers and customers, with more reactive user
friendly sites being developed, basic facts are continually being revised and customers reactions monitored
to ensure any information is really up to date.
Advertising and Proportional Information
The origins of marketing research closely linked with those of advertising research. Perhaps because so
much is spent on consumer advertising this is still a key area of study. Most media providers have extensive
information on readers/viewers. This allows careful targeting of marketing communications to a chosen
segment. The information is usually made available to all potential advertisers. The effectiveness of
advertisements is also studied in detail with most advertising agencies having good in house research
departments.
The value of good research when studying promotional effectiveness is well established, and especially
important when it comes to presetting a multi million pound advertising campaign. Gathering the data could
involve the use of some quite elaborate devices such as the pupilo meter, which records how the eye moves
when an advert is being read. There are many other ways of evaluating advertising both before and during a
campaign. Data is obtained on many aspects, but the most important information relates to how a promotion
affects a customer’s buying behaviour. Relating the cause and effect in advertising is very difficult as it
cannot be considered in isolation from other market influences.
Data such awareness of product and opportunities to see a particular advertisement and relatively easy to
study. The problems arise in trying to relate these to sales volume changes. This is what prompted the now
famous comment, sometimes attributed to Lord Leverhulme, ‘I know half my advertising is wasted, but I
don’t know which half’ maybe information should be sought to establish which half. This is possible with
respect to any direct response marketing initiatives. The redemption rate for coupons, the characteristics of
customers who purchase as a result of a directly mailed offer and facts about the success or failure of other
promotions can prove very useful for planning future marketing campaigns.
Marketing Information Systems
All companies need to establish suitable processes that organise and analyse the accumulation of data and
provide a flow of appropriate information to those who require it. Marketing information systems are really
the frameworks used for managing and accessing this data, and processing it into valuable information.
They can be a simple way of sharing information manually between key departments, but are more likely to
be some from in integrated system using available computer technology. Even in quite small companies
there can be large quantities of data. A logical solution to the problem of extensive data is to use IT,
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developing a system that not only stores and integrates that relevant data but helps to create useful
information. Access to that information can then be given to those who are involved in the planning of
marketing activities. The important issue is that the information form such a system is presented in a way
that is useful for making marketing decisions.
The term ‘marketing information system’, or MKIS, is used to describe such a system. Such systems are
generally discussed in the context of marketing information or marketing research. (It should be noted that
the term MIS is commonly used for the somewhat more far-reaching ‘management information system’).
Whilst it is essential for organisations to have systems by which marketing information can be stored,
processed and accessed, it should be clear from the points made regarding the nature of information in
general, and marketing information in particular, that such systems have fundamental limitations. At best
the system can only handle such tangible and intangible information as is made available to it. There are
three basic components of a good marketing information system:
1. Information acquired via market intelligence
2. Information from operating data, often in database form
3. Information library
Module 11 Financial and Information Management
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Information
What an MKIS does is integrate the data from many different sources, usually into a computerized database.
If structured appropriately, this should allow interrogations and linking of data accessed form a side variety
of sources. It is important for such systems to be basically designed by marketers rather than computer
specialists as the form of the output can be critical to good decisions. In order for a marketing manager to
perform his or her role effectively it is necessary to use information that has been updated, brought together
and then retrieved from all parts of the MKIS. This includes all forms of market intelligence, marketing
research and internal operational records.
There is a tendency nowadays for managers to carry out searches of data based from their computer (via the
www), but then to consider the data accessed as information. This is wrong. There is no substitute for
analysis of relevant data may have been acquired formally or informally, internal facts are usually derived
from formal structured data records. All data, especially from external sources, should be checked for
reliability before it is entered into an MKIS.
With advances design in general, the development and use of both integrated and specialist databases has
become increasingly commonplace. Networking and systems integration facilities allows companies to
exchange, merge and cross analyse data from databases within specialist functions (e.g. accounting and
purchasing, or distribution/logistics and marketing), or to develop databases for common use within the
organisation (e.g. on customers or suppliers). Equally, there has been a rapid expansion in the availability
and use of on line databases, capable of providing (by subscription, or usage fee) up to date facts on a range
of issues, from market aggregate statistics to target segment profiles and listings. This is the raw material for
most market analyses.
Information from operating data, such as production or accounts, has been covered under the heading of
‘operational information’. It is usually different from marketing information as it is collected for very
different reasons. Nevertheless, there is likely to be some marketing relevance in this data and that must be
input the MKIS. It could perhaps contain the details of car production, 2-door versus 4-door, or various
engines sizes ordered, as in the earlier example. Certainly sales information drawn from invoices customers
by relevant market segment, or might show products purchased in as much detail as possible. Most
organisations have computerized databases, in some cases very sophisticated ones, such those originally
developed by majors service companies for mail order business or airline reservations. Computerization has
increased the speed and scope of data collection, analysis and dissemination, but it must be properly planned
to ensure the output offered is usable information.
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The information library is a collection of all the formal research gathered by an organisation that is still
relevant and up to date. It might also include research surveys carried out by trade associations or by
associated companies, as such reports are sometimes available and they do add to knowledge.. Thus the
MKIS will contain a comprehensive collection of all relevant information, which helps achieve better
marketing decisions.
Computer based systems are particularly useful for handling numerical information, but can provide only
limited assistance when handling qualitative information based on descriptions and ideas. The need to
address this problem has been recognize, and much work has been done to develop ‘decisions support
systems’ designed to provide the information needed for marketing decisions. No doubt the number of
companies developing and using such systems will increase. The main benefit offered of companies
developing and using such systems increase. The main benefit offered by such systems is likely to be the
facilities they offer for accessing the available information. Because of the volume, complexity and time
dependent nature of marketing information, the provision of marketing information will continue to be the
specialist marketing activity of marketing research.
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2 Information & Communication Technology Supporting Marketing
Marketing
Deciions
Computers
in Marketing
Computer is a tool that is extremely useful in marketing. It is useful in that it will perform basic operations
on data which are frequently required in many areas of marketing, from stock control and distribution,
through sales statistics and billing to market research and sophisticated simulations of total company
operations. The computer will operate on files of data relevant to the marketing operation. It will perform
calculations on the data to derive new aspects of marketing information. It will sort a file into an order
defined by an element contained in each record, e.g. by alphabetical order of customer name, by employee
size of customers, or by ascending magnitude of sales made in a particular period customers.
It will merge files so that records of transactions may be placed following a header record giving descriptive
information such as address. The computer will compare records and indicate differences. It may use this
ability to compare against a set condition and select records that demonstrate that condition, and finally it
will summarise records such as branch totals to produce country analyses.
This list of operations is by no means exhaustive, but illustrate many of the basic actions for which the
computer may be used. In this chapter, techniques for marketing operations and planning will be described.
The computer will always be in the background ready to facilitate the implementation of the techniques and
in certain instances to allow the techniques to be developed both practically and economically.
After presenting a few illustrations of marketing situations in which a computer unit participates, the basic
operations of marketing will be described. After the day-to-day activities have been covered the data
requirements leading to market research will be considered. Finally the problems of marketing planning are
introduced and the role of the computer in planning is demonstrated.
First Illustration; Shoe Shop
A woman buys a new pair of shoes. Therefore shop assistant removes a punched card from the shoe shop.
This card contains information covering size and fitting, style, colour, price, and the date dispatched from
warehouse; the assistant writes in appropriate boxes the date sold and his own initials or some other of
identification.
Periodically all such cards are collected and dispatched to be processed by the computer unit at the head
office. This computer unit processes the cards from all shops in retail chain, and then sends information to
various departments in the marketing organisation so that the total operation of marketing shoes can be
progressed.
Shop managers will receive weekly checklists of sales, perhaps measuring performance against some
predetermined targets. They will be able to judge the performance of each of their assistants. The
distribution and warehouse sections will be informed of the sales and will arrange suitable restocking of the
shops.
The market research function will be supplied with statistics of sales, which they may analyse for trends in
colour, fashion or in styles, or even in different requirements in various market sectors. Details or repair
carried out under guarantee are also introduced into the information system and allow a form of quality
control not only in the standard of manufacture but also in performance.
Also from the cards the total money due from each shop will be calculated and can checked against that
actually received. Taken together with other files covering wages, costs of maintaining the shops, and
further costs such as sales promotion, profitability analyses are produced and the overall company strategy
furthered when the management consider the question of whether a shop should be closed or extended, or a
new one opened. All this rests on the original cards in the shoeboxes.
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Second Illustration; Marketing Budgets
In the middle of September a department manager receives a sheet of computer output. This shows the
expanses incurred by his department classified by type; salaries; machine deprecation on office equipment;
postage and telephone; travel and car allowance, etc. against each item is the appropriate budget for that
type of expense. He sees any differences between his actual expenditure and the budget amounts he is
allowed.
There is a difference in the figures for salaries. For this major variance, the computer listing shows the
names and the individual salaries, actual and planned, for each member of his staff. He sees that he was
overspent on salaries because he had hired a man three months before the planned starting date for a new
recruit.
The car allowance expenses shows a considerable variance, but realizes that this is due to a particularly
lengthy trip came up unexpectedly. However, his normal travel expenses appear wildly out of line. After
some investigation he establishes that he has been charged with the expenses incurred by someone in
another department.
This examination is repeated monthly so that the manager may keep the expenditure within budget, and so
that the company’s total expenses are kept to plan. This requirement is common to all types of enterprise,
but is of particular importance in marketing organisation where, perhaps, most of expenses are related to
people and the task of organising and supporting those who form the sales force.
The manager in charge of planning and control has all such departments reports analysed and establishes
trends in various items. He sees that there is a likehood of an over plan expenditure in commissions and in
travel. He initiates corrective control action to keep down the travel expenses. However, he recognizes that
the commission budget must be overspent as sales are so much higher than planned and he introduces a
budget amendment.
He is able to do these things because he has the right information, quickly and in the form he requires. This
is possible in a very large organization only with the use of automatic data processing procedures. But as the
manager discovered, the data may not be completely accurate and the information originally supplied to the
computer must be corrected and the output reissued.
Third Illustration; Prospect File
A marketing company deals with a number of identifiable customers and can also identify possible new
customers to whom it might sell. All trade directories have been consulted and profiles for each current and
prospective customer have been prepared. These profiles are put on to the computer. Information is sent to
various functions in the marketing organization. A salesman has requested a list of all prospective customers
in his territory that seem right of product X. he is supplied with this, showing the size of the companies in
terms of profits, turnover and employees (factors considered relevant to product X).
Product development department are investigating the need for a new product and request details of
potential customers with certain characteristics. They use this information to aid their forecasts of what
might be sold if the new products were marketed.
The market research function relates consumption of the firm’s products to type of customer. This relation is
applied to all prospective customers as appropriate by type and the total potential business for the company
is estimated.
Fourth Illustration; Company Simulation
The senior managers of the marketing division of a company get together to discuss the plan that must be
prepared for the next two years.
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The sales director suggests that the meeting should give some guidance to the staff departments whose
responsibility it is to produce the plan. He himself suggests that they should go for a 10 per cent increase in
sales, hire 250 people, and bring down the training period for salesmen to twelve months by using more
intensive training methods. The planning manager quickly has these figures processed by a computer which
is already manager programmed to calculate the effects of such suggestions. The results show that the
productivity of the salesmen will be decreasing, the ratio of expense to income will increase, as will the ratio
of expense to effort. After discussion it appears that either the sales objectives must be raised or recruitment
lowered. Various alternatives are tired until the managers have the bones of a well-balanced plan to meet the
company objectives. This is then handed to the staff department so that they can put the flesh on the bones.
We have four situations in different areas of the total marketing function each illustrating the use of a
computer in the background providing a great deal of information, accurately and quickly, to enable the
people to perform their jobs efficiently.
Speed, Volume and Accuracy
This, then, is the role of the computer in marketing. It will provide information, and a great deal on fit,
speedily and accurately to the company in the form of reports and statistics and to the customers in the form
of bills and advices. Computer has the qualities of processing a great amount of data accurately, with speed.
These qualities are of great benefit to marketing, where they considerably improve the operating efficiency.
Speed is useful when sorting a large amount of data into order. It is useful when calculating. Some
application, such as linear programme solutions to resource allocations, could not be performed at all
without the aid of the computer because of the immense load of calculation.
Volume, or throughout capacity, is useful when handling large repetitive jobs such as payroll, billing or
survey analysis. Accuracy is required in financial accounting matters. Inaccuracy in the use of sensitive
models could lead to completely false conclusions being drawn from company operations simulation.
There is a paradox that the vaguer the area of investigation the more accurate must be the data on which
conclusions are based. A 10 per cent growth for ten years on an inaccurate base can be staggeringly out in
the tenth year. In this chapter an attempt is made to show such qualities of data handling are required in the
marketing operation. The chapter follows the following sequence operating statistics, control, planning, and
research. Some of the applications are already well established and others are in their infancy, but all benefit
from the application of the computer.
Operations and Planning
The physical aspects of marketing are the warehousing and stocks; the transportation and distribution of the
product, perhaps to retail stockists or to the final customer; the delivery schedule, servicing and parts
aspects; and also the selling and billing of the goods. Marketing can be over the return of the goods, as occur
with leasing.
As well as this physical side there are functions of planning and control of the marketing resources,
manpower being of the most important of these. Revenue and expense must also be controlled. Forecasts
must be made to aid managerial decision making, as must market research. The organisation and control of
a sales force is a very considerable part of marketing and one which may be well advanced by using a
computer.
There are many aspects in common between a marketing function and other business functions. However, to
summarise the near-unique aspects of marketing, they are transportation, sales force organisations, general
forecasting, and market research. The last is often done for the production function, but usually rests with
the marketing function as they are nearest the customer.
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In long-term planning the computer is becoming more and more important as planners become more
sophisticated in using model building and simulation techniques. However, both logically and historically
the use of a computer in a company is first shown in the area of basic operating statistics. The computer may
prepare invoices for dispatch to customers, or salary slips for the employees. It may also analyse the normal
operating data to produce management reports, which if used wisely and with caution may be the first steps
towards integrated and automated planning.
Basic Operating Statistics
One of the first basic statistics functions is that of the sales clerk who must maintain records of sales. This is
of great importance, especially in a business, which supplies foods to customer specifications on scheduled
deliveries. The shoe example illustrates a sales statistics situation using a computer. The basic sales data
may will be derived from the operating files covering the billing process. However, there will be many
concerns where sales may not be wholly described in financial terms. Analyse of sales may be prepared
showing breakdowns by:
a. Product or product mix
b. Branch office handling the sales
c. Customer name and number
d. Status reports indicating if relations with the particular customers are sensitive
d. Lost business reports, where it is possible to identify business lost to competitors.
An analysis of sales by salesman is of interest particularly when performance target setting is involved. If
contests for salesmen are arranged then listings showing achievements and the prizewinners will be
required. Thus from a certain amount of data about sale, a whole series of reports is repapered and also input
is available for other functions such as billing and commission pay out as well as various analyses. This
illustrates an application where computers with their power to handle a large data throughout, together with
a speedy rescheduling of data, may be put to good advantage in the preparation of many different
presentations from the sales statistics.
Many items of basic operating statistics are usually measured in financial terms and may be seen in
treatments of the accounting aspects of the computer in management. However, there are areas of marketing
where expense recording is vital. A company marketing a service requires accurate data on expenses
incurred on behalf of the customer on which to base their charge for work done.
It is usual to have cost centers to which expenses are charged to allow the creation and control of budget
procedures. It might be that for each item of expense a record is created showing the department and branch,
a major code indicating the broad category of expense, and a minor code indicating the particular type of
expense. This information is reported as basic managers may exercise control over the expenditure of their
department. All stages form the initial record creation to the final preparation of departmental statements
and overall summarises may be handled by the computer.
In the computer handling of a payroll the marketing function introduces some unique factors, such as
commission, into the calculations. Tying salary to performance both in a commission sense for a salesman
and in a piece rate sense for other types of workers is facilitate by the computer: it can handle several files
together, matching and merging records of performance wages rates, and deductions and producing the final
pay slips.
Ordering
A salesman negotiates sales of an item to certain specification. He submits his order to the central ordering
department. The computer when processing the order first checks that it is a valid configuration or
specification, and then indicates any unique requirements that must be handled by the special engineering
department; it then goes on to produce invoices, commission notices, delivery schedules, etc.
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If there is a central ordering procedure, the stock and distribution functions will be notified by their
receiving delivery schedules. When they have dispatched the goods they will send back delivery advices
which will be re-introduced into the central system. The machine may keep a watch for deliveries that have
not been processed after a specified time limit.
If there were not a centralized or total information system, as indeed is still the case in many computerized
establishments, but several isolated procedures, then there could be considerable difficulties due to the need
for reconciling different files.
If the ordering and distribution functions are separate, the order file must be reconciled with the delivery
file. This will show discrepancies unless all input preparation is perfect. There may be differences in ‘cutoff’’ dates which may create problems and even differences in definition unless a total view has been taken
of the systems and procedures. The total view should not only be confined to the marketing function, but
must show the interrelation both operationally and datawise with other functions in the company.
Control of Stocks
The best possible planning is useless without a measure of realistic and effective control. It should be
remembered that this is not only the prerogative of the accountant. It is the financial expression of the
correct use of physical resources and is of great importance for the marketing planning function. The most
obvious example of the control of a physical resource is that of stock control. A stock control system is
designed to optimize, so that it is possible to say that there is a specified probability that an order can be met
from stock, and stock held to meet this requirement is minimized. For instance stock one might wish to have
a system whereby orders can be met at least nine times out of ten. If it is desired that all orders must be met
from stock at all times then the maximum level must be met and there can be no optimization. How does the
question of optimization occur? To maintain stocks involves certain costs. These include those incurred in
providing the storage accommodations and also those involved in tying up capital in the stocked goods.
Thus there is a cost involved in tying up capital in the stocked goods. Thus there is a cost involved in
maintaining stock level. This will increase with the size of stock required. We also have a cost of
maintaining stocks, which include insurance, interest on investment, depreciation, spoilage, theft, and
obsolescence. This cost may be kept down by maintaining low stock levels but the lower the stock level the
more frequently it may have to be replenished. This replenishment of stocks level the more frequently it
may have to be replenished. This replenishment of stocks incurs costs that may be higher per item if the reorder quantity is lower. Transport charges may be less economic for the smaller loads, as well might be the
production costs. Thus we have the storage charge increasing stock level. There will be an optimum stock
level and re order level. There are two constraints in stock control. Firstly the probability of meting a
demand and the optimum cost in keeping a stock level. A further optimization many be achieved between
the probability of meting an order and the delay in so doing, due to the time lags in stock replenishment.
There are other constraints on the system, for example storage space (bin size, shelf room, etc.), which must
be taken into account. The computer can handle throughout of such a system and can initiate the re-ordering
procedures. If demand is forecast then the computer may be used to indicate when shortages are likely to
occur as demand pattern change. The computer may watch for conditions and either take action or issue
warnings that action may be required. This use of warning systems may greatly increase the operating
efficiency of the firm.
Revenue
An important are of marketing planning is income or revenue, the handing of which will not only cover the
determination of income due, and analyses of such, but also the physical task of preparing bills for dispatch.
In most marketing functions the billing operation will involve a large amount of repetitive paperwork, which
may require calculations that must be performed accurately.
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This application will probably be the first to the put on the new computer when it arrives at a firm and the
management often sees a prompt and accurate billing operation as a principal justification for the
computer’s acquisition.
It will be seen later in this chapter that by relating the income the basic organisation units, one can analyze
to aid the forecasting of future income of the marketing function. Therefore it is necessary to keep revenue
data detailing many characteristics. As well as the organisational aspects both customer and product
information should be recorded.
A major advantage of a computer is that as it is performing the basic repetitive task, it will check for any
special conditions and when it meets them it will take specific action. For example, if an account has been in
debt for more than an acceptable period of months then, as a by-product of the billing function, reports may
be sent to the responsible department for debt collecting.
This illustrates an important aspect in the use of computers. If conditions may be uniquely determined (in
this instance more than three months overdue for payment), then the machine can be programmed to take
alternative action as appropriate to the condition.
Personnel Function and Call Reporting
One of the major resources in most marketing concerns is manpower. There are areas in manpower planning
which may legitimately be regarded as in the marketing function rather than in the personnel function.
Manpower headcount must also be planned and budgeted. To be able to plan manpower efficiently by
putting the right people in the right place at the right time; it is essential to know current disposition. Who is
where? What type of classification is he? Is he headquarters or sales force staff? Is he trained or untrained?
A skills inventory analysis of wastage of manpower, i.e those who leave the company, is vital to the
effective planning of manpower. If there is a sales force then is may be necessary to record the activities of
each salesman. This may be done by having him fill up a call reporting form where he records data
concerning the visits he made to customers, how long he spent there, and the reason he was there. He would
also record the ‘customer number’ of each number customer he visited. This is a unique number, which his
company uses to identify that customer. There are many problems in such a system, the most notable being
that of ensuring that the reporting of data is accurate enough to allow meaningful analyses. Such a system
will create a mass of data, which will be handled by the computer. Detailed lists will be sent to the salesman
for validation and correction. The manager of the sales may require a detailed breakdown of the activities of
each of the salesmen reporting to him, and also summary of the activities in his area of control. Planning
and executive management will want to see company wide analyses of activities.
A call reporting system to be processed manually would by necessity be simple. If processed by a computer
a far more comprehensive system may be introduced. It is due to such possibilities for comprehensiveness
that in many instances the introduction of the computer has not led to a reduction of staff or total operations
times. The computer will be more complex and the effort that went into processing the small manual system
will now be used to create the more sophisticated input data required. The computer allows the asking of
many questions which without its aid could not be attempted because of the time and effort required to
handle them.
Performance Evaluation
A major area of control is in performance evaluation. Salesmen may be set quotas and their commission
based on their performance relative to that quota. There is probably no need for control at the individual
level but at the branch or company level it is very important to see if total quotas are likely to be met.
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If sales are low then special campaigns may be introduced to increase them. If the operation is one that
requires a considerable level of investment then it is important that sales are up to plan so that the
investment is efficiently used.
There may be cases where if sales are much higher than planned, the company will be embarrassed by not
being able to meet orders without a considerable delay and the consequent deterioration of relation with
customers an important factor in many industries. How to control sales when they are running too high cost
presents an unusual and absorbing question for some managers. The problems will not be solved by the
computer alone. But by exploiting its peed, accuracy, and throughout one can perform the large task of
handling the comparison of actual against plan, and by selecting the out of line conditions one may screen
the mass of data and so only present the executive with facts that require his attention for decision making.
This selection and identification of exceptions has come to be known as management by exception
conditions. This is of advantage to the company as it allows management to deal with those problems,
which really require their involvement.
Budgetary Control
Agreed manpower budgets control recruiting in relation to the net increase in staff required and also the
replacement of people who leave. If training is involved it will be important to watch the progression to
qualified categories. If the output of graduates from the education department fall below the plan then the
targets for qualified manpower will not be met.
The essence of control is:
a. The formulation of budget or plan
b. The comparison of actual experience with that planned
c. The taking corrective action when a divergence appears
This corrective action may involve direction of physical resources or the alterations of the budget to
acknowledge a change in assumptions. The comparison of actual against budget may involve a considerable
amount of clerical work. If unique conditions are laid down, e.g. wastage rate per man monthly must not be
more than 1 per cent greater than plan, the computer whilst processing actual for administrative purposes
may perform the comparison and the detail any out of line positions.
Management may thus take appropriate action, or if the action is capable of quantitative description, the
computer may print out the necessary documents to inform the persons involved that they must take the
appropriate action.
Branch Organisation
A branch territory organisation is common in a marketing organisation and may be considered to lead to an
ideal application of computers when handling sales forces and the like. All reports may be issued in terms of
branches and branch summaries. Payroll and commission may be related to individual salesmen. By
rescheduling data summarizing, a hierarchy may be built up of reports by salesman, arranged by branch, by
district, by country, etc. as will be seen later other functions such as market research and planning will
produce results in terms of the organisation and all the results and actual data will be collated. It is important
to remember that this basic operating organisation, when each element of its uniquely coded, may pervade
the complete information system of the marketing function and allow the correlation between, and the
presentation of, all planning and control data within the basic physical and decision structure of the
business.
If records have been kept and coded to the lowest or most detailed level of the organisation structure, then
when the structure is altered and the changes involve realignment in terms of these lowest units; there will
be a continuity of historic data.
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Thus we see how the computer can usefully perform in many areas of basic operations in marketing
organisations by facilitating the listing from data files, by calculating routine extensions of data, by merging
several files and presenting the information in juxtaposition, by comparing data from one file with another,
by summarizing records into logical organisations units, and by selecting according to predetermined
conditions.
Market Research
An established area of research, which is mainly concerned with extending an awareness of the
environment. This may be done by surveys, by consulting or creating directories, by statistical analyses, or
by using other recognized techniques.
Generally the market researcher will be handling a great deal of data for repetitive processing or will want to
produce data various orders. Thus the rescheduling ability of the computer plays an important parting on
market research, as does the ability to select data according to conditions. If the researcher has built up a
large file with information for many companies that might be customers, an enquiry program may be
designed so that the researcher may request that the machine lists those customers with both characteristics
A and B whilst not being C.
A survey is essentially the measuring of a population or environment in terms of certain specified
characteristics. For instance, firms may be surveyed just to determine activity and employee size or the
survey may be more complex. A survey may be of a census type, when each member of the population is
questioned. This approach will be used if the population is not too large or if the level of accuracy required
is high. If, however, the population is large and a census would be economically impracticable, then a
sample approach must be used. This will involve questioning a portion of the population and then using
well-developed techniques to derive results applicable to the whole population, avoiding bias caused by the
selection of the sample.
A survey should take the form of a questionnaire, the responses to which may be uniquely coded. It may be
that mark sensing may be used by the interviewer. For each interview, a card is used and on this card are
prepared spaces, which signify different answers. The interviewer marks with a special pencil the
appropriate box for each answer. When the cards are sent to the computer centre to processing, a machine
interprets the mark sensing into computer acceptable form. Machines are being developed and some are
currently in operation to read pencil marks on sets of paper, thus cutting out the mark sensing stage. Also
work is in hand to develop machines that can decipher handwriting. Once the data obtained through the
survey is collated it may be studied by the mentioned previously, but a characteristics may be an opinion
expressed rather than a property, e.g. Prefer red cars; would buy a washing machine with a radio
incorporated.
Thus the market researcher may follow the activities:
1. Survey
2. Adaptation of results to total population
3. Examination of directories
4. Statement of characteristics relevant to product x or action y
5. Statement of likely incidence of product x or action y
By enquiring how many members of the population have certain combinations of characteristics the
researcher may derive forecasts of potential sales as does the political surveys forecast the outcome of
general election. One way of carrying out this function of surveying the environment is not to go the
environment itself but to consult published sources of statistics and factual information such as trade
directories.
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A File of Prospective Customers
Large, comprehensive environmental files may be created. For example, a firm marketing an item of
business equipment might decide that it needs a file listing all industrial firms or reasonable size together
with certain other characteristics. Using number of employees as the main criterion they obtain data form all
possible sources to build up this prospect file. This lists all prospective customers and would be extremely
useful in research and planning.
A file covering all firms of more than a few hundred employees would not into more than 30,000 records. A
computer handling these records make them useful sources of data.
What information might be included in a prospect file? Sample might show:
1. Prospect number
2. Name
3. Address
4. Geographical code
5. Branch
6. Territory
7. Number of employees
8. Industry
9. Product status
10. Prospects status
11. Turnover
12. Profit
The name and address is recorded and a unique prospect is allocated. A geographical code may be given.
This will be distinct from branch or sales territory, which are reflections of company organisation. It may
relate to a smaller area and may be used when the company reorganizes its sales territories. Board of Trade
areas are useful in this context. There are standard classifications of industry. Product status might indicate
whether the prospect has previously been a customer or is currently known to be using a competitor’s
equipment. The prospect class might be a sample code A, B or C. an A prospect should be visited once a
month, a B prospect once every time months, and C should only be visited when they request representation.
To what uses can such a data file be put? The computer’s power of throughput can allow the file to be used
for circularization tasks and can print out labels to be to be stuck on envelopes, a mundane job but expensive
in time and labour. Another use is to perform a calculation on such an assumption that the business to be
expected in a year form a prospective customer is a time the number of employees plus b times turnover
plus c times profit.
The computer can quickly calculate this potential demand for each prospect and total to get the country
potential for the product concerned. Planners may forecast more efficiently with some idea of this upper
limit to the potential marketing demand. Such files would not really be practical for most firms without the
introduction of a computer.
In creating such a prospect file one must define the market, which is itself a useful occupation.
Another use of the prospect files is to direct the efforts of the sales force to likely prospects, whilst at eh
same time supplying then with useful supporting data, so that their time is spent selling rather than obtaining
background information.
This application of computers is being gradually recognized by many firms. Indeed, some trade directories
are now supplied as computer input media such as cards and tapes. Where copyright materials are proposed
to be used, there might be legal complications, and it would be advisable to obtain proper advice the outset
of a new project.
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Planning
Having obtained the data set covering the external and internal environments, what next? With such
environment descriptions the marketing management may proceed to planning. Planning may be thought of
as establishing the cause and effect cycles both within the company and in the market place and, of course,
between the company and the market.
The planner must identify controllable causes and isolate those that are not. Planning is looking to the future
and directing behaviour so that the company mission or objectives may be reached. Cause and effect may be
examined by a number of techniques such as simulation or parameter analysis. Looking to the future is the
main task of the forecaster and he, an essential member of staff in marketing, is well served by the
computer.
Forecasting
Forecasting methods are varied but may be classed generally as:
a. Mechanically well defined rules project past experience into the future or relate future values of the
variable to other forecasts, e.g. total market sales for product x and y per cent of gross national product.
b. Sometimes the opinions of several individuals are totaled to give a complete forecast, e.g. asking each
salesman for his forecast of what he will sell next year and adding up the results.
c. A mixture of the two previous types.
The computer aids these various methods when use is made of such techniques as time series analysis,
simulation, model building, parameter analysis, and correlation. Perhaps the best-known form of mechanical
forecasting is time series analysis, for which there is an extensive literature.
Basically this method takes the historic values for a variable and analyses them into three components:
a. A trend, which is the basic underlying movement
b. A seasonal variations, which indicates that there is a short term effect related to the time of year
c. A random effect or unpredictable element
An example is the sale of umbrellas. A set of historic data is available covering monthly sales back for
several years. The analysis shows an upward trend, combined with a fairly regular and marked seasonal
variation and a small random fluctuation was great. What can we learn from this? The trend of sales may be
projected mathematically. There are several functions, which can usefully be used as growth curves, notably
the exponential, Gompertz and logistic curves. However, it must be remembered that the trend may be
expected to change for some reason and this must be taken into account. It may be that the trend is related to
other factors, in this example perhaps to population, or annual average rainfall.
The seasonal fluctuation in most cases should be accountable as such. It must be remembered that the socalled seasonal variations is only a short-term cycle imposed on the long-term trend. In some cases the
short-term cycle may have a period of more or less than twelve months and thus the methods used must be
changed to the new time period.
The short-term fluctuation might be engendered by the action of the company itself in reaction to market
stimuli. If times series analyses are to be useful then it must be possible to explain large random variations.
A tax on the sales of umbrellas will affect the time series analysis. The question must be asked whether this
alters consumption will return to normal and allow the effect to be treated as a random interference.
Clearly the analysis of time series will involve the handling of much data and also much calculation. The
analysis technique described is well known and used in many varied situations. The technique and
calculations are basic and this leads to a secondary advantage of a computer. When a technique may be
expressed in general terms it is possible to create a standard program so that all the user has to do is supply
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the data. There are many standard programs in existence for the processing and analyses of data from
surveys and for many more advanced techniques which company personnel may not have the experience to
practice in detail. These standard programs are available from computer manufacturers and service bureaux.
Situations Forecasting
In many cases it would be useful to go into a great amount of detail. A method that may be used is to obtain
individual forecasts for each individual customer situation; hence the name situations forecast. For each
customer (or each customer type, if there are too many to be handled individually), a forecast is made of
their expected behaviour over the period to be examined. This might be done by interviewing each salesman
concerning his customers and prospects.
Having created this data the forecaster has a major data-handling problem, which requires computer
processing. The summation of the individuals forecasts will be examined and adjustments made where felt
necessary. At the same time the computer may extend the forecast from a simple statement of sales into a
complete operating plan, covering delivery schedules, production requirements to be passed to the
production department, and service requirements for the service department; input will also be available for
financial considering of future operations. If each function uses computers the passing of information from
one to another is readily achieved and consistency may be greatly improved.
This approach of working in considerable detail presents many problems, such as allowing for ‘salesmen’s
optimisim’ and other such bases, but it permits flexibility both in the preparation and the handling or
forecasts and plans. Without a computer most firms could not contemplate such a detailed approach.
If a plan is being prepared for the marketing function it may will be that a sales forecast will be prepared
and a sales force or manpower plan prepared to support the forecast.
Operating Plans
To produce an operating plan it would be necessary to extend the manpower plan into a plan for expenses. A
simple approach to this would be to use parameters such as mileage allowance per man-year in allowing for
car expenses. Such parameters will be derived form past statistics and with a forecast of what is likely to
happen to a particular parameter over the plan period. The example of car allowance assumes that the total
mileage is related to he number of salesmen and this can be used to make the parameter ‘mileage per man’
useful. If, however, we consider two variables and we have a reasonable base of statistics wee may use an
established statistical technique to assess whether the two variables are directly related (correlated). There
are standard programs for correlation calculations.
Here the computer may handle the variables to derive the correlation coefficient, which is an indication of
how directly related the tow variables are. However, it would be imprudent to take the result just on its
mathematical basis. If both variables show a natural tendency to rise over the period this will give some
measure of correlation even between two variables, which are in no way logically related.
The computer will perform operations of accepting data, ordering it, and performing calculations; it will
finally provide the results, but these results must be assessed by human beings. The application of the
computer not only allows time for, but it demands a far higher level of, interpretation and understanding.
Thus marketing managers may become managers instead of administrators.
So far we have seen a few techniques which are used in the marketing function but which, tough greatly
assisted by the use of a computer, could be performed without such assistance. There are, however,
problems requiring such extensive data handling that the development of the techniques only really got
under way with the introduction of computers. These techniques are to do with the allocation of resources.
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Iteration and Significance
Before we consider any particular technique we introduce a basic concept, which underlies these and many
other techniques, that is iteration. For an iterative procedure a calculation is performed on an original set of
data and a first guess is made at eh right result. The fundamental principle of iteration is that if x is an
answer then y (the result of the iterative calculation applied to x) is the better result; similarly the
calculation applied to y will give an even better answer z. after a number of steps in iteration one will have
an answer for the required accuracy.
There are, however, some problems when the best or optimum solution is required. It can be seen form the
explanation of iteration that there cannot be a perfect answer. But in some instances it is possible to examine
a not be a perfect answer. But in some instances it is possible to examine a result and say that his is an
optimum solution, as any further iteration will take us away from the accurate answer. This is and extension
of iteration which is vital to modern numerical methods. Thus we must be able to show that an answer is
optimum according to certain criteria.
Another concept must also be considered when developing sophisticated marketing management aids: this is
significance. It is most important to realize that because a computer allows more complex and more detailed
presentations to be used to aid the creation and analysis of operating plans it does not mean that a high level
of accuracy will automatically follow. Although it may be generally expected that a high level of detail will
provide a net benefit as the increased understanding outweighs the increased error, it must also be
remembered that unless a certain level of confidence can be applied to the results they will not be of much
use. If we feel that a certain forecast value will most likely be 100 but could be between 90 and 110 we may
have a result, which can be used. However, if we feel that it mostly will be 100 but could lay between 50
and 150 then the result may not be used meaningfully.
Confidence limits may be set so that we accept any value within the limits. For example we may forecast
monthly sales of product and set the confidence limits around the forecast. This concept of confidence limits
is an obvious application for management by exceptions, the manager only coming into the situation when
the actual experience moves outside the band of exception put around the forecast.
Another aspect of significance is sensitivity of the planning procedures. It may well be that a small change
in one variable in the plan will affect other areas catastrophically. This sis something that may be inherent in
the nature of the business in which the company is operating. In model building and simulation this is of
considerable importance.
Allocation of Resources and Linear Programming
Although important in all business functions, the allocation of resources is of prime importance in the field
of marketing. This is because the marketing function may have considerable flexibility in where it puts its
effort and financial resources. The problem of the allocation of resources has been one of the major areas of
study for the operational researcher. For instance, there is the problem for the advertising department of
deciding in which media and to what extent advertising copy should be placed to obtain the best possible
return for the financial outlay. This is termed media scheduling.
The so called transportation problem is that of deciding which goods to send form which warehouse to
which of numerous costumers; or of deciding which oil supply using which tankers and which routes to
which outlets; or where to site branch offices so as to minimize the expense of marketing. These problems
all have common factors. There will be a great number of variables. For instance there may be 100
warehouses and 600 retail outlets. There is always an objective, which may be defined in some way for
optimizing, either by minimizing expense or maximizing expense or maximizing return. Further, it is
possible to quantify the various factors in the problem, such as their distance between warehouses and retail
sites and the cost per mile for transport of different loads.
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There must be alternative choices of action. The manager may send goods by route a or route b. obviously if
there is no freedom of action, there cannot by any optimization. These problems may be solved by using
techniques known as mathematical programming, of which linear programming is probably the most widely
exposed method. They are essentially methods for solving problems in which a best solution is sought from
the many possible answers, which meet certain restratining conditions.
Consider the problem of moving goods form several warehouses to several may be that each customer has a
specific product mix order which must be filled, an individual warehouse may have limited stocks of a
particular item, and also each lorry which may be used for transport may have a limited carrying capacity.
The basic restraining condition that the manager will wish to place on this system is that the total cost of
transportation the goods to the customers is minimized.
Linear programming methods will provide the optimal solutions but will involve an immense amount of
data handling and calculation. Some linear program solutions take several hours to run, even on large and
fast computers. It is fair to say that the methods of mathematical programming and associated techniques
obtained their impetus from the development of the computer and would not have become the refined tools
they are today if the computer had not been there allow such development. Many linear program solutions
would be humanly impossible to derive without some artificial aid which ensured speed and accuracy of
computation.
There is an extensive literature on this subject, which may be consulted to gain understanding for the actual
methods used for solution. In this present chapter it is only possible to indicate the nature of same of the
problems which may face the marketing function and which may be solved by these powerful techniques.
Media Scheduling
We have already mentioned the problem of media scheduling. It may be useful to illustrate when a problem
is a problem is a problem and when it is not. Let us suppose there are three possible media for placing copy,
A, B, and C, and a certain fixed budget for advertising. We know that A will reach 10,000 readers and cost
£400; B will reach 20,000 readers and also cost £900. it is apparent that it would be better to spend the
money in B, where the cost per thousand readers is least. We might, however, introduce the possibility of
placing different sizes of advertisement in each the of media, for instance quarter, half or full pages.
Furthermore, if the effectiveness per unit of expenditure decreases as the size of the advertisement increase,
and this relationship in different for each of the media, then the problem is more complex and we must use a
form of marginal analysis where we establish the effectiveness of putting another unit’s worth of copy in
particular one of the media. If again we introduce several products to be advertised which will receive
different reader response in different media, we can see that data handling and calculation involved become
much greater.
If the question of where to spend the advertising budget is decided by the computer using such input as the
relationship between reader response and coverage, then attention must be given more to developing the
input so that the mathematical handling produces meaningful results from meaningful input.
Brand Switching
A way of introducing the results obtained by the media scheduling exercise is to express the reader response
expectations in terms of the probability of switching forma a rival brand to the company brand if subject to
advertising. Brand loyalty models are used especially in highly competitive consumer goods industries. By
establishing how many customers will switch brands, the final outcome in the market for a period may be
derived. This approach is based on the Markov matrix theory and may be used in other areas of marketing
research.
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If customers are classified into groups by how much they have bought in a given period one might establish
from past statistics the probability of a moving from one class to another from the beginning of a period to
the end of that period. The table of these probabilities is termed the transition matrix. It is possible to
establish whether, in fact, the transition matrices for several years are statically similar and so one may use
them to project the current position into the future.
Research and Organisation
We have already mentioned briefly the transportation problem. This example shows how a computer
application may have far reaching effects in the marketing organization. If a company operas purely on a
geographical basis with a warehouse supplying customers in its immediate area then the introduction of a
linear program approach may require such an organization to be changed, provided always that the nature of
the market would allow customers to be serviced by several warehouses. If it will not be there, there is no
problem, as each warehouse must apply it own area.
If, however, the market will allow a different solution, the linear program approach will derive the
allocation for resources which will minimize the total costs of transport and warehousing, once forecasts
over time for each product been prepared, together with the purchasing patterns of customers and the
transport costs form various supply sites to each customer. Thus the application of the technique facilitated
by the introducing of the computer may require a change in company organisation.
A similar problem is that of depot or branch offices sitting. In this case it is necessary to know the costs
involved in the different locations accepted as feasible. To cut the problem to manageable size, sites that are
obviously not suitable should be excluded from the study. Both the costs of maintaining the depot are
assessed. There have been instances of considerable savings being achieved after situations have been
examined by the methods of mathematical programming.
A presentation of such an application is contained in the description of the studies carried out the H .J.
Heinz Company where questions were asked such as: how many warehouses should we have? Where
should they be located? Which customers should they serve?
Profitability Studies
The methods of mathematical programming may be introduced in the final optimization stage of many
varied projects. However, considerable effort is required to prepare the data and estimates on which the
program will work to achieve its optimum solution.
The most fundamental resource for allocation is money and the study of comparative profitability of
different marketing opportunities may be vital for executive management. A company might decide to
subdivide its total operations into many logical units. Such might be geographical areas or they might be
areas defined by types of customer within an industry or by numbers of employees. If the basic files are so
arranged that they can be automatically reset under such structures for the profitability study then much
effort will have been saved.
Assuming there have been prepared profiles as complete as possible for each of the market units, together
with projections, the work of analysis begins. The computer having assembled all the basic data may
produce begins. The computer having assembled all the basic data may produce schedules showing the
market areas by order of various criteria growth rate over the last five years, shares of the market, total
potential sales, etc. there would be many of these assessments which might help in the evaluation of the
market structure. However, an optimum distribution of financial resources is required. If for each market
area estimates are made of the amount of business to be gained by investing increasing amounts of money,
then an optimum allocation of resources may be determined and also the level of activity in each market
area consistent with this optimum.
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There will be a great deal of guesswork in the production of the projections for the market units but, as a
computer has been used, a re-run with new assumptions required little extra effort.
We should add to the qualities of the computer its power to handle repetitive jobs with ease. For once the
program has been written it needs not be rewritten for each exercise. Many exercise, have essentially the
same logic but use different sets of data.
We have suggested that the used of a computer allows marketing management more possibilities of control.
However, control is not realistic unless it is organized and efficiently used.
Network Analysis
An application, which in its simple form can be done by charts and when complex with many components,
may be handled by computer techniques, is network analysis or critical path scheduling. Basically this is a
framework against which to study the sequence of events and the interdependence of action required to
achieve a desired end. The introduction of a new product is an ideal example of the use of network analysis
in marketing. Various extension of network analysis have been developed, such as the introduction of costs
and the uncertainty of timing. For the latter, one might use three estimates of the time for each activity and
the network is examined accordingly.
Simulation and Marketing Strategy
In several of the technique mentioned in this chapter we have cited as an advantage of the computer the fact
that it can quickly and efficiently handle repletion of an exercise if the basic situation changes. Very often
marketing management will ask the question of what would happen if we did this. If several marketing
strategies could be evaluated for their full implications the most effective could then be implemented. It is
not possible to experiment in the real market areas except unlimited ways, so it becomes necessary to
simulate the company and test alternate strategies with a company model. The model may be simple or
extremely complex but the computer will provide in a very short time a representation of the markets as if
the strategy had been carried out according to the assumptions of the model designer. With a highly detailed
and near realistic simulation model the marketing management is most effective to aid decision-making.
A simulation will represent in terms of mathematical equations the relationships obtained in the company
and its environment. By altering one variable, say the sales forecast, the implications for other variables may
be determined. The effect on revenue of a change in sales may be derived, as can manpower required to sell
and maintain the equipment sold, delivery schedules, and expenses requirements; also the key indicators
used by management to assess plans can be found, such as profit, growth in sales. Manpower, and
productivity.
In fact, the output of a sophisticated simulation model may well be in the format of the normal presentation
of plans to executive management. They are, in fact, just the trail plans on certain assumptions. Only the
facility of the computer allows the luxury of preparing ten plans, when eventually only own will be chosen.
If the company prepares plans for total activities then it has the base for simulating.
Management Games
This facility of testing ideas leads to the development of management games. The basic difference between
a manager and an administrator is that the latter carries out the policy instruction of the former, whilst the
former decides objectives and reacts to unforeseen events by relating then to the context of objectives and
policies. Thus to train the manager it is necessary to teach him the reasoning behind, and the implications of,
the overall company objectives and policies and also to see the effects on them of decisions he may be
called upon to make.
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So simulation models are used as games both to test and to train management. Many management games
exist covering the marketing function, which is particularly suited to this treatment. The ‘gamers’ would be
supplied with market data and have to make certain decisions such as price setting for the next period of the
game. These decisions are put the next step of the game is taken.
A look into the Future
We may give a illustration of things to come. An executive manager sits in his office with a computer
terminal near his desk. When an exception the computer displays on the television screen a table showing
the exception and some other relevant items information. The manager studies it and decides that the needs
to assess the situation in more detail. He needs more information. He calls for this by suing a pen called a
light pen on the screen enabling him to underline a certain item.
It may appear that the manager will have little to do in the future a part from reacting to the occasional
crisis. He will, however, still be fully engaged in the activities of deciding the objectives of the company, in
function in the light of these overall objectives, and in educating and training himself to react correctly and
efficiently in the exceptional circumstances.
In a management game who is the winner? The one who first meets his objectives? What are his objectives?
They are specified in the game but are they in his business? This question embodies the revolution that the
advent of the computer has brought on management, especially in the field of marketing.
By freeing people from clerical work, by allowing techniques that would otherwise be too costly in time and
effort, and by demanding precise definition of the environment the computer has required marketing
management to look closely at the nature of, and relationships in, the market and the company itself. Also if
he computer is to find optimum solutions then it must be supplied with criteria or objectives against to
optimize. Thus in the end the management has the task of creating objectives and guiding the company
whilst the computer aids in the handling of day to day transaction, preparing sales statistics and other
conventional forms of information, and also furthering the application or advanced optional research and
mathematical techniques to decision making problems.
The computer forms a strong link between three functions day-to-day transactions, standard management
accounting, and sophisticated management science. It is also provides integration between the data creators
and the data handlers within the company. Ultimately a marketing company may except to have all its
information flow operational. This will mean much in a business where a month’s delay in sending bills
may lose the company the use of considerable sums of money, where inefficient distribution techniques may
be tying down company resources which should be used to further the growth objectives of the company,
and where control, particularly at the interface with customer, is vital for image survival in a competitive
world.
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3 Forecasting Information for
3 Forecasting Information for Marketing Decisions
Table 1: Understanding the relative suitability of strategic options
The suitability of strategic options can be
understood by:
Method
Approach
Ranking
 Option are assessed against key factors in
the
environment,
resources
and
expectations
 A score (and ranking) is established for
each option
Decision trees
 Options are ‘eliminated’ by progressively
introducing further requirements to be met
Scenarios
 Options are matched to different future
scenarios
However, it also important to understand why strategies might be unsuitable (particularly if managers might
prefer these strategies):
 They do properly address all (three) of the factors an organisation’s situation. They are unduly shaped
by one aspect at the expenses of others. For example, the desire to chase market opportunities without
the necessary competences of funding, the failure to acknowledge the need for product development or
the pursuit of a strategy against the wishes of a powerful stakeholder would be examples.
 There may be strategies ‘available’ to organisation that are more suitable. So suitably should be judged
in relative terms.
 The elements of the strategy are not internally consistent. The competitive strategy (such as low price or
differentiation), the development direction (such as product development or diversification) and the
development method (internal, acquisition or alliances) need to be consistent. Strategies are unlikely to
succeed if these three elements do not work together as a ‘package’. Since organisations are likely to be
developing and changing elements of a strategy incrementally over time, it is quite probable that
strategies will become internally inconsistent resulting in declining performance. For example, a
manufacture of consumer durable goods was competing on the basis of commodity products (position 1
on the strategy clock
Their concern was to grow market share in the home market (market penetration), gain scale economies and
fight off the threat of cheap imported goods. They were pursuing this by acquisitions or smaller share
companies. This strategy was working well unit there were no more small players to acquire and the threat
of cheap imports remained significant unless costs could be further reduced. So the method of gaining
market share had to switch to internal efforts to win customers from competitors and a major cost reduction
facilities they had inherited from the acquisitions. So the search for internal consistency is a continuous and
not a one off process.
Acceptability
Acceptability is concerned with the expected performance outcomes of a strategy. These can be of three
broad types: return, risk and stakeholder reactions. The tables below summarises some frameworks that can
be useful in understanding the acceptability to strategies together with some of the limitations of each of
these. In general, it is helpful to use more than one approach in building up a picture of the acceptability of a
particular strategy.
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3. Forecasting Information for
Return
An assessment of the returns likely to accure form specific strategies could be a key criterion of
acceptability of a strategy at least to some stakeholders.
Table 2: Some criteria for understanding the acceptability of strategic options
Criteria
Used to understand
Examples
Limitations
Return
Profitability
Financial return of Return on capital Apply to discrete
investments
payback period
projects
Discounted cash flow Only tangible
(DCF)
costs/benefits
Cost benefit
Wider costs/benefits Major infrastructure difficulties of
(including intangibles) projects
quantification
Sequence of decisions Real options analysis
Quantification
Real option
Impact
of
new Merger/acquisitions
Technical detail often
Shareholder
value strategies
on
difficult
analysis (SVA)
shareholder value
Risk
Financial
ratio Robustness of strategy Break-even analysis
projections
Impact on gearing and
liquidity
‘What if?’ analysis
Tests
factors
separately
Political dimension of Stakeholder mapping
Largely qualitative
Stakeholders
strategy
Game theory
reactions
There are a number of different approaches to understanding return. This section looks briefly at four of
these approaches. It is important to remember that there are no absolute standards as to what constitutes
good or poor stakeholders. There are also arguments as to which measures give the best assessment of
return.
Profitability Analyse
Although the assessment of return may be assisted by the use of one or more of these financial methods, it is
important to recognize some of the implicit assumptions, which inevitably limit their use. In particular, it is
important not to be misguided by the tidiness or apparent thoroughness of these approaches. Most of these
methods were developed for the purposes of capital investment appraisal and, therefore, focus on discrete
projects where the incremental costs and cash inflows are easily predicted. Neither of these assumptions is
necessarily valid in many strategic developments. The precise way in which a strategy might develop, and
the costs and income flows, tend to become clearer as the implementation proceeds rather than at the outset.
Also, there are often significant time lags between revenue expenditures and income benefits. Nor are
strategic developments easy to isolate form the ongoing business activities in accurately assessing costs and
projected income.
Additionally, financial appraisals tend to focus on the direct tangible costs and benefits, and do not set the
strategy in its wider context. For example, a make real strategic sense through the market acceptability of
other products in focus through new ventures is readily overlooked. These are crucial consideration for
organisations where investment in innovation (either products or processes) is a major element of cost.
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In an attempt to overcome some of these shortcomings, other approaches to assessing return have been
developed.
Cost Benefits
In many situations, profit is too narrow an interpretation of return, particularly where intangible benefits are
an important consideration, as mentioned above. This is often the case for major public infrastructure
projects, such as the sitting of an airport or a sewer construction project. The cost benefit concept suggests
that money value can be put on all the costs and benefits of a strategy, including tangible and intangible
returns to people and organisations other than the one ‘sponsoring’ the project or strategy.
Although in practice monetary valuation is often difficult, it can be done, and, despite difficulties, cost
benefit analysis is an approach, which is valuable if its limitations are understood. Its major benefit is in
forcing people to be explicit about the various factors, which should influence strategic choice. So even if
people disagree on the value, which should be assigned to particular costs or benefits, at least they are able
to argue their case on common ground and decision makers can compare the merits of the various
arguments.
Real Options Based Approaches
The previous three approaches tend to assume some degree of clarity about the directions and outcomes of a
strategic option. In many situations the precise costs and benefits of particular strategies tend to become
clear only as implementation proceeds. Luehran says that this is because ‘executing a strategy almost always
involves making a sequence of decisions. Some actions are taken immediately while others are deliberately
deferred. The strategy sets the framework within which future decisions will be made, but at the same time
it leaves space for learning form ongoing developments and for discretion to act based on what is learnt’.
This suggests that a strategy should be seen as a series of ‘real’ options (i.e. choices of direction at particular
points in time as the strategy takes shape, as a result of the previous choices that were made). The benefit of
this approach is that it can provide a clearer understanding of both strategic and financial return and risk of a
strategy by examining each step (option) separately as it ‘occurs’. The degree of volatility surrounding a
strategy will change over time as a result of their partial implementation (i.e the previous steps (option). So
strategic and financial evaluation are brought more closely together than is often the case.
Shareholder Value Analysis
During the 1980s, attempts were made to address many of the limitations and criticism of traditional
financial analyses. At the same time, renewed attention was paid to the primary legal responsibility of
company directors: namely, the creation of value and benefits for the shareholders. The takeover boom of
the 1980s caused both corporate raiders and victims alike to look at how corporate development strategies
were, or were not, generating shareholder value. Together, these factors spawned shareholders value
analysis (SVA). This was taken up in the 1990s as managing for shareholder value (MFV), which is an
approach to corporate and business unit management, which is founded on the central concept that
companies should be managed with the specific objective of maximizing the value of the company to its
owners. This may seem to be an obvious objective for managers to adopt but there was an absence of the
affective value based management framework which managers could use to operationalise the concept of
managing for value to help them to take value based decisions on a day to day basis. A number of wellknown companies from around the world now claim to have taken various steps towards managing for
value. These include Coca-Cola, Lloyds TSB, Cadbury-Schweppes, Lufthansa Boots, Reuters and Telstra.
The shareholders value measure used most commonly is total shareholder returns (TSRs), which in any year
is equal to the increase in the price of a share over the year plus the dividends per share earned in the year,
all divided by the share price at the start of the year. Value based businesses use this measure to set
Professional Diploma in Sales and Marketing Management
47
themselves performance goals (e.g. to earn TSRs of 20 per cent each year, or the TSRs to be in the to keep
quartile of a per group of companies, to double the value of he business in four years).
Module 11 Financial & Information Management
3. Forecasting Information for
Marketing
They also use TSRs of 20 per cent year, the value of the business in four year). They also use TSRs to
reward managers typically the most senior managers to the performance the business has achieved for its
owners. Used effectively, TSR goals align the interests of owners and managers.
However, it is important to understand which factors will lead to increased TSR. Since shareholder value is
determined by the long term cash generating capability of the business, managers need to use financial
measures in their decision making that reflect cash flows as well as more traditional measures such as
profitability, as discussed above. One such measure is economic profit (EP). This is defined as net operating
profit where value creation since it includes all the costs of doing business, including the cost of the capital
needed for the businesses to function (which can often be a significant proportion of total costs). Traditional
accounting measures such as operating profit ignore the cost of capital completely. This means that
traditional measures can give managers very misleading signals about where value is being perspectives on
the performance of the business; for example, a realization that all products may be profitable (by traditional
measures) but only some produce a positive economic profit. This means that other products are destroying
value.
Although MFV has done much to address the shortcomings of traditional financial analyses, it does not
remove many of the inherent uncertainties surrounding strategic choices. Nevertheless, the idea of valuing a
strategy may serve to give greater realism and clarity to otherwise vague strategies. It is an important way in
which business and financial strategies would overlap.
Financial ratios
The projection of how key financial ratios might change if a specific option were adopted can provide useful
insights into risk. At the broadest level, an assessment of how the capital structure of the company would
change is a good general measure of risk. For example, options which would require the extension of longterm loans will increase the gearing of the company and increase its financial risk.
At amore detailed level, a consideration of he likely impact on an organisation’s liquidity is important in
assessing risk. For example, a small retailer eager to grow quickly may be tempted to fund the required
shopfitting costs by delaying payments to suppliers and increasing bank overdraft. This reduced liquidity
increases the financial list of the business. The extent to which this increased risk threatens survival depends
on the likelihood of either creditors or the bank demanding payments from the company an issue that clearly
requires judgment.
Sensitivity Analysis
Sensitivity analysis is sometimes referred to as what if? Analysis. In particular, it seeks to test how sensitive
the predicted performance or outcome (e.g. profit) is to each of these assumptions. For example, the key
assumptions underlying a strategy might be that market demand would grow by 5 per cent p.a, or that the
company will stay strike free, or that certain expensive machines will operate at 90 per cent loading.
Sensitivity analysis asks: what would be the effect on performance (in this case, profitability) if, for
example, market demand grew at only 1 per cent, or by as much as 10 per cent? Would either of these
extremes alter the decision to pursue that particular strategy? A similar process might be repeated for he
other key assumptions. This can help develop a clearer picture of the risks of making particular strategic
decisions and the degree of confidence managers might have in a given decision.
Stakeholder Reaction
There are many situations where judgments of stakeholder reactions could be crucial. For example:
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 A new strategy might require a substantial issue of new shares, which could be unacceptable to powerful
groups of shareholders, since it dilutes their voting power.
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Module 11 Financial & Information Management
Marketing
3 Forecasting Information for
 Plans to merge with other companies or to trade with new countries could be unacceptable to unions,
government or some customers.
 A new e-commerce business model might cut out channels (such as retailers), hence running the risk of
a backlash, which could jeopardize the success of the strategy.
 Attempts to gain market share in static markets might upset the status quo to such an extent that
competitors will be forced to retaliate in a way that is damaging to all parties, but which would
undermine the assumptions on which a strategy’s acceptability had been assessed. The most common
example of this would be a price war.
Feasibility
Feasibility is concerned with whether an organisation has the resources and competences to deliver a
strategy. A number of approaches can be used to understand feasibility.
Financial Feasibility
A useful way of assessing financial feasibility is funds flow forecasting, which seeks to identify the funds,
which will be required for any strategy and the likely sources of those funds. It should be remembered that
funds flow forecasting is subject to the difficulties and errors of any method of forecasting. However, it
should highlight whether a proposed strategy is likely to be feasible in financial terms and the timing of new
funding requirements. It can normally be undertaken using a spreadsheet. This issue of funding strategic
developments is an important interface between business and financial strategies.
Financial feasibility can also be assessed through break-even analysis, which is a simple and widely used
approach to assessing the feasibility of meeting targets of return (e.g. profit) and, as such, combines a
parallel assessment of acceptability. It also provides an assessment of the risk of various strategies,
particularly where different strategic options require markedly different cost structures.
Resource Deployment
Although financial feasibility is important, a wider understanding of the feasibility for specific strategies can
be achieved by identifying the resources and competences needed for a particular strategy. For example,
geographical expansion in the home market might be critically dependent on marketing and distribution
expertise, together with the availability of cash to fund increased stocks. In contrast, a different strategy of
developing new products to sell to current customers is dependent on engineering skills, the capability of
machinery and the company’s reputation for quality in new products.
Break-Even Analysis
The narrower interpretation of the term break-even analysis refers to a system of determination of that level
of activity where total cost equals total selling price. The boarder interpretation refers to that system of
analysis, which determines the probable profit at any level of activity. The relationship among cost of
production, volume of production, the profit and the sales value is established by break-even analysis.
Hence this analysis is also designated as ‘cost volume profit analysis.
Such an analysis is useful to the management accountant in the following respects:
 It helps him in forecasting the profit fairly accurately.
 It is helpful in setting up flexible budgets, since on the basis of this relationship, he can ascertain the
costs, sales and profits at different levels of activity
 It also assists him in performance evaluation for purposes of management control
 It helps in formulating price policy by projecting the effect, which different price structures will have on
cost and profits.
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 It helps id determining the amount of overhead cost to be charged at various levels of operation, since
overhead rates are generally pre-determined on the basis of a selected volume of production.
Module 11 Financial & Information Management
3Forecasting Information for
Marketing
Thus, cost volume profit analysis is an important media through which the management can have an insight
into effects on profit on volume of variations in costs (both fixed and variable) and sales (both volume and
value) and take appropriate decisions.
Break-Even Point
The point which breaks the total cost and the selling price evenly to show the level of output or sales at
which there shall neither be profit nor loss, is regarded as break even point. At this point, the income of the
business exactly equals its expenditure. If production is enhanced beyond this level, profit shall accrue to the
business, and if it is decreased from this level, loss shall be suffered by the business.
It will be proper here to understand different concepts regarding marginal cost and break-even point before
proceeding further. This has been explained below
Marginal cost:
=Total variable cost
Or
= Total cost – fixed cost
Or
= Direct material + direct labour + direct expenses (variable) + variable overheads
Contribution = selling price – variable cost
Profit
= contribution – fixed cost
Fixed cost
= contribution – fixed cost
Contribution = fixed cost - profit
Profit/volume ratio
contribution per unit
(P/V Ratio)
= selling price per unit
Or
= total contribution
Total sales
In case P/V ratio is to be expressed as a percentage of sales the figure derived from the formulate as given
above should by multiplied by 100.
Break even point
= fixed cost
of output
Contribution per unit
Break even point =
fixed costs
X selling price
(of sales)
contribution per unit
per unit
Or
Or
=
fixed costs
X total sales
Total contributions
fixed costs
P/V Ratio
At break even point the desired profit is zero, in case the volume of sales is to be computed for ‘a desired
profit’, the amount of ‘desired profit; should be added to fixed costs in the formula given above. For
example:
Units for a desired profit = fixed costs + desired profit
Contribution per unit
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Sales for a desired profit = fixed costs + desired profit
P/V Ratio
Module 11 Financial & Information Management
3 Forecasting Information for Marketing
Pricing Decision
Fixation of selling price of ht products is one of the most crucial decisions which the management has to
take. In some cases management may little choice in the pricing decision either because the market is not
going to accept the product over a particular price or there may be no incentive for charging a lower price.
The former is true in case of products which have a highly competitive market, the latter is true in case of
monopoly items. However, in those cases where management has some control over the fixation of selling
price, there is need for information regarding two important maters.
1.Demand for the product
2.Cost of producing and selling the product
1. Demand for the product. Making a correct estimate about the demand of a product is almost
impossible since it depends not on one but several factors, viz., past sales figures, market conditions,
competitors in the fields, seasonal factors, etc. even price of the product also affects its demand.
Estimate for demand has therefore to be made on the basis of all these factors taken together.
2. Cost of producing and selling the product. The price for the product is usually fixed by taking into
account the cost of the product and adding a mark up (which may stated as a percentage of cost) for
profit.
Cost of a product can be calculated either by Absorption (or full) costing method or marginal (or available)
costing method.
1. Computation of cost under absorption costing. As already explained in the preceding pages, in case of
absorption costing both fixed and variable costs are considered while calculating the cost of the product.
There is no problem regarding variable costs since they are fixed per unit of output. However, there are two
basic problems regarding fixed costs:
a. Allocation of fixed costs. A company may be manufacturing two or more products. A major problem is
regarding allocation of the common fixed costs. These costs may consist of indirect material, e.g.,
lubricants, stores and spares; supervisory labour; indirect expense, e.g. power, depreciation, etc. in
allocating these costs the first step should be to collect and classify them under homogenous groups,
e.g., all costs relating to operating of machines may be put in one group, e.g., all costs relating to manual
workers in another group and so on.
However, in spite of all best efforts, the in individual cost item may not fit in entirely in a particular
group. Moreover, having classified them, such costs will be charged to different products on one or
more commonly used methods such as a percentage to direct labour, machine hour rate, labour hour rate,
etc. thus, the price of the product calculated according to the full cost method will be effected by the
basis of allocation chosen.
b. Selection of number of units. Having allocated the costs over different products, another problem
would be to select a number of units over which to distribute the fixed cost. This number is important
because the fixed cost per unit decreases as the number of units increases. Consider the following
example.
Direct material cost per unit
Direct labour cost per unit
Total variable cost
Rs. 5
Rs. 3
8
Professional Diploma in Sales and Marketing Management
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Total fixed overheads
Rs. 10,000
The selling price per nit at different levels of output will be different as shown below:
Module 11 Financial & Information Management
3 Forecasting Information for
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Table 3: Marginal costing and profit planning
=
Output in thousand 5
10
units
Variable cost per
Rs. 8
8
unit fixed cost per
2
1
unit
Total full cost
10
9
Mark up (say 10%
1
.90
of cost)
Selling price
11
9.90
15
20
25
8
.67
8.50
.85
.8
.40
8.67
.87
8.50
.85
8.40
.84
9.54
9.35
9.24
The determination of number of units may be taken on the basis of demand of the product. However, it has
already been said that making a correct estimate of demand is difficult because, is it affected by several
factors. Some people suggest that normal volume should be considered. Normal volume may be determined
by asking average of the demand for the last few years. If this is done the price determined well be more or
less stable. This is desirable but it may not fit in well under changing business conditions.
2. Computation of cost under marginal costing. In case of marginal costing, only variable costs are
considered while the cost of a product. The greatest advantage of this approach is that some of the
difficult problems of indirect cost allocation and spreading of fixed costs can be avoided. However, this
method would give good results only when:
 A reasonable correct estimate of the demand for the product is made
 Mark up added to variable costs is sufficient enough to cover not only the fixed costs but also provide
for reasonable profit.
The fixation of the selling price of the products according to marginal costing system has two problems:
a. There is always a danger of considering the marginal cost as full cost in time to come. If this happens
the consequences may be serious. Of course, this is not the fault of the system but of misuse of cost data
by operating management on account of lack of understanding. Proper education of the use of cost data
may solve this problem.
b. The conventional accounting systems which are still very popular with business firms are unable to
measure variable costs properly. The reason may be the overwhelming influence that inventory costing
and income determination still continue to have on costing systems.
On account of these reasons it is still accepted that no other method can give better result than full cost
pricing. Marginal cost pricing system is generally recommended only while pricing a special order or in a
distress situation. For example, in those cases where a firm has surplus capacity, and has an opportunity to
sell additional units of product in a foreign market or in an isolated sector of domestic market. Any price
above the variable cost will be welcome since it will yield a contribution towards fixed cost and thus
increase the total profit of the firm.
Non cost factors and pricing decisions
Though cost is one of the most important factors but it is not the sole factor which influences the price of a
product. There are several other factors which have a bearing on fixation of selling price of a product. Some
of these factors even require charging of different prices for the same product or service from different
customers:
Professional Diploma in Sales and Marketing Management
53
a. Nature of the product. For example, a luxury item is priced at higher figures as compared to a necessity
item.
Module 11 Financial & Information Management
Marketing
3 Forecasting Information for
b. Status symbol. Articles intended to impress upon the recipient how important is the giver, viz., gift
articles, are relatively high priced.
c. Class-consciousness. Different prices may be charged for the same product or service form different
customers if such a procedure satisfies the personal ego of different categories of customers. For
example, an air-conditioned theater with equally comfortable chairs with little marginal advantage,
charge heavy fees from their clients for their professional advice.
d. General economic conditions including degree of competition within and outside the industry.
e. Restrictions imposed by government on production, price and imports, etc.
Incase of a new product generally a trial price is fixed which is a sort of ‘feeler’ to determine whether the
market can bear that price. The price is subsequently revised depending upon feed back form the market.
Sometimes the trail price is kept is known as penetration price which is subsequently raised when the
demand for the product is created. Similarly in case of novelties, etc., the trial price may be fixed at a high
level, to be decreased in stages with increase in the volume of production. Such a price is termed as
skimming price.
Product Pricing Methods
The following are the various methods used for determining the selling price of a product.
a. Profit maximisation method. According to this method, the price of a product is fixed at the level,
which results in largest amount of profit to the business enterprise. Consider the following information:
Table 4: Product Pricing Methods
Selling price Number of
Total sales
Variable cost Fixed costs
Net profit
per unit
units to be
value Rs
(Rs. 7 per
(loss)
sold
unit)
Rs.
Rs.
Rs.
20
20,000
4,000,000
1,40,000
3,00,000
(40,000)
18
40,000
7,20,000
2,80,000
3,00,000
1,40,000
16
60,000
9,60,000
4,20,000
3,00,000
2,40,000
14
80,000
11,20,000
5,60,000
3,00,000
2,60,000
12
1,000,000
12,00,000
7,00,000
3,00,000
2,00,000
10
1,20,0000
12,00,000
8,40,000
3,00,000
60,000
The above table shows that profit is the largest at a selling price of Rs. 14 per unit. Hence it is the most
profitable selling price.
b. Return on capital employed method. According to this method price of a product is fixed which gives
a desired rate of return on capital employed. The following formula will help in fixing the selling price
of the product according to this method.
Selling Price = Total Costs - (Percentage Desired Return X Total Capital Employed)
Sales volume in units
For examples, if in case of a single product company, the total costs are Rs. 2,10,000, total capital employed
is Rs. 2,00,000, the desired rate of return is 20%, sales volume is 50,000 units the selling price of a product
should be fixed at Rs. 5 as shown below.
Selling price = total cost + (percentage desired return x capital employed)
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Sales volume in units
= 2,10,000 + (20% x 2,00,000) = 2,50,000 = Rs. 5 per unit
50,000
50,000
Module 11 Financial & Information Management
3 Forecasting Information for Marketing
c. Conversion cost method. According tot his method, the selling price of a product should be based kon
conversion cost (i.e. direct expenses, direct labour and factory overheads) rather than on total cost. Other
things being equal, it would be advantageous to manufacture a product with comparatively lower
conversion cost since less effort would be necessary to earn the same or higher profits.
Consider the following example:
Elements of cost
product A
Direct material
Rs. 6
Direct labour
2
Factory overhead
1
Total manufacturing cost
Gross profit
Selling price
9
1
10
product B
Rs. 3
4
2
1
1
10
The above cost break up shows that product A. requires only half the labour and factory overhead as
compared to product B. Product A thus, needs lower efforts to manufacture as compared to product B, hence
the enterprise can afford to sell A at a lower margin of profit as compared to product B.
d. Full cost method. According to this method selling price of a product is based on its both
manufacturing and selling. The selling price arrived at by adding estimated administration, selling, and
distribution overheads and desired profit to the total factory cost of the product.
e. Marginal cost method. According to this method selling price of a product is based on its marginal cost
plus a certain percentage to cover fixed overhead and profit.
f. Differential cost method. A according to this method, the selling price of each additional unit is based
on its differential cost. In other words a lower selling price is acceptable so long as the extra revenue is
sufficient to meet the additional cost and also earn some profit, provided it odes not disturb the existing
market for the product. Fixation of selling price according to this method is resorted too in times of
severe competition or under recessionary conditions.
g. Standard cost method. In case of this method, price is determined by adding the standard margin of
profit to standard cost of the product the method is particularly suitable for products capable of being
standardized. However, before making price decisions it would be advisable to revise or adjust the
standard costs in view of the long term persistent variances.
It should be noted that the various method discussed above are not mutually exclusive. The management
should make best use of one or more of the above methods while dealing with pricing problems depending
upon the circumstances of each individual case.
Determination of Sales Mix
Presuming that fixed costs will remain unaffected decision regarding sales/product mix taken on the basis of
the contribution per unit of each product. The product which gives the highest contribution should be given
the highest priority and the product whose contribution is the least, should be given the least priority.
Products giving a negative contribution should be discontinued or given up unless there are other reasons to
continue its production.
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Module 11 Financial & Information Management
Marketing
3 Forecasting Information for
Illustration 1. Following information has been made available from the cost records of United Automobiles
Ltd., manufacturing spare parts:
Direct materials
per nit
X
Rs. 8
Y
6
Direct wages
X
24 hours @ 25 paise per hour
Y
16 hours @ 25 paise per hour
Variable overheads
150% of direct wages
Fixed overheads (total)
Rs. 7550
Selling price
X
Rs. 25
Y
Rs. 20
The directors want to be acquired want to be acquainted with the desirability of adopting any one of the
following alternative sales mixes in the budget for the next period.
a.
250 units of X and 250 units of Y
b.
400 units of Y only
c.
400 units of X and 100 units of Y
d.
150 units of X and 350 units of Y.
State which of the alternative sales mixes you would recommend to the management.
Solution
Marginal cost statement (per unit)
Products
Direct materials
Direct wages
Variable overheads
Marginal cost
Contribution
Selling price
X
8
6
9
23
2
25
Y
6
4
6
16
4
20
Selection of sales alternative
a.
250 units of X and 250 units of Y
Contribution:
Product X 250 units x 2
Rs. 500
Product Y 250 units x 4
1,000
1,500
Less: fixed overheads
750
Profit
750
b.
400 units of product Y only
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56
Contribution 400 x 4
Less: fixed overheads
Profit
Rs. 1,600
750
850
Module 11 Financial & Information Management
Marketing
c.
400 units of X and 100 units of Y
Contribution:
Product X 400 x 2
Product y 100 x 4
Less: fixed overheads
Profit
d.
150 units of X and 350 units of Y
Contribution:
Product X 150 x 2
=
Product Y 350 x 4
=
Less: fixed overheads
Profit
3 Forecasting Information for
Rs.
800
400
1,2000
750
450
300
1,400
1,700
750
950
The alternative (d) is most profitable since it gives the maximum profit of Rs. 950.
Illustration 2. The budgeted results for A company Ltd. Included the following:
Rs. in lakhs
variable cost as % of sales value
Product A
50.00
60%
B
40.00
50%
C
80.00
65%
D
30.00
80%
E
44.00
75%
244.00
65.77%
Fixed overheads for the period is Rs. 90 lakhs
You are asked to (a) prepare a statement showing the amount of loss expected, b) recommend a change in
the sales volume of each product which will eliminate loss. Assume that the sale of only one product can be
increased at a time. (M.Com, Madras, 1978-79)
Solution.
Statement showing the estimated loss and the increased sales required to set off the loss
Rs. In lakhs
Products
a.
b.
c.
Particulars
A
B
C
D
E
Sales
50.00 40.00
80.00
30.00
44.00
Variable cost
30.00 20.00
52.00
24.00
33.00
Contribution
(a) – (b)
20.00 20.00
28.00
6.00
11.00
Fixed overheads
Loss
Professional Diploma in Sales and Marketing Management
Total
244.00
159.00
85.00
90.00
5.00
57
P/V Ratio (c)
(a)
40%
increased sales
required to set
off the loss*
12.5
50%
10
35%
20%
25%
14.29
25.00
20.00
Module 11 Financial & Information Management
Marketing
3Forecasting Information for
*Note: as there is a budgeted loss of Rs. 5.00 lakhs and the sales of only one product can be increased, this
loss has to be set off by additional contribution. As the fixed overheads are constant, additional contribution
has been calculated by dividing the budgeted loss of Rs. 5 lakhs by the P/V Ratios respective products. The
sales off any one is sufficient to set off the loss.
Exploring New Markets
Decision regarding selling goods in a new market (whether Indian or foreign) should be taken after
considering the following factors:
1.
Whether the firm has surplus capacity to meet the new demand?
2.
What price is being offered by the new market? In any case, it should be higher than the variable
cost to the product plus any additional expenditure to be incurred to meet the specific requirements of
the new market.
3.
Whether the sale of goods in the new market will affect the present market for the goods? It is
particularly true in case of sales of goods in a foreign market at a price lower than the domestic market
price. Before accepting such an order from a foreign buyer, it must be seen that the goods sold are not
dumped in the domestic market itself.
Illustration 3. A company annually manufacturers 10,000 units of a product at a cost of Rs. Unit and there
is home market for consuming the entire volume of production at the sales price of Rs. 4.25 per unit. In the
year 1977, there is a fall in the demand for home market which can consume 10,000 units only at a price of
Rs. 3.72 per unit. The analysis of the cost per 10,000 units is:
Materials
Rs. 15.000
Wages
11.000
Fixed overheads
8,000
Variable overheads
6,000
The foreign market is explored and it is found that this market can consume 20,000 units of the product if
offered at a sale price of Rs. 3.55 per unit. It is also discovered that for additional 10,000 units of the
product (over initial 10,000 units) the fixed overheads will increase by 10 per cent. Is it worthwhile to try to
capture the foreign market?
Solution.
Statement showing the advisability of selling goods in foreign market
Materials
Wages
Overheads:
Year 1976
Home markets
10,000 units
home market
10,000 units
year 1977
foreign market
20,000 units
total
30,000 units
15,000
11,000
15,000
11,000
30,000
22,000
45,000
33,000
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Fixed
Variable
Total cost
Profit
Sales
8,000
6,000
40,000
2,500
42,500
8,000
6,000
40,000
(loss) 2,800
37,200
1,600
112,000
65,600
5,400
71,000
9,600
18,000
1,05,600
2,600
1,08,200
From the above it is clear that it is advisable to sell goods in the foreign market. It will compensate not only
for the loss account of sales in domestic market will result in an overall profit of Rs. 2,600.
Module 11 Financial & Information Management
3 Forecasting Information for
Marketing
Illustration 4. A machine tool manufacturing company sells it lathes at Rs. 36,500 each up as follows:
Direct materials
Direct labour
Variable overheads
Fixed overheads
Variable selling overheads
Royalty
Profit
Rs. 16,000
2,000
5,000
3,000
500
1,000
5,000
Central excise duty
Sales tax
32,5000
1,000
3,000
36,500
There is enough idle capacity.
(a) A firm is Arabia has offered to buy 10 company’s lathes at Rs. 28,500 each. Should the company be
interested in the business?
(b) It has been decided to sell 5 such lathes to an engineering company under the same management at bare
cost. What price should you charge?
Solution.
Computation of the marginal cost and contribution
Per lathe
Direct materials
Direct labour
Variable overhead
Variable selling overhead
Royalty
Marginal cost
Price offered (export)
Gross contribution as margin
Rs. 16,000
2,000
5,000
500
1,000
24,500
28,500
4,000
a. The contribution per lathe is Rs. 4,000, out of which about Rs. 2,500 will go for sales tax. There will be
saving of about Rs. 1,500 per lathe in case the export order is executed. This is on the presumption that
the central government may exempt the company from payment of central excise duty in order to
encourage exports and earn foreign exchange. There will be increase in fixed costs since there is already
surplus capacity. The company may, therefore, accept the export order.
b. The company may charge a price of Rs. 31,000 (1e 36,500 Rs. 5,500 (profit and selling overhead) as the
bare cost, subject to any variation in the Sales Tax And Central Excise Duty payable by the company on
such sales.
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Discontinuance of a Product Line
The following factors should be considered before talking a decision about the discontinuance of a product
line:
1. The contribution given by the product. The contribution is different from profit. Profit is arrived at after
deducting fixed cost from contribution. Fixed costs are apportioned over different products on some
reasonable basis which may not be very much correct. Hence contribution gives a better idea about the
profitability of a product as compared to profit.
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2. The capacity utilization, i.e. whether the firm is working to full capacity or below normal capacity. In
case a firm is having idle capacity, the production of any product which can contribute towards the
recovery of fixed costs can be justified.
3. The availability of product to replace the product, which they want to discontinue, and which is already
accounting for a significant portion of total capacity.
4. The long term prospects in the market for the product.
5. The effect on sales of other products. In some cases the discontinue of one product may result in heavy
decline in sales of other products affecting the overall profitability of the firm.
Illustration 5. A manufacturer is thinking whether he should drop one item from his product line and
replace it with another. Below are given present cost and output data:
Product
price
variable cost per unit
percentage of sales
Book shelf
60
40
30%
Tables
100
60
20%
Beds
200
120
50%
Total fixed costs per year
Rs. 7,500,000
Sales last year
Rs. 26,00,000
The change under consideration consist of dropping the lien of tables in favour of cabinets. If this dropping
and change is made, the manufacturer forecasts the following cost and output data:
Product
price
Book shelf
60
Cabinets
160
Beds
200
Total fixed costs per year
Sales this year
variable cost per unit
40
60
120
Rs. 7,50,000
Rs. 26,00,000
percentages of sales
50%
10%
40%
Is this proposal to be accepted?
Illustration 6. A company manufactures 3 products A B and C, there are no common processes and the sale
of one product does not affect prices or volume for sale of nay other.
The company’s budgeted profit/loss for 1978 has been abstracted thus:
Total
A
B
C
Rs.
Rs.
Rs.
Rs.
Sales
3,00,000 45,000
2,25,000
30,000
Product cost: variable
1,80,000 24,000
1,44,000
12,000
Production cost: fixed
60,000 3,000
48,000
9,000
Factory cost
2,40,000 27,000
1,92,000
21,000
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Selling & Administration costs:
Variable
Fixed
Total cost
Profit
24,000
8,100
6,000
2,100
2,70,000 337,200
30,000
7,800
8,100
1,800
2,01,900
23, 100
7,800
2,100
30,900
(-) 900
On the basis of above, the board had almost decided to eliminate product C, on which a loss was budgeted.
Meanwhile, they have sought your opinion. As the Company’s Cost Accountant, what would you advise?
Give reasons for your answer.
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Solution.
In order to comment upon the profitability of different products, presentation of costs according to marginal
costing system is essential. We have also to compute P/V Ratios.
Sales
Production cost (variable)
Selling & Adm. (variable)
Total variables costs
Contribution (sales – variable
costs)
Less: total fixed cost
Profit
P/V Ratio
A
Rs.
45,000
B
Rs.
2,25,000
24,000
8,100
32,100
1,44,000 12,000
8,100
7,800
1,52,100 19,800
12,900
5,100
7,800
28.7%
72,900
49,800
23,100
32.4%
C
Rs.
30,000
10,200
11,100
(-) 900
34.0%
total
Rs.
3,000,000
1,80,000
24,000
2,04,000
96,000
66,000
30,000
If product C is discontinued, the fixed cost of Rs. 10,200 being recovered now cannot be recovered since
product C is making a contribution of Rs. 10,200 towards fixed cost. Considering the P/V Ratio, product C
doesn’t seem to be unprofitable, as it 34% being maximum as compared to other two products. Therefore, if
the heavy burden of fixed cost which has been apportioned to product C, bring 39% of the total which
burden, is not taken into account, product C is most profitable. Its profit/volume ratio is higher as compared
to the other two products. This leads us to conclude that total profit will increase if C’s output and sales can
be increased.
Make or Buy Decisions
A firm may be manufacturing a product by itself. It may receive an offer from an outside supplier to supply
that product. The decision in such a case will be made by comparing the price that has to be paid and the
saving that can be affected on cost. The saving will be only in terms of marginal cost of the product since
generally no savings can be affected in fixed costs.
Similarly, a firm may be buying a product from outside, it may be considering to manufacture that product
in the firm itself. The decision in such a case will be made by comparing the price being paid to outsiders
and all additional costs that will have to be uncured for manufacturing the product. Such additional costs
will comprise not only direct materials and direct labour but also salaries of additional supervisors engaged,
rent for premises if required and interest on additional capital employed. Besides that t he firm must also
take into account the fact that the firm will be losing the opportunity of using surplus capacity for any other
purpose in case it decides to manufacture the product by itself.
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In case a firm decides to get a product-manufactured from outside, besides the savings in cost, it must also
take into account the following factors.
1. Whether the outside supplier would be in position to maintain quality of the product?
2. Whether the supplier would be regular in his supplies?
3. Whether the supplier is reliable? In other words, he is financially and technically sound.
In case the answer is “no” to any of these questions it will not be advisable for the firm to buy the product
from outside supplier. If the component ‘X’ is used in the finished products of the company. The following
data are supplied:
1. The annual requirement of component ‘X’ is 10,000 units. The lowest quotation form an outside
supplier is Rs. 8.00 per unit.
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2. The component ‘X’ is manufactured in the machine shop. If the component ‘X’ is bought out, certain
machinery will be sold at its book value and the residual capacity of the machine shop will remain idle.
3. The total expenses of the machine shop for the year ending 31-3-1978 as follows: during the year the
machine shop manufactured 10,000 unit of ‘X’
Material
Direct labour
Indirect labour
Power and fuel
Repairs and maintenance
Rate, taxes and insurance
Depreciation
Other overhead expenses
Rs. 1,35,000
1,00,000
40,000
6,00
11,000
16,000
20,000
29,600
4. The following expenses of the machine shop apply to manufacturing of component ‘X’:
Materials
Direct labour
Indirect labour
Power and fuel
Repairs and maintenance
Rs. 35,000
56,000
12,000
600
1,000
The sale of machinery used for the manufacture of component ‘X’ would reduce:
Depreciation by Rs. 4,000
And insurance by Rs. 2,000
5. If the component ‘X’ is bought out, the following additional expenses would be required:
Freight Rs. 1.00 per unit
Inspection Rs. 10,000 per annum.
You are required to prepare a report to the Managing Director showing comparison of expense of machine
shop (1) when the component ‘X’ is made and (2) when bought out.
Solution
Comparative statement of cost
To make component
‘X’
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Direct material
Rs. 35,000
Direct labour
56,000
Indirect labour
12,000
Power and fuel
600
Repair and maintenance
1,000
Depreciation
4,000
Insurance
2,000
Total variable cost
1,10,600
Per unit
11.6
Purchasing price per unit
Freight charge per unit
Inspection charge per unit
Cost per unit
11.6
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Rs.
8.00
1.00
1.00
10.00
3 Forecasting Information for
It is preferable to buy component ‘X’ than to make it in the shop, because the variable cost per unit is less
by Rs. 1.06. Only variable cost is to be considered, since fixed costs would remain the same under both the
circumstances. Even it the production of component ‘X’ is discontinued, fixed cost cannot be saved.
Moreover, the capacity, which would remain idle on account of buying this component from the market, can
be utilised for some other purpose in the near future.
Equipment Replacement
While deciding about replacement of capital equipment, the firm should take into consideration the resultant
savings in operating costs and the incremental investment in the new equipment. In case the savings is more
than the cost of rising additional funds for the new equipment, the proposal may be accepted. Besides this
the firm must take into account the benefits the firm is likely to derive in the long run by replacing old and
obsolete equipment.
The under-appreciated book value of the old equipment should be taken as irrelevant cost for this purpose.
Many accountants disprove replacement of obsolete equipment by a new one by pointing out ‘loss on
disposal of old asset ‘. Such a tendency is unfortunate since the past costs are sunk costs and they should not
be allowed to affect adversely the future decisions and firm’s goal of maximising long term profits.
The items of differential costs and benefits to be considered while deciding about the replacement of capital
equipment can briefly be enumerated as follows:
Terms of Differential Costs
1. Capital equipment and associated costs, viz., interest, depreciation, etc.
2. Loss on sale of old equipment
3. Increase in fixed overhead costs
Items of Differential Benefits
1. Saving in operating costs
2. Increased volume and value of production
3. Realisable value of old machine
4. Tax benefits, if any.
Change Versus Status Quo
A firm is frequently faced with the problem of continuing with the existing policies or change to the new
ones. Such change may relate to reduce or not to reduce the selling rice, process or not to process a product
further etc. while taking a decision about such maters, as in case of any other matter, the management must
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keep in view the long term interests of the firm. For example, it may be disadvantageous to sell a product
below its variable or marginal cost, but sometimes the management may have to resort to this practice for
the very survival of the firm.
The following are the specific items of cost and benefits, which the management should take into account
while taking the above decision:
Items of Differential Costs:
1. Capital investments and associated costs there on, viz., interest, depreciation, etc.
2. Increase in operating costs
3. Increase in fixed overhead costs.
4. Tax benefits, if nay
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Illustration 6. The following details have been furnished to you regarding two proposals which are for
consideration before a firm.
a. Improvement in the quality of the product, which will result in additional sales of 5,000 units at the
existing price. However, this improvement in quality will result in increase in the variable cost by 10
paise per unit.
b. Reduction in the selling price of the product by 12 paise per unit. This will push up sales by 5,000 units.
In both cases the fixed expenses will increase by Rs. 1,000.
The present sales of the firm are 10,000 units at the rate of Rs. 2.10 per unit. The variable cost is Rs. 1.60
per unit and the total fixed costs are Rs. 3,000.
You are required to state whether it will be appropriate for the firm to select any of the new proposals or
should it continue with the existing scheme.
Solution
Present case
Expected sales (units)
Selling price (Rs.)
Variable cost (Rs.)
Contribution (Rs.)
Total contribution (Rs.)
Fixed expenses (Rs.)
Profit (Rs.)
10,000
2.10
1.60
0.50
5,000
3,000
2,000
proposed case
(a)
(b)
15,000
15,000
2.10
1.98
1.70
1.60
0.40
0.38
6,000
5,700
4,000
4,000
2,000
1,700
The above analysis shows that it will be appropriate to continue with the status quo. However, it there is a
possibility of increasing the selling price in future, proposal (a) may be considered.
Expand or Contact
Expansion of business operations result in economies of scale, greater flexibility, lower fixed costs and
greater capacity of the firm to meet customers’ specifications. Expansion also brings with it many
organisational and communication problems. Control and monitoring functions become more complex and
delegation, authority and responsibility becomes more confused.
Since profit maximisation is a firm’s primary goal, the expansion of business operations should also be
viewed from that angel. Expansion results in heavy fixed costs, it means sales volume will have to be
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increased for meeting such costs through the increase in per unit contribution on account of economies of
the scale. The management must therefore make sure that market will absorb the additional volume of
required sales.
Shutdown or Continue
A business is sometimes confronted with the problem of suspending its business operations for a temporary
period or permanently closing down. Permanent closure of the business is a very drastic decision and should
be carried out only in extreme circumstances.
Temporary shut down. The following items of costs and benefits should be considered while deciding about
the temporary shutdown of plant.
Item of Cost
1. Effect kon fixed overhead costs
2. Packing and storing of plant and equipment costs
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3. Setting up costs
4. Loss of goodwill/market
5. Lay off or retrenchment compensation to workers
Item of Benefits
1. Saving infixed costs
2. Avoiding operating loses
3. Saving in indirect costs such as repairs and maintenance, indirect labour, heat and light costs, etc.
Permanent closing down.
A business is expected to earn reasonable returns on its investment. In case the business is not earning
enough to compensate for the risk involved, it may be closed down permanently.
In order to decide whether to continue operations or abandon the project altogether, a comparison should be
made between the revenues from continued operations and revenues form complete closing down and sale
of plant. The business should be closed down if the amount of revenue in the event of closing down is more
than the amount of revenue from continued operations of the business.
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4 Financial Information to Support Marketing
Decisions Deciisons
Developing and Managing Customer Relationships
Why are Customer Relationships Important?
Over the past decade or so it became increasingly difficult to differentiate from competitors in serving
general products needs. Now customers expect individual attention and companies have had to shift their
focus to a customer orientation. Some believe the explosion in Internet usage during the 1990s put
customers firmly back in control. In the past, banks and insurance companies kept customers through inertia
even ones they didn’t really want to keep – as moving accounts was difficult. Now customers can move
their financial records and their relationship easily. In the past, manufacturers paid lip service to designing
and configuring products for customers. Now they have the tools to make custom manufacturing costeffective and practical. Customers are flocking to companies like Dell, which allows customers to build a
personal computer to their own specifications through its website. This shift in the business environment –
and the resulting shift towards one-to-one marketing.
The single-minded focus of this chapter will examine why companies seek to develop relationships with
customers and how they deliver mutual value. In order to do this we need to be clear about what value is in
the context of customer relationships.
What is Value?
One dictionary definition of value is: ‘The desirability of something, often in terms of its usefulness or
exchangeability’. Others are: ‘An amount of money considered to be a fair exchange for something’ or
‘something worth the money it cost’.
So, we can see that value – like beauty – is very much in the eye of the beholder. Perceived value is often
seen to be the difference between the benefits gained and the costs associated with consuming a product or
service.
Perceived value = benefits – costs
From the point of view of the consumer, costs can mean a lot more than just purchase price. A ticket for a
Sheffield United match may cost £15. When you add to this the costs of a programme and half-time
refreshments, the overall cost may be much more like £25. This is before anything is factored on for the cost
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of getting to and from the match, along with the opportunity cost you assign to the fact that you could have
been doing something else. Cost can include:
 Search costs – associated with finding he item you want to purchase;
 Installation costs – to get the product working
 Ancillary costs – for the items you need to help get the service you want
 Running costs
 Maintenance costs – to keep the item in shape so that it continues to do the job you bought it for or to fix
it if things go wrong;
 Insurance costs – to protect you in case things go wrong.
All these costs added together would give you the total cost of ownership for a product or service. So a more
accurate view of perceived value would be:
Perceived value = benefits – total cost of ownership
The benefits sought really depend on the needs customers are trying to address. Customers who are looking
to buy a car just to get them from point A to B are entirely different from those who are looking for a car
that gives them status.
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Balancing the benefits gained against the costs allows customers to form a view about value for money:
‘The restaurant meal was definitely worth £50 because the surroundings were excellent, the service was
first-class and the food was well prepared’. If customers believe they got value for money the first time they
made a purchase, they are likely to buy again.
From the point of view of the suppliers, they believe they are getting value from customers if the benefits
they get from serving the customers are greater than the costs of serving them, which means they are
making a profit from the customers. This is not straightforward as the acquisition costs for getting a
customer in the first place are often very high. Companies frequently do not make a profit from a customer
for quite some time.
How customer value is measurable has certainly changed over time. Many organizations now use lifetime
value that is how much would the customers be worth if the company kept them for the rest of their lives?
This puts an entirely different perspective on the supermarket customer who only spends £20 a week – they
are actually worth in excess of £30,000 over a 30-year period.
So, creating mutual value is about satisfying customer needs so they keep coming back for more products
and services, which produces greater profitability – or does it? We will now look at the case for developing
long-term customer relationships.
The Case for Customer Relationships
Over the past few years the focus has shifted from customer acquisition to customer retention. Developing
customer relationships has become increasingly important for customer retention. Retention was felt to
deliver results both by improved turnover and reduced costs. The longer customers stay with you, the more
often they purchase and the greater the range of products they buy from you. The double whammy is that
the more you get to know the customers the easier they become to handle. In addition, customers can apply
their experience with the seller to raise the efficiency of providing the products, which all leads to reduced
costs.
Work by Reichheld and Sasser in the early 1990s proved the empirical case for customer retention. The
financial services group MBNA found that a 5% reduction in customer defections led to a 60% increase in
profits over the following five years. The result of a sector overlapping study showed that a 5% reduction in
churn rate generated 25-85% higher profits.
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A financial consultancy established that customer-related transaction costs decrease by around 60% between
the first and second year of a customer relationship. This happens because customers encounter fewer
problems. More importantly, the financial consultant gains a better awareness of the customers’ financial
situation and investment preferences, which has a measurable impact on cost savings. An investigation into
the life insurance sector further demonstrated that a growth in customer retention of 5% translates into cost
reductions of 18%.
Finally, the total impact of customer retention on profits was analysed during the course of an active
customers relationship.
What is Relationship Marketing?
Traditional theory said that differential advantage was created, and sustained, by the intelligent use of the
marketing mix. Originally, this was just 4Ps: product, price, promotion and place. With the rise in services
this was no longer felt to be enough. Physical evidence, people and process management now form the three
additional Ps in the extended marketing mix – or 7Ps.
This takes us right back to booking the weekend trip to New York. Competitive advantage in the traditional
4Ps can often be transient in the Internet world. With the rise of services, the intangible elements of the offer
can often create competitive advantage.
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Anyone who has been entertained in a queue in a Disney theme park or used the fast pass facility to jump
queues on their favourite rides will vouch for how important process management is.
In order to satisfy ever-demanding customers, organizations had to work with other companies to provide
the range of services required. Those who had the best partnership networks and customer relationships
often gained competitive advantage. This is the domain of relationship marketing.
Gummesson defined relationship marketing as ‘marketing seen as relationships, networks and interactions’.
Relationship requires at least two parties who are in contact with each other. The basic relationship is that
between a supplier and a customer, which he calls the simple dyad relationships that can grow into a
complex pattern, which he required to develop and deliver services to the end customer. In order for this to
work they have to engage in active contact with each other over. This in interaction.
Gummesson took his inspiration from his time as a management consultant where he observed: ‘Creating
and maintaining a network of relationships – outside as well as inside the company – constituted the core
marketing of the consulting firm’. Gummesson criticized traditional marketing concepts, saying that they
were based exclusively on getting the customer to transact with the organization. Relationship marketing is
about achieving customer loyalty.
The definition provided by Gummesson is very broad. Parvatiyar and Sheth provided a definition that
usefully focuses on activities that add value to the customer and to the organization, emphasizing mutual
value creation: ‘Relationship activities and programmes with immediate and end-user customers to create or
enhance mutual economic value.’
What is Customer Relationship Management?
If relationship marketing is about engaging in collaborative activities with customers to create mutual
advantage, it is important to know who your customers are and what their needs are. This is where customer
relationship management (CRM) fits in. CRM is the technique or set of processes for collecting information
from prospects and customers about their needs, and for providing information that helps customers
evaluate and purchase products that deliver the best possible value to them. It is a process for managing the
company’s resources to create the best possible experience and value for customers while generating the
highest possible revenue and profit for the company. A typical CRM system uses a centralized database to
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store data about marketing, sales and customer service. This gives employees a complete view of the
company’s relationship with each customer. The tactical management of customer interactions is known as
customer management.
Principles of relationship marketing
Loyalty Snakes and Ladders
If long-term customer relationships are to deliver increasing value to both parties, the aim is to keep
profitable customers and move them up the ‘loyalty ladder’.
At the bottom rung of the ladder are your list of targets. You have performed your market segmentation and
you now have a target market of customers you believe would benefit from your products and services.
Having shaped your 7Ps to target this customer set, some will respond positively, indicating they want to
talk more with you – these are your prospects. After engaging in dialogue with your prospects, some will
decide to buy your services – these become your buyers. At this point the buyer will only have performed
one transaction with the company. If he makes a repeat purchase, you would then begin to consider him as a
customer. From this point on the trip up the ladder is about the customer feeling that it is worth making the
journey up to the top rung because he can see long-term value in the relationship. From the viewpoint of the
organization, it will want to help the customer get to the top of the ladder if it sees the relationship as being
profitable. So once the first purchase has been made, the customer will be prepared to buy more if his needs
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have been met or exceed. Those who stay loyal and buy a greater and broader range of goods become
clients. If the client is satisfied – or delighted – with the services he gets from the organization, he will
actively support the organization until he becomes an advocate, who openly promotes the organization. At
this stage he may become a partner, where he starts to share resource and risk, potentially developing joint
offers to take to market.
This is, of course, a fairly simplistic view of customer relationships as not everyone will want to carry on up
on the ladder. Relationships are more like a game of snakes and ladders – and we all know that if the
objective is to get to square 100 the first snake is on about square 12. If at any point a customer becomes
dissatisfied, he will become unstable and start to consider competitive offers. He may then decide to leave –
he becomes a defector.
Worse still, if his experience has been so bad he may even turn into a ‘terrorist’ towards the company, not
only causing extra costs, but also actively dissuading other potential and current customers. The dissatisfied
customer of a monopoly provider or a public sector organization may have nowhere else to turn and at that
point becomes a ‘hostage’ or a ‘prisoner’.
One-to-One Marketing
The acquisition costs for new customer are high: it can cost an online e-tailer £450 to acquire a new
customer and more than two years to recoup the costs. Keeping customers continually educated about new
products and services is also time-consuming for both the organization and the customer. This led peppers
and Rogers to put forward the view that the focus should be keeping customers longer and getting maximum
value from them over time. ‘If AT&T spends hundreds of dollars to get a new long-distance customer, and
that customer pays $20 a month for AT&T services, then they have to be figuring out how to generate
revenue through their interaction with that customer, not spending all their energy getting yet another new
customer.
Peppers and Rogers suggests that organizations focus on four things when selling to customers:
1. Increase your ‘share of wallet’. Figure out which needs you can satisfy, and then use the knowledge you
have, and the trust you have, to make the additional sale.
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2. Increase the durability of customer relationships. Invest money in customer retention, because it’s a
small fraction of the cost of customer acquisition.
3. Increase your product offerings to customers. By being customer-focused instead of retail-focused or
factory-focused, a manufacturer or merchant can widely increase its offerings, thus increasing share of
wallet.
4. Create an interactive relationship that leads to meeting more customer needs. It’s a cycle: by constantly
asking the consumer to give more information the marketer can offer more products.
Peppers and Rogers have called this approach focusing on fewer customers and getting a greater
understanding of their individual needs in order to create value ‘one-to-one marketing’. One-to-one
marketing is a philosophy of building relationships that lead to understanding the needs and priorities of
each prospect and customer, and providing the products and services that meet those needs.
A CRM-enabled company implements one-to-one marketing by using a unified approach to marketing
analysis, marketing communications, sales and service. This improved communication technique results in
creating a one-to-one relationship of understanding each prospect’s needs and showing that the company’s
products meet those needs, which encourages the prospect to select that vendor.
In other words, a CRM approach to one-to-one marketing helps a company implement the learning and
communications techniques that demonstrate the desire of the company – and the value to the customer – in
forming a long-lasting relationship.
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Permission Marketing
Godin builds on the work of Peppers and Rogers. He developed the term ‘permission marketing’, which is
about ‘turning strangers not friends, then friends into customers’. He says that one-to-one marketing focuses
on the relationship from the first sale onwards whereas permission-marketing works from the first contact
onwards.
Permission marketing is all about using customer’s permission to market to them, from the point where they
are a target onwards. For example, Levi’s has built one of the largest brands of women’s jeans in the USA.
It has done so without having jeans in the store. Instead, women have their measurements taken by a trained
specialist, who sends them to a computerized factory. There, a semi-custom pair of jeans is made to order.
The shopper gets custom fit for a fraction of the cost. Levi’s has a huge saving in inventory risks and
advertising cost. Best of all, once a customer has given her measurements to Levi’s, would she ever consider
switching brands to save a few dollars?
One-to-one marketing uses the same techniques as permission marketing; that is using customer knowledge,
frequency and relevance of contact to turn customers into super-customers. One-to-one marketing uses the
permission that’s been granted after someone becomes a customer and uses that permission to create even
better customers. The more permission, the more mutual value is derived for the customer and the
organization.
The permission marketer works to change the focus from finding as many prospects as he can to converting
the largest number of prospects not customers. Then he leverages the permission on an ongoing basis to
create mutual value.
There are five steps of permission marketing:
 Intravenous level. This is the level of trust you place in your doctor when you’re in intensive care with
a needle in your arm and medicine dripping into your veins. A company that has achieved intravenous
permission is making the buying decisions on behalf of the customer.
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 Purchase on approval. There is a second level on the intravenous step. Although not quite full
intravenous, its called purchase on approval. An example of this would be Britannia record club. Once
you’ve signed up to be a member they choose which album to send you. They’ll also advise you of what
the choice is for next month. If you say no, they won’t send it. If they’ve guessed your needs correctly, it
comes automatically.
 Points. Points reward loyalty for repeat purchasing. Green Shield stamps, air miles or hotel honours
cards are examples.
 Personal relationships. Surprisingly, Godin ranks personal relationships lower than points because they
don’t scale. This doesn’t mean they aren’t important, particularly in business-to-business-to-business
marketing. Many large scales are made in the IT industry through leveraging personal relationships. He
recognizes that it’s the very best way to sell custom products or very expensive products. In these
situations having a personal relationship can be the single best way to move someone up to intravenous
levels. The point is, you cannot develop an enormous business-to-consumer organization through
personal relationships. In the B2C sector, you have to find an approach that can scale across thousands
of customers. This is certainly being helped by the ability to provide personalization on websites. This
can give the feeling of a one-to-one approach to the customer and has scale.
 Brand trust. This much lower down the permission ladder and is the trust that is placed when customers
interact with a brand they are familiar with. Many fast moving consumer goods brands concentrate on
brand building – supported by high advertising spend – to create a competitive advantage.
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You only have to look at the list of top global brands by valuation to see proof of this. This can count for
nothing if a company loses touches with customer tastes and preferences. McDonald’s earnings fell for
seven out of the last eight quarters up to June 2003 as the trend towards healthy living hit their sales. Even
the biggest brands have to keep in touch with the times and reposition themselves in line with the
changing environment. The question is, ‘Does McDonald’s have sufficient permission from its customers
to significantly change its offer through the power of its brand?’
 Situational permission. This is given at any point of interaction when a customer deals with an
organization. Godin sees this as being important because at the point of interaction there is the
opportunity to add value to the sale – and for the customer. ‘Do you want fries with that?’ are the six
most profitable situational permission-marketing words in history. With 100,000 employees using this
line to customers every day McDonald’s has generated billions of pounds in extra sales using situational
permission. The question is will ‘Do you want a salad with that?’ have the same effect. Early indications
look good.
There is a lower level than this, which is called SPAM. This is where there is no permission or relationship
and the company practices ‘interruptive marketing’. Godin includes television and radio adverts, direct mail
to strangers and, above all, junk email in the category. This equates to the bottom rung of the
communications ladder introduced by Rod Radford. Now that millions of unsolicited emails can be sent out
for less than £100, Spam marketers can flood potential customers with millions of unwelcome interruptions.
Add this to the proliferation of channels to customers and the number of interruptions runs into the thousand
per week. No wonder customers are seeking relationships with companies that can solve their problems and
create mutual value. The challenge for companies is to add value by making customer interactions
anticipated, personal and relevant.
Now we have considered the case for relationship marketing, we can turn to different types of relationship.
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Types of Customer Relationship
There are several different types of relationship where the attributes and dynamics of the relationships vary
greatly. Here we examine a few important ones.
Business-to-Business Relationships
The unique feature of many business-to-business (B2B) relationships is that they typically involve many
people from both the supplier and customer. The figure below shows a typical array of roles in B2B
decision-making. Taking IT and telecommunications as an example, it may be the marketing director who
has initiated an enquiry into buying a new customer relationship management system to support customer
retention. A key influencer in the decision-making process maybe the sales general manager, who wants to
ensure that what is purchased is easy for his sales team to use and will drive up the number of quality leads
coming from marketing campaigns. There are also likely to be key influencer inside the IT department, who
may have a view on the best system for ease of integration into their current systems or who may just have a
favourite supplier. If the CRM system is above a certain value it may be the managing director (MD) who
will make the final decision or, more frequently, it will be a committee of people headed by the MD. For
high-value capital items the buying department will be involved and the finance director will take an active
interest. High-value projects usually go to trial, at which point the view of the users will be taken very
seriously. If it is too time-consuming to use and does not prove to deliver the stated benefits in trial, the
project may go no further. Finally, there is always a gatekeeper, perhaps a person in the IT department who
thinks that he has the right to decide who the supplier will see, when and why.
Clearly, to sell successfully into another organization is complex as it can involve tens of people from the
supplier and customer organizations. To win this one deal the supplier will have to understand where the
power lies in the buying organization and seek to influence all the key people.
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If there are already existing relationship, then the chances of winning will be much greater than the
competing supplier who has no established contacts. To grow mutual value for both organizations, supplier
will take the customer up the loyalty ladder faster if they:
 Work to develop a deep understanding of the customer, the industry and the business drivers;
 Demonstrate that they understand how their own organization can help the customer;
 Can influence the organization to develop new offers to create new opportunities for the customer;
 Understand how technological developments in the industry can deliver value to the customer;
 Can form partnership with other suppliers to solve the customer problems;
 Can open meaningful peer-to-peer relationships with the customer problems; greater mutual
understanding and resulting in delivery of higher mutual value.
Figure 1: B2B decision making
Initiator
Influence
r
Decider
Buyer
User
Gatekeeper
The purchase decision
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Electronic Relationships
The electronic relationship is becoming more important as customers use the Internet extensively to learn,
shop and buy. Increasingly, they are discovering the benefits of personalization and customization.
Amazon.com recognizes who you are after you’ve logged in and presents you with book choices based on
stated preferences or on your latest selections. They even email you when a new book in your preferred
category is released. Timbik2 designs, a US-based manufacturer of backpacks and messenger bags, is
developing new direct relationships based on its ability to customize.
Dell computers used the direct model to allow customers to customize their own personal computers to take
them to the forefront of the home PC market. Nowadays customers are demanding e-relationships with
companies as part of a multi-channel strategy. They want to choose when and how they buy – through the
Internet, over the telephone or in retail outlet. Companies ignore the importance of the e-relationship at their
peril, not least for its capability to add long-term mutual value – the customer gets exactly what they want
and the company gets to provide it at much lower cost.
A bank account transaction was estimated to cost 15 pence over the internet compared with £1.50 in a bank
branch with probably less queuing and the task is performed at the customer’s leisure. So e-channels can
create mutual value through better service at lower costs, allowing the organization to learn more about the
customer and deliver more value back over time.
In the B2B world-moving routine repeat purchase tasks to the e-channel delivers the double whammy of
lowering the costs to serve the customer and raising customer satisfaction. Companies like Cisco systems
have found that self-service customers are generally more satisfied. In addition, time is freed up for the
account teams, who no longer have to deal with the repeat orders and can now focus on building customer
relationships. Spending more time in getting to understand the customer’s business will allow suppliers to
proactively suggest solutions to the customer business problems, delivering mutual value. This is much
more fruitful than processing and chasing orders for small repeat purchase items.
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Mega Marketing
Mega marketing is where relationship must be sought with governments, legislators and influential
individuals in order to make marketing effective on an operational level. Clearly, for companies in regulated
market places, such as electricity, gas and telecommunications, this has been extremely important over the
last few years. The government privatized the state monopolies and allowed competition into these markets,
in some cases for the first time.
In order to ensure there was fair play in these new competitive markets the government set up ‘watchdog’
bodies to regulate the industries. This led to the creation of OFTEL, OFGAS and OFFER. In these markets
mega marketing was a crucial activity, both the incumbents and for those with aspirations to enter these new
markets. For public sector organizations the policy direction of the government needs to be clearly
understood before any marketing of local services can take place.
Classic Dyad Relationship
What is clear is that without effective management of the classic customer-supplier dyad relationship,
investing time and energy in the other types of relationship is worthless. Reichheld and Sasser have
provided the empirical evidence that long-term relationships are worth pursuing as they deliver mutual value
for customers and suppliers.
We have seen that developing customer relationships is the domain of relationship marketing, whose aim is
to deliver mutual value by moving customers up the loyalty ladder. This has led to a greater focus on
customer retention and a belief that focusing on fewer customers and creating more value is the way to go,
as outlined in their view of one-to-one marketing. Godin has prescribed that permission marketing is the
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way to develop customer relationship, turning strangers into friends and friends into customers. So, if the
case for delivering mutual value through better customer relationships is in some way proven, what makes
for a good relationship?
Properties of Effective Relationships
In B2B marketing a distinction has been made between three types of connection that together form a
relationship between buyer and sellers:
 Activity links, including activities of a technical, administrative or marketing kind
 Resource ties, involving exchanging and sharing resources which are both tangible, such as machines,
and intangible, such as knowledge.
 Actor bonds that are created by people who interact and exert influence on each other and form opinions
about each other, for example like the peer-to-peer contacts mentioned earlier.
There are 13 properties that can be useful for planning to develop relationships and to aid decision-making.
 Collaboration
 Commitment, dependency and importance
 Trust, risk and uncertainty
 Power
 Longevity
 Frequency, regularity and intensity
 Closeness and remoteness
 Formality, informality and openness
 Routinisation
 Content
 Personal and social properties
 Anticipated, personal and relevant
 Customer centricity
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Collaboration
Collaboration could be linked to a single deal, for example, joining forces to win the supply of the CRM
system. Alternatively, it could be continuous collaboration to achieve shared objectives. The CRM software
company Siebel has grown through collaboration with the key IT service providers such as IBM and
consultancies such as Accenture. In modern business, the term ‘compete at breakfast, collaborate at lunch’ is
often used. Customers will now insist that companies bring the best partners to the table to solve their
problems and this has driven the need for former competitors to collaborate. Clearly, a low degree of
competition and a high degree of collaboration are the basis for a long-term harmonious relationship. These
days collaboration is often a prerequisite for success and is demanded by customers.
Commitment, Dependency and Importance
If a relationship is important, then both parties are probably dependent on each other for mutual success and
must commit themselves to making it work. If a company is operating a just-in-time (JIT) system, the
production line will close down if the supplier does not commit to deliver on time. Dependency is therefore
high. In the fast moving consumer goods market manufacturers are dependent on a small number of retailers
for a large proportion of their sales. Conversely, retailers rely on a few key suppliers to deliver their product
range. This level of dependency leads to high commitment from the senior management teams of these
companies to work together to achieve joint objectives. If they don’t, the end customers will be the ones
who are dissatisfied because the stores don’t stock what they want.
Trust, Risk and Uncertainty
The basic for many purchasing decisions is often risk reduction. People purchase certain brands because
they associate them with a quality standard that is delivered consistently. It also makes decision making
easy – when we see the familiar coca –cola bottle in a fridge that is packed with different drinks, and we are
thirsty and in a hurry, then our choice is de-risked. This amount of certainty cannot be given in service
industries where the output is less tangible. We only know how good an insurance policy is when we place a
claim on it. Our lives are too cluttered to read the fine print so we trust the broker. This can be immediately
lost if the customer experience doesn’t live up to the trust placed. In B2B situations an additional factor is
that any major purchasing decision usually has to be justified to your boss. For this reason, personal risk
reduction is often a key-purchasing criterion. In order to develop successful relationship in B2B marketing,
companies have to actively seek to build trust. In the early days, this may involve removing some of the
uncertainty in a customer’s mind by offering to share risks.
Power
Rarely do two parties have the same amount of power in any relationship. It could be that one company is
much bigger, has better access to customers, a larger market share, better technology or knows a particular
market place more intimately. Exerting the position of power often and overtly is not good for sustaining
long-term relationships. Here there is a strong link to dependency. Increasingly, large corporations rely on
very small organizations to provide specialist services for them to deliver the product or service to the end
customer. The big corporation needs to understand that the small company will deliver most effectively if
there is a clear work plan with few emergencies and surprises because they don’t have a huge amount of
resource to call on. The small business will also be very dependent on the corporation for prompt payment
of bills, and will not thank them for exerting their power to pay when they feel like it.
Longevity
We have seen that longevity can be a key to profitable relationships. Keep a customer for a long time and
they become easier to serve, buy more of your products and are a lot more profitable than when the
company first acquired them. This is why, year-on-year, students are offered ever more attractive incentives
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to join banks. The acquisitions costs are well justified as the bank could be acquiring a successful business
studies graduate who goes on to become a chief executive of a FTSI 100 company.
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The banks are looking at the potential lifetime value of the student. Longevity should not be taken for
granted as a recipe for success. In the B2B sector long-term relationships can become blasé and fall into the
trap of thinking there’s a regular order regardless of effort or results delivered. At this point, relationships
can be broken as they fail to deliver innovation and creativity.
Frequency, Regularity and Intensity
Some relationships are frequent and active, for example, people may use the same bus company to get to
work every day. Others are less frequent, such as using the services of an undertaker, although loyalty to a
certain provider can be strong. Others relationships can be intense for a period of time, for example, an
undergraduate has an intense relationships with his university over a three to four-year period.
We have seen that in order to develop stronger relationships with customers, organizations should look to
have fewer customers with deeper relationships. Godin believes that gaining customers’ permission to have
a dialogue with them allows you to increase the frequency of contact, its insight executive service for those
– like undertakers – who cannot make their relationships more frequent, the importance of delivering an
excellent experience is the key to customer loyalty.
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The Importance of Information
Knowledge of these influences is of paramount importance to them since knowledge is a prerequisite to
understanding and it is understanding that will help them to successfully navigate the difficult waters of
their environment. So lets take this step at a time.
A business needs to acquire knowledge, how does it do this? Well. Knowledge comes from information and
information comes from the facts accumulated about certain things. But facts about what? How would a
business know what information it needs to acquire? The journalist. The journalist has collected information
and acquired knowledge about the perfume industry in order to write this article.
Once the business knows that it needs to collect information continuously from a variety of sources to
acquire knowledge, it must consider how the knowledge is converted it understanding. Simply collecting
facts about particular aspects of its environment will be interesting but not meaningful. For example,
business might find out that its market share figure is 34%. This is interesting as it means that of all the
customers who are buying a particular product, 34% are buying this business’s offering in preference to that
of a competitor. However, the market share information becomes more meaningful if the business can also
find out what its competitors’ product. Continuing the example, if it becomes a apparent that there are three
other competitors in the market and their market shares are 38%, 25% and 3%, the business can see there
are a total of four organisation in the market, that it is occupying the second place in the market (the market
challenger), its position is quite close to the competitor with the largest market share (the market leader),
there is one major player at the moment but the third place organisation could be a threat.
Knowing its market share figure was interesting but the information became more meaningful when
comparisons were made. The information collected was converted into knowledge and understanding of the
market forms a competitive perspective. It is this understanding that would enable the company to take
measures to, for example, ensure that it continued to satisfy existing customers and attract the customers of
competitors. Finally, to summarise, information is important because it provides an organisation with the
means to continuously acquire knowledge and understanding of customer, competitors and the market so it
is better able to satisfy customers than its competitors.
How Information can be Used
We have already looked briefly at some areas of information a business might collect, for example,
information on its customers, competitors and the market. In this section we will look at how the
information will be used and how the ‘raw’ information is, in the first insurance, converted into knowledge.
We have also established that in order to be customer oriented, an organisation will need to be continuously
aware of the status of its environment. So, one of the most basic functions of the information collected is to
provide an audit or examination of its environment. Any customer-oriented company will want to know
what customers are looking for so that it can provide this better than its competitors. What this means is that
a comprehensive audit will also look at aspects within the organisation’s operation to determine how well its
resources are organized to deliver what the customer wants.
Within the context of external and internal information, we will now look at some specific functions of
information.
Information can be used to establish general trends in the environment. Businesses will be interested in
determining the overall size of a market in terms of how many units are purchased by customers (the market
volume) as well as how much the market is worth (the market value).
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One of the more critical pieces of knowledge sought it whether the market is growing or not since this will
indicate whether the market is still acquiring new customers and whether customers are repeatedly
purchasing what the market has to offer.
Information can also be used to scan the market for opportunities and threats. The scale of the market (in
volume or value terms) and the overall trend (whether the market is growing, declining or stagnating) will
be an indication of whether the market presents an opportunity or threat for an organising markets that are
growing, even in their markets that are declining or stagnating there are enough customers for everyone. In
addition, new markets that are declining or stagnating present a competitive threat. Competitors will
aggressively seek to defend their market share at the expense of other players in the market. On a mere
general level, the macro-environmental issues identified can lead to market opportunities and threats. For
example, in the UK not only are people living longer, but older are more affluent than they have ever been
and are attractive proposition for companies wanting to satisfy their many needs. Conversely, our increasing
reliance and out-of-town retail outlets for everything from food to mobile phones has almost extinguished
the retail trade in town centers.
Information can enable the organisation to assess competitor activity. As well as market share comparisons,
a business will also be interested in the precise offering of competitors in terms of the product, how it is
priced, how to get to the customer and how it is promoted (we call these aspects the marketing mix). It will
also want to find out about a competitor’s overall aims and ambitions (we call this its strategy) because it is
this that will influence the composition and execution of its marketing mix.
Information can help the organisation to explore and examine consumer behaviour and help the organisation
to design its approach to the customer. The desire to know and understand consumer behaviour is at the
heart of a customer oriented philosophy. How can companies achieve successful competitive advantage by
satisfying customers needs better than their peers if they do not understand which customers buy, why they
buy, what the buy, how they buy, when they buy, where they buy.
Information that will help it to gauge the extent to which its resources ‘fit’ with ambitions. Is the company
equipped to deal with the employees, how much it pays them and what jobs they perform. As we saw
earlier, this information is interesting (particularly to employees and accountants) but it is how this
information is used, within the framework of a customer-oriented philosophy that matters. Take the example
of employees. First, rather than simply counting the number of employees, the customers oriented business
will want to ensure that it is employing the right people with the right attitudes. In short, the organisation
will want its employees to demonstrate that they can embrace the idea of customer orientation so that
customers employees to work with them in their aim to achieve sustainable competitive advantage through
customer orientation.
Finally, are employees performing the right tasks? Employees should be focused on tasks that will
contribute towards customers satisfaction such as serving customers or handling their enquiries, not no
internal tasks such as completing the ‘necessary forms’.
The example above considers the knowledge a business will seek in terms of its human resources and it is
by means exhaustive. Furthermore, it will also be seeking information and knowledge in other aspects of its
business, such as its operations and finance.
In summary, we have seen that there is a huge amount of information available but that it only starts to
become useful when it adopts a functional approach because it is at this stage that the information becomes
knowledge. We have also seen that information (and knowledge) can be collected from quite diverse
sources both external and internal to company. Finally, we know the previous section that it is important for
information to be collected continuously. How a business does this is covered in the following section
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because, ultimately, the functionality of information in the customer oriented organisation is that it will help
the organisation to build a customer information system.
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The Customer Information System
Companies can take the approach the information is collected on an ad hoc basis indeed many
(unsuccessful) firms do. Unfortunately, those that take this approach tend to search for information when
they hit an obstacle, and by this time the information will arrive too late to help overcome the obstacle it
will only help them deal with the aftermath. Companies like this are active. Take the example of what
happened to the English football league club realized far too late that they relied on money form television
rights to support their balance sheet.
The customer oriented (and wise) firm realizes that information provided on a better placed to deal with
obstacles and, more importantly, take competitive advantage situation within the market place. You only
have to look at how the food retailers have responded to recent social changes in the UK. We travel more,
we are a multicultural society, we have more demands on our time but we like to eat well what is the food
retailers’ response? Well they provide in their chilled cabinets all manner of ready made meals with
accompanying breads, pickles, dips and so on, so that we can enjoy an ‘exotic restaurant’ meal in our own
home, at out convenience and prepared with the minimum of effort.
In short, the customer-oriented business will embed a system and continuous process of information
acquisition, analysis and dissemination within its processes. This will enable it to move forward proactively
and be positively prepared for the future. So what is this system called? It’s called a customer information
system (CIS). The CIS becomes the system by which companies can systematically (in other words
regularly) collect information, turn it into knowledge and understanding through appropriate analysis and
the ‘distribute’ it (in an intellectual as well and physical sense) to appropriate decision makers. In short, the
CIS can be defined as physical sense) to appropriate decisions makers. In short CIS can be defined as:
An operational framework that enables an organisation to manage and structure the gathering of information
from sources within and outside of it.
Customer Information Systems Stages:
Stage 1. External sources of information are accessed and fed into the CIS. At this stage, information will
be gathered on the general environment, the market, competitors and customers among things.
Stage 2. Concurrently, internal sources of information are also accessed and fed into the CIS. Remember,
here we are talking about information on the company’s resources (which can include human, physical and
financial resources) and its operations to name but few. Consequently, not only many aspects of its
activities, but many employees will be involved in the provision of internal information.
Stage 3. The external and internal sources of information are collected within the CIS. The CIS is not some
form of computer software package (although software may be used in stage 4). What we are talking about
here is the coming together, or gathering of pieces of external information within one physical part of the
organisation. This ‘coming tighter’ may well be handled by employees within the company’s marketing
department who have the necessary skills to perform stage 4 (in smaller organisations this may be an
individual with responsibility for marketing). These employees will probably be given the specific task of
collecting different types of information on a continuous basis so that the information audit can be
completed.
Stage 4. As we have said, it is likely that at stage 3 employees within the marketing department will have
the specific task of collecting internal and external information. However, we have also seen that this
information translated into knowledge? Well, essentially, what we are talking about here, as a first step, is
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the process of analysis. This will be discussed in more detail later, but for the time being it is worth reexamining why this task is likely to be performed by employees within the marketing department.
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The employees of the marketing department are likely to be those closest to the philosophy of customer
orientation. Marketers truly believe that analysis of environmental information leads to knowledge and
understanding and that it is a critical first step to identifying and pursuing sustainable competitive
advantage. Furthermore, these employees will be the company’s full time marketers and, accordingly, are
likely to have the necessary skills and abilities to undertake the task. Finally, in a truly customer oriented
business, the marketing department will be a focal point for costumer centred activities.
Stage 5. Once the analysis has taken place, the information is translated into knowledge and understanding.
It is at this stage that the firm’s decision makers will get involved. By decision makers, we mean senior
management who are responsible for the business. The actions of the business are likely to come in two
different guises, strategic and tactical. Strategic actions will happen over the longer term and be significant,
for example, to enter a new segment of the market. These actions will be annual planning review (the once a
year review in which the business reassesses where it is, where it wants to be and how it is going to get
there). Tactical actions will happen on an ad hoc basis and are, generally speaking, of less significance, for
example, increasing the number of staff in a call centre during a promotional campaign. These actions will
still be the result of information received, but the information is likely to be of a more discrete/moment in
time nature.
Finally, you will see that the CIS is a feed forward system. Stage 1 and 2 feed into stage 3 that feeds into
stage 4 and then stage 5. However, there are aspects that feed back into the CIS. It is likely that the decision
makers involved in stage 5 will also want to influence the nature of the information collated within the CIS
(stage 3.)
The information received will be contrastingly evolving, not just as a result of the demands of decisions
makers, but in response to changes within the external and internal environment. What this means is that
there will be interaction between the CIS and the information sources.
So, in summary, we have seen how the CIS will not only facilitate the organisation’s desire to have a
continuous system of information collection, but will also provide the much needed knowledge and
understanding.
Reliability and Validity
Information must be reliable. Reliability is ‘the quality of producing almost identical results in successive
repeated trials’ in short, reliability of information is concerned with the extent to which the information is
error free. If information is error free, it will produce the same results time after time.
Information must be valid. Validity is ‘a condition that exists when an instrument measures what it is
supposed to measure’ in short, the validity of information is concerned with the extent to which the
information collected is what it was intended to be.
The information collected would be valid if Petfood Inc were trying to establish why customers purchased
Mittens, but what if they were trying to establish the relative importance of price, quality and brand in the
purchase decision? To find out the relative importance of price, quality and brand in the purchase decisions,
PetFood inc would have had to ask customers to show (perhaps in order of importance using a scale of, say,
I being important and 4 being least important), the extents to which price, quality and brand influenced their
decision to purchase Mittens.
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What we hve just looked at is a specific example of reliability and validity but it is important to understand
that reliability and validity permeate all information collected. Consider the example of a company
collecting sales information regularly in order to monitor the trend in sales. Information like this is likely to
be freely available from its sales department. However, the company must be sure that the basis for the
collection of the information is the same time after time.
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In this way it can be sure that in compiling trends, it is comparing like with like. The information would
then be reliable. An example of validity would be that often decision makers, a company’s senior
management, be involved in directing what information is collected. Validity could be an issue here if the
decision makers have not properly specified what information they want if those involved in the collection
of the information have not properly understood what was required. Finally, an example of reliability and
validity would be if a firm has employed a market research agency to seek information from the public on
its behalf. In such a case, it must be sure that each person involved in the collection of the information is
asking the right questions in the same way and so the information is both reliable and valid.
In conclusion, information can be reliable but not valid and vice versa. It is therefore critical that businesses
give themselves the best to collect reliable and valid information by recognising the importance a good
information plays in securing successful customer orientation.
Information Sources
Information is a generic term covering the facts from which knowledge and understandings can be derived.
In reality, it comes in a plethora of guises. There are many different types of information available both
inside and outside an organisation. Information can also come in different forms from ‘hard’ numerical facts
to more in depth details about a subject. Information is also available at many levels; information can be
found at an individual customer level and it can also be found at a general environmental level. However, in
principles, information can be divided into two distinct sources: secondary information and primary
information.
Secondary Information
Secondary information is information that has already been collected, initially for a specific purpose, but
which is later used for purpose other than the original use. Another way of saying this is that secondary
information can satisfy its information needs. So secondary information has its uses:
 Providing background information. Secondary information can be used to help those involved in the
information collection process by providing background information on unfamiliar areas. This might
need to happen even before a problem has been properly recognized.
 Problem definition. It can help to define the organisation’s problem or provide some exploratory
information on a possible issue. In so doing, it can help the organisation to get beyond problem
recognition and move towards specifying the purpose of information collection.
 Aid the informing plan design. It can also aid the organisation in drawing up an information collection
plan. With an evolution of what appropriate secondary information is available, the organisation can
then go on to identify areas for closer (primary) examination.
Advantages
Secondary information is also useful for three key reasons:
 It is a quick to initiate. Secondary information is information that is readily available. It has already been
collected and comes in a variety of easy to use formats (e.g. databases, the internet).
 Collection and analysis can be completed quickly. The collection (and subsequent analysis) of secondary
information can be completed within a short space of time.
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 It is cost effective. Since secondary information is already in existence, collection and analysis is cost
effective and, compared with primary information, it is relatively inexpensive.
Disadvantages
However, there are some drawbacks:
 Relevance. Secondary information can lack relevance because it is often of a general nature or has been
collected as another organisation’s primary information.
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Thus it may not be applicable to the organisation’s information need. The organisation will therefore be
particularly interested in the validity of any secondary information collected.
 Reliability. Because secondary information has been collected by another organisation, a company
cannot be absolutely sure that it does not contain inaccuracies and is, therefore unreliable. It is important
in this case to use well-recognised sources of secondary information and be sure of how and what
information has been collected.
Sources
Secondary information sources are vast and diverse.
Primary Information
Primary information is ‘new’ information collected for a specific purpose although, interestingly, it is
information that may later be used as secondary information. A business will use primary information to
bridge any identified gaps in its knowledge. For example, it may want to gauge customer reaction to its
latest television promotion or it may want to determine how the price of its products compares to
competitors. It is unlikely that the company will be able to access existing (secondary) information to find
out so it must consider collecting some additional information of a more specific nature.
Uses
We have seen that there are times when secondary information alone cannot provide the organisation with
the information that will help it to satisfy its information collection objectives; there remains an information
gap. It is role of primary information to bridge such gaps. Having studied the rationale for and uses of both
secondary and primary information, can you distinguish between the two?
Advantages
The main advantages of primary information is that it aims to collect specific information. This means that
is it likely to be more valid than secondary information. In addition, because the company controls how it is
collected, reliability is less of an issue.
Disadvantages
However, there are disadvantages associated with primary information. It is expensive to collect because the
company bears the full cost of its collection. It can also be time intensive the process of actually collecting
and analyzing primary information can be a time consuming, often tedious task. Finally, depending on what
primary information is required, the information collection plan can be quite complex.
Internal and External Information
From what we have already explored in this chapter, it is evident some of he informing will be found in
sources within a firm. Examples include sales figures, retails about customer complaints, products costs,
productivity rates and so on. However, not all information needs can be satisfied with information located
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within the confines of the company. Consequently, the company must also utilise external sources of
information and information on competitors.
Quantitative and Qualitative Information
We have seen that some information comes in the form of ‘hard’ numerical facts, for example, market
shares figures (often expressed ad a percentage (%), productivity rates (again numerically expressed as a
rate/hour) and the number of customer complaints (a simple numerical count), but this is not the only form
of information. Information can also come in the form of an in-depth appraisal of a subject. This form of
information will contain few, if any, ‘hard’ scientific facts but is still seen as information.
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It will still help a business to acquire knowledge and understanding and, most importantly, it can help out to
‘put the flesh on the bones’ of the ‘hard’ facts.
Not only must companies ensure that they are customer oriented to acquire new customers, they also have to
ensure they are customer oriented throughout the time a customer continues to do business with them.
Sometimes during this time, the company will not get things right and the customer will want to complain.
In the first instance, the customer-oriented business will want to ensure that it has an appropriate complaints
procedure. It is also likely that it will want to collect ‘hard factual information about complaints procedure.
Information about complaints, such as how many complaints is received. However, it will also be important
for it to get more detailed information about the complaints by, for example finding out what the compliant
is about and how well the company’s complaints’ procedure worked. This is more in depth information and
the company needs a combination for ‘hard’ factual and in depth information in order to get the best
possible view of what is happening.
We call the ‘hard’ factual information quantitative information and the more in-depth information
qualitative information. Lets look at each in turn.
Qualitative information is ‘hard ‘ information. It is often numerically or statistically based. It is principally
concerned with providing a count of the number of times something occurs rather than exploring why it
happens.
Quantitative information allows the company to find out why a particular situation exists. Qualitative
information is particularly useful when it wants to examine behaviour, motivations, attitudes and
perceptions. It is information which aims to describe and explore something rather that simply count the
number of times it happens.
We return to the subject of quantitative and qualitative information later.
What we have seen in this section is that information can come form secondary or primary sources, it can
also found within or outside a firm and, finally, it can provide ‘hard’ facts or more in depth details. Now
what would be useful at this stage would be for the company to have some way of seeing how all of this gets
into its ambitions of creating a continuous system of information collection, analysis and dissemination the
CIS. The next section seeks to do this.
The Process of Information Collection
If a company accepts that to achieve a sustainable competitive advantage it needs to be more customer
oriented than its peers, if it also agrees that this can be best delivered by having and acting upon, a better
knowledge and understanding of the customer through a continuous system of information collection, then
this begs the question of not what the system looks like (because we have explored this when we looked at
the CIS) but how much a system is operationalised. What is the process behind such a system? How does a
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company set about this task and, more importantly, how can it be sure that the information need it has
identified at the outset is satisfied at the conclusion of the process?
It is probably worth pointing out that this process runs alongside stages 1, 2 and 3 of the CIS, when the
organisation is involved in collecting and collating information. Given this fact, it is likely that the
marketers involved in the CIS will also ‘own’ the information collecting process. Let’s now look at each
stage of the process in turn.
Problem Recognition
This is the first but perhaps the most critical stage of the process. It is vital that the organisation is open
enough to recognize problems (or issues for investigation) in the first instance since this will facilitate its
quest for customer orientation through sustainable competitive advantage remember what we said at the
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outset of this chapter about proactivity versus reactivity. However, this stage is also vital for another reason.
In recognizing a problem, the company starts to identify an information need. It is only when it has
identified this need that it can begin the process of collecting, and then analysing, information that will help
to resolve its problems. There are many types of problem that businesses can encounter and identify, but
principally they can be classified by the extent to which they are investigative or revolutionary, although in
practice some problems will be combination of the two.
So what does the company do after it has recognized that it has a problem? Well it translates this into an
information need by articulating the purpose of information collection.
Information Collection Purpose
Once the business has identified a problem, it has accepted that it has a need for information. However, if
the information collected is to be valid, then a clear and precise statement of the purpose of the information
collection must be made. The business must seek to ensure that there is significant cohesion between the
problem and the purpose for collecting information by articulating a clear set of objectives. Before we
summarise the purpose of doing this, let’s have a look at what we mean by an objective.
An objective is an aim or goal. What the business is trying to do is to say what information the process aims
to collect. For example, if the problem identified is that the level of satisfaction with its customer service is
decreasing, an objective of the information collecting might be to ‘establish why customer satisfaction is
decreasing’. However, some other objectives might be to ‘explore areas of customer service where
customers are satisfied and dissatisfied’ and to ‘identify areas where customer service can be improved.
To summarise, the reasons why companies must clearly state the purpose of information collection are twofold: first, by articulating objectives it will give focus to the information collection plan, and secondly,
associated with this, the information collected will be valid. Having done this, the firm can start to consider
how it actually collects the information specified.
Information Collection Plan
The information collection plan contains the details of not just objectives of the information collection
process but also how the business aims to achieve them. Given that the marketing department is ‘owner’ of
the CIS and information collection process, it will probably be the originator of the plan. In terms of detail,
the plan will document the background to the problem and from this state the purpose of the information
collection and precise objectives.
It will then detail what methods will be used in the collection of information and, subsequently, what type of
analysis will be undertaken. Remember this is where information and knowledge become understanding. It
is also likely to detail the costs of collecting the information and how long it will take, including stating
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when the analysis will be presented to decision makers. Having documented the details of the process within
a plan, the next stage is to actually collect information.
Information Collection
It would be ridiculous for a company to gather via primary means all of the information it requires. This
would be time-consuming, costly and totally unnecessary. Before even considering what primary
information it needs to collect, it must look to identify what specific objectives can be satisfied by accessing
information already in existence, that is, how secondary information can help the organisation resolve its
problems.
Once the secondary information has been collected and some objectives achieved, the company is then in a
position to identify the focus for the primary information collection.
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Methods and Tools
The figure below shows the methods and tools that can be used in the collection of primary information.
The first decision to be made is whether quantitative or qualitative information (or even both) is required.
Review what is meant by quantitative and qualitative information before reading on if you need to remind
yourself of the distinction between the two.
If quantitative information is required the organization can choose to collect it via several methods. Each
has its strength and the final choice of method will depend not only on the nature and scale of the
information required but also on how much time and money the organisation has to spend on the collection
process. We will look at the range of methods now.
The methods have been grouped according to their likely use:
Figure 2
Primary
Qualitative
Methods
 Personal
 Interview
 Focus group
 Observation
Tools
 Topic guide
 Recording
Quantitative
Methods
 Computer
 Mail
 Telephone
 In street
 In house
 Panel
 Omnibus
 Syndicate
Tool
 Questionnaire
Sample
Sampling
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Methods that enable the company to collect information from individuals (commonly called respondents) on
specific topics at a distance. The methods here are by computer (via email), by mail or by telephone. These
methods provide a relatively cost effective and efficient means of collecting information. They are
particularly useful if the information being collected is not too extensive and the company has already
access to potential respondents.
 Methods that collect information from individuals by gathering it in the street or in an individual’s
home. These methods will involve a researcher directly asking an individual a series of questions about
a particular topic. While the methods are more time-consuming and costly, they enable the firm to
explore areas in more detail. Conducting the information collection in locations where there will be a
high penetration of the individuals sought can contain costs a little.
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 Methods that involve a company getting together with other companies to undertake a joint process of
information collection, for example by research panel, omnibus or syndicate. Often the information is
collected periodically so the information flow is continuous. These methods can provide a cost-effective
method of acquiring information since costs are shared with other organisations. In addition, because the
information provided is continuous, it is quick method once the process has been set up; sometimes the
extent of the information that can be collected is limited.
So far we have looked at the variety of methods for collecting quantitative information but have said
nothing about the tool used. Well in each and every case, the tool is the questionnaire. While there are some
standard questions to be found on every questionnaire (such as those about age, gender, income), the length
and composition of each one will be dependent upon the method and that in turn depends upon the objective
of the information collection process. Individuals are much more likely to respond to a short questionnaire
on the telephone. We can’t imagine anyone answering questions on the telephone for an hour but we can
imagine them answering questions on the telephone for 15 minutes. Conversely, if someone was to be
stopped in the street it is likely that they would be prepared to answer questions for longer than they would
on the telephone.
If qualitative information is required, then the choice of methods for information collection are by personal
interview, by focus group or by observation. We will now look at each one in turn.
The personal interview method involves a moderator (this is someone who has experience of collecting
information usually a trained researcher) sitting with an individual and leading them through a particular
topic are via a series of predetermined prompts (these prompts are the tool). Often personal interviews are
used when the topic is of a sensitive nature or the interviewee is more likely to discuss the topic if the
discussion takes place on a one to one basis.
The focus group method involves a moderator sitting with a group of between four and seven people and
encouraging them to talk about a particular topic by leading them through a topic guide (i.e. the tool). The
moderator will be involved in controlling the progress of the discussion so that the discussion has validity
and everyone in the group has an opportunity to get involved. Focus groups are now quite commonplace and
are used, for example, in new product development and to test promotional techniques.
The observation method involves the researcher observing a subject in a particular situation at a particular
point in time. The tool in his case is probably a video or tape recording of the situation. The subject is
unaware of the observation. This type of method can be used to examine the behaviour of staff during the
purchase transaction (here it is called mystery shopping) or the behaviour of consumers in the retail setting.
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So we can see that although there are three different methods of obtaining qualitative information, each has
its own strengths. Business will choose the most appropriate method given the nature and scale of the
information required. This section has looked at the different methods and tools for collecting information.
We have seen that the nature and scale of the information sought has a bearing on the method chosen. We
have also introduced the term ‘respondent’, meaning the person whose views the organisation is seeking.
These are the people who, the organisation feels, can provide some of the information it requires and who
also influence the method chosen, the next section will look at how the organisation chooses respondents so
that it gets the information it requires.
Sampling
We have already talked the fact that primary research is undertaken with respondents. These respondent
may be individual consumers, employees or representatives of businesses, charities etc, anyone really who
the organisation feels can provide it with the information it requires. Respondents are selected because it is
their opinions that matter to the company.
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Collectively, respondents are referred to as a sample. A sample will be subset of a population that the
company is interested in. lets think this through. If a company wanted to find out what the UK population
thought about its latest TV advertisement, it could ask each and every member of the 58 million or so people
that constitute the population. However, this would be extremely costly, time consuming and unnecessary. It
may choose a smaller subset of the populations to be representative of the whole population.
In summary sampling enables a company to collect the information it requires in a cost-effective and
efficient manner. Once the information has been collected, either by secondary or primary means, one could
believe that the task is complete. However, right at the outset, we talked about how information in itself,
while useful, does not help the organisation. It is the overlaying of analysis that adds meaning by converting
information into knowledge and understanding. This is the next stage of he process.
Collation, Analysis and Interpretation of Information
At this stage, it is beneficial to return to a point made outset of this section and that is how the CIS and
information collection process are integrated. The company will also want to assure itself at this stage that
the information is reliable, that it can be trusted, has validity and really has provided the information
intended.
In addition, the company will be involved in taking all the facts and in depth detail it has collected and
converting it into knowledge and understanding through analysis and interpretation. Initially, this means
returning to the problems and objectives articulated at the outset of the process. How do all of the strands of
information contribute towards providing a complete picture of the problem or its resolution? Indeed, do all
the strands of information come together to achieve this? It also means producing something for decision
makers that is not a rambling and lengthy description of the information but an interpretation of the
information within the context of the problem identified. To achieve this, analysis of the information needs
to take place and, typically, this will involve an analysis of the market, the competitors operating within it
and, critically, the customers.
Market Analysis
Before a company can do any kind of market analysis, it must decide what market it is in. for example, there
is no such thing as the pub market; rather, pubs are players within the entrainment or leisure market, as are
cinemas, computer games and bowling alleys. Once the organisation has decided what market it is in, at the
very least, it will want to collect some basic information. For example, it will want to analysis the mark in
terms of its size what is the scale in volume and value terms. In addition, the company will want to know
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what trend the market is demonstrating is it growing, declining or just stagnating? Growing markets are
attractive, declining markets are not and, like stagnating market and can be both challenging and
threatening. Having analysed the market and gained a broad view of what is happening, discovering more
about the players within it is critical.
Competitor Analysis
Organisations do not operate in isolation and, inevitably fortunate are affected by the behaviour and
capabilities of their competitors. At the very least, it is against these competitors that consumers make
comparisons that eventually lead them to choose which organisation to patronize. It is therefore important
for a business to have knowledge of and understand its competitors. First, the company needs to understand
who its competitors are. The second level is those competitors who operate in the same product category.
These are the competitors who are competing for the same spending power. Only when a company has
analysed its competitors at these three levels will it really know who its competitors are.
Once it has a view of its competitors, the finer details become the focus. First, the organisation will want to
evaluate the state of the competitive environment. The competitive environment is influenced by a number
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of factors; for example, the number and strength of competitors, including new entrants, within it, and the
business will need to establish an overall understanding of what is happening in the competitive
environment. Secondly, having found out who its competitors are and how well they are performing, it will
want to get a view on how these competitors see their future, that is, what their strategies are. It is not just
important to know the current situation of competitors but also what their plans are for the future since the
business will have, at some time, to deal with the ramifications of these.
Proactive organisations; organisation that are customer oriented and want to achieve suitable competitive
advantage, will collect this information on a continuous basis. The organisation will need to establish
another continuous information gathering and analysing system running in conjunction with the CIS. Such
a system will involve selecting three or four key competitors (in the light of what we have said at he
beginning of this section about level of competition) and then considering what information is needed both
internally and externally. Resources need to be committed to undertake the task of information collection
and to formalise the procedures for information collation. Once this has been done, through a series of
regular information returns, the business can use the CIS to pass the analysis through to decision makers.
This seems to make sense but where would an organisation find information on its competitor? Now having
looked at the types of analysis a company might perform on its market and competitors.
We will turn our attention to the analysis customer information.
Customer Analysis
The level of knowledge and understanding a customer oriented organisation will want to achieve is infinite;
it can never know too much about its customers and it can never understand its customers too much
because, at the very least, customers are constantly changing their attitudes, behaviours, motivation and
perceptions.
In this final section, we will look at a single yet critical, piece of analysis. The reason for choosing this piece
of analysis is that it probably underpins everything the customer-oriented company does. If a company
believes that the customer is the focal point of its activities, then it is vital that the company knows what it
must do not only to satisfy customers but also to delight them and ensure loyalty. Only then can it set about
the task of creating a sustainable competitive advantage.
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Evaluation of Information Collection Process
No process would be complete without some means of closing the loop and the information collection
process is no exception. It will come as little surprise, given the emphasis on a continuous system of
information gathering and processing, that there will be some evaluation of the information collection
process itself. The businesses will be interested in the areas where it has performed well and the areas where
it hasn’t. In the case of the former, it will want to preserve things that have gone well, maybe a particular
team of staff has been effective or particular information source has worked well. In the case of he latter; it
may want to change how something has been done, say a particular piece of analysis has not worked as well
as it could have or aspect of the information collected have been unreliable.
Marketing Research
Defining and Interpreting the Marketing Problem
Marketing research is undertaken in order to improve decision making in marketing. Therefore, it is usually
done to help marketing problems. Before data collection can begin it is important to define clearly the
boundaries of the marketing problem. This may require discussion amongst marketing management,
researchers and outside consultants. This is an important stage because failure to recognize a problem means
it is unlikely to be redressed.
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Ideally, data should be collected from the market rather than from management, who may be blinkered by
the pains they take to develop what they believe is the perfect product. Consider McDonalds Golden Arches.
They have over 14,000 outlets in 72 countries, so you would expect them competent in marketing
researching the needs of the market before producing. However, even they, make mistakes. Remember the
McPloughmans? The cheese, salad and pickle sandwich was intended to compete with the cold snacks
market dominated by sandwich bars and supermarkets. Apparently the staff were embarrassed to say
‘McPloughmans’, let alone try to sell it to a reluctant public. The product has since been withdrawn, after
landing itself in a pickle.
Research told McDonalds’ staff to avoid their ‘fixed smile’, American approach, considered insincere by a
sophisticated British public. A customer survey revealed that customers were also unhappy with the firm’s
brusque efficiency. Whilst the company’s objective was to deliver orders within 60 seconds, customers
really wanted warmth, helpfulness, time in the boardroom trying to second guess what customers may or
may not like. Another form of complacency is management interpreting their position in the market as more
favourable than it really is.
Other Stages in the Marketing Research Process
The remaining stages of the marketing process should include developing research questions or hypotheses,
data collection and analysis and reporting the findings. A hypothesis may be an informed guess about a
relationship between two or more variables. For example, several hypotheses on a fall in market demand for
a soft drink might be tested for, such as price increases, competitive activity, low confidence in sales by
distributors resulting in destocking, changes in consumer tastes or lack of brand awareness. Once data
collection on the problem is complete, the data can be analysed to support (or refute) each hypothesis.
Statistical tests are best summarized in table or graphical form to create a quick snapshot of what has
happened. If graphs are used, you should ensure axes are labeled, dated and titled.
When displaying frequency diagrams (i.e the numbers of people who can classified under different criteria)
figures should be given in percentages. The data from the tables or graphs should also be clearly referred to
in the text of the main report. Sometimes statistical tests are inconclusive, leaving judgment on decision
making to the findings and recommendations. For instance, in the previous example, research might reveal
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that price increases were the only reason for the fall in demand; so management knows it must refine its
pricing policies.
In some circumstances research questions are more appropriate than hypotheses if the nature of the research
enquiry is to find out more about boundaries of the marketing problem. Such studies are referred to as
exploratory. The first section of this chapter provides an overview of how marketing research can help
improve decisions in the marketing mix. The main types of data are next discussed: primary and secondary
research, and the ad hoc versus continuous adopting a systematic plan data collection.
Existing data should be used first, before embarking on commissioned or ad hoc research to solve a specific
problem. Options for data collection cost-effective by adopting a systematic plan of data collection are also
matched to research objectives, whether prioritized on cost, time or quality (degree or accuracy of research)
required. The chapter concludes with more details of the report stage.
Refining the Marketing Mix
Marketing researching is the objective gathering, recording, analysis and retrieval of data relating to the
marketing of goods and services for problem solving and improvements in decision making and control.
Research can be used to improve decisions on pricing, products, and communications such as advertising
and sales promotion or distribution.
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Pricing Research
The identification and recognition of different price elasticity of demand might enable the firm to segment
the market, using separate offerings at different price levels. This is an application of pricing research.
Sometimes firms conduct surveys to find out what their customers feel about their prices. One application of
this is to assess whether it is possible for the firm to charge more. Sometimes price points are so sensitive
that it is best to leave the size of product offered to the market. A key element in the success of this
monitoring of prices is required to keep a check on market considerations. The recommendations, and
should tie in with profit projections.
Product Testing
Product testing is one stage of new product development. Product testing includes concept testing basic idea
or application on potential consumers, screening and test marketing. Product testing is also important for
established brands to assess and monitor their current positioning. Product testing might include pact-testing
wither to ensure that the material is strong enough to support the product in distribution, handling, stacking
and storage, or in terms of ensuring the pack conveys an appropriate brand image. For example interbrew
faced a positioning problem with its famous Stella Artois brand.
Consumer research, based on attitudes, concluded that too much modernising of the packing had damaged
the brand heritage. The data of the brewery’s origins could be mistaken for a production umber, and the
chevron symbol hardly reinforced the pedigree of the lager. Its heritage was restored by revamping the
bottle and the surface design of the label. This was integrated with physical not only the bottles crates and
vehicles redesigned. Over 2 per cent share was gained less than 12 moths. This example demonstrates the
importance of attention in detail, which may have profound effects on overall performance.
Advertising Research
Advertising research is a multi-million pound business and deserves special research treatment. Typically,
for a campaign, advertising is tested before it is broadcast
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Pre-testing and also measured after the campaign has started (post-testing). Pre-testing ads involves
showing moc-ups of commercials (sometimes using a story-broad with a sound track) to prospects and
testing their:
 Levels of awareness,
 Product interest
 Reactions to the ads or the product
 Understanding
 Inclination to purchase.
Post-testing may compare attitude change between before an after public exposure; this also includes sales
tests. Media research aims to obtain the best package of media research aims to obtain the best package of
media classes (e.g. whether to use television or radio, say) and within each class, specific vehicles (say, a
choice between The Daily Telegraph or The Times to advertise a business product). Research can also be
applied to sales promotions, public relations and the personal selling function, of course. It how IBM
evaluate their marketing support, using a questionnaire. In this example, customers’ perceptions of their
sales force are assessed, including their information systems strategy, empathy and responsiveness to
customers. IBM can use this information to run special training course to ensure total consumer satisfaction.
Suppose a respondent scored as indicated by the crosses by the crossed from questions 7 to 11. If scores are
assigned to each box ranging from +2 (very satisfied) to –2 (disasfied), then the overall score is +1+0-1+2=
+1 and the average score for each question =1/5=0.2, which provides an aggregate image over a possible
range from +2 to –2, so clearly there would be some room for improvement.
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Distribution Research
Distribution research involves investigating channel design research, including supplier requirements,
customer service research and site location research. For example, the location of a new supermarket site is
critical for success. Selection would require an analysis of:
 The demographic mix of proposed sites
 Parking facilities
 Access to main roads and traffic flow patterns
 Property prices
 Compatibility with others stores in the are, to assess the degree of direct competition.
Even a small business such as a launderette which is expanding needs to take these factors into account:
catchments area, from which potential customer will be derived, the percentage of people who are likely to
be in need of public washing and/or drying facilities and relative convenience of the site location of the
launderette compared to others nearby. Whilst a busy road might improve awareness of the location, a lack
of parking space would probably deter drivers form using it.
Types of Data Used in Marketing Research
Secondary Data
Imagine you have to do some competitive analysis. It makes sense to start with existing data secondary data,
which have already been published. You might use data from within your firm (internal data) or external
data (obtained form outside sources). Where would you start? You might begin by examining records of
databases and company file information within your department. Consulting colleagues might indicate
further sources of information.
Your company library (if there is one) is a good place to search. It is likely that external data will not be
costly to obtain and interpret, and should be used only after first consulting internal data. Examples of
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external data include names and addresses of competitors (which can be found in compass UK), and
government statistical such as Economic and Social Trends, published by HMSO.
These can be useful for forecasting projections of industry demand or sales of a total market, but further
work needs to be done to make an estimate of competitive sales. Published accounts, audited data,
commissioned data available on subscription and trade association statistics can all help. A variety of private
firms also offer reports on specific markets: keynote reports are an example. Another source of information
about nominated companies from published sources. Collecting secondary data is called desk research. The
skill of a desk researcher is largely in knowing who to contact to obtain the relevant data. Desk research
involves all possible business contacts, such as suppliers, buyers and sales staff.
Primary Data
If secondary data are not available or are incomplete. Primary data may be required. Surveys, observation an
experimentation are all alternative forms of primary data, primary data material may be collected by survey
to solve a particular problem.
Survey research includes interviewing, either by post, telephone or personal interview. Surveys such as
usage and attitude tests are sometimes used to evaluate products on the market.
Continuous Research
Continuous data may be collected on an going basis, either internally or externally be commercial
organisations and sold to others. Examples of external secondary data sold to others are consumer panels
and retail audits provided by such agencies as A.C Nielsen, IRI, Sofres of France and GFK of Germany. An
example of a consumer panel database is provided.
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Data from a consumer panel allow a firm to monitor the shopping behaviour of panel members, who agree
to record specific purchases, often in a diary or more recently with self-scanning equipment to keep an
electronic record of their purchases. Panel number 70261 refers to tone consumer in the Scotland area and
brand 080 refers to a particular brand to tomato ketchup, the product of study in this record. Notice that he
researcher has specific marketing details (pack size, outlet, price offers code) and demographic information
(age, house size, social class, number of children in household and working status of wife).
All data are allocated to a number of predetermined categories and allocated a code. For example, wife
status is allocated a code form 0 to 2 according to whether each panel member is working full time, working
part-time or is a full time housewife. Panel data can be useful to ascertain brand loyalty for a given product,
store loyalty and likelihood to brand switching behaviour for different incentive offers and price ranges. It
could also be used for targeting offers which are most likely to be accepted by particular groups.
Retail audits are a way of collecting continuous data on stock records for specific retail groups. Before the
introduction of electronic point of sales (EPOS) technology, records were kept at periodic intervals to
evaluate the sales for each brand between the intervals. Stock turnover is useful to retailers because they
want to know which brands are most popular. Again, the effectiveness of in store incentives can be
identified by measuring the affects between before and after the offers have been redeemed. Improvements
in information technology over recent years enables stock records to be maintained minute by minute as
goods leave the store.
This is achieved by scanning the barcodes at the point of sales. Using the data collected from the EPOS,
retailer can evaluate the success of in-house incentive offers much more quickly. Moreover, the response
time to collect data from other retailers is shortened, so improving the service to subscribers. A summary of
what a consumer panels and retail audits can offer is given below.
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Table 5
Comparisons of market analysis information offered by retail or trade audits and consumer panels
Total market
Consumer purchases
Brand shares
Trade selling price
Promotions (on pack)
Trade purchases
Distribution
Display
Consumer demographics
Type od retail outlet
Brand switching
Media exposure of consumers
Trade audits
Certain outlets
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes*
Yes
Yes*
No
Consumers panels
Certain consumer types
Yes
Yes
Yes
Yes
No
No
No
Yes
Yes
Yes
Yes
Ad Hoc Research
This is research conducted for a special purpose, so it is primary data.
Trends in Using Research Agencies
Recent trends suggest that continuous research of fast moving consumer goods is becoming a smaller part of
the overall industry with regular tracking services and ad hoc qualitative studies becoming more importance
(economist, 1995). For example, psychographics research is being refined to examine the rate of consumer
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acceptance of new technologies. Anew values and lifestyle consumer profile, iVALS, is being designed to
examine the attitudes, preferences and behaviours of users of the Internet and online services. Early results
indicate differences between users and non-users are based more on knowledge and education than on
income, with implications for new means of targeting (Health, 1996).
Tracking involves monitoring changing consumer relation to brands, more sophisticated in requiring
customised studies for interpreting consumer facts, they are increasingly being asked to provide strategic
insight into the computers to some of their biggest clients and have shifted some of their equipment into
their offices (e.g. Kraft and Unilever) to build more stable partnerships as clients want more interpretation of
data.
Packing Research
Packing can either service to enhance communications such as image or product positioning, or provide
functional performance standards. Thus positioning research might identify that:
 Glass conveys freshness (particularly for jams and yogurts);
 Colours can represent favourable associations such as green conveying natural products;
 Shape (such as flat, oval blow-moulded bottles) can offer excellent size impression.
The key to enhancing positioning is to identify those values and/or attributes that are both salient and
discriminating, and to use packing in way that can reinforce those that are considered to give most
competitive advantages. In computers, it might be modernity and user-friendliness, for beers it might be
heritage.
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Packing research which tests communication objectives includes focus group research, the tachstoscope, and
projective imagery tests. Research into functional; objectives includes pseudo product designs. Attitudinal
scaling techniques can be used to test both kinds of objectives.
Communication Objectives
To communicate competitively, the pack must create awareness in store. The average shopper scans each
pack across a counter in about 0.2 seconds, so the pack must be distinctive and attractive. Also, the message
on the pack must be clear, relevant and easy to understand, without extensive effort to decide:
 What it is,
 What it can be used for, or its conditions of use.
 How is it made (if relevant, as in foodstuffs
Research Tests into Targeting/General Attitudes/Preferences
Focus Groups
Small sample groups of different demographic profiles discuss their feelings about a new pack design. They
might be shown the pack design for 5 minutes and asked for instant recall. Additional questions be asked:
 Would you be prepared to buy it?
 If not, who buy it?
 Where would you buy it?
 How might it be improved?
Impact/Awareness
The tachistoscope tests visual reception of the packing. The tachstoscope is a slide projector, which enables
stimuli such as packaging graphics to be presented under varying conditions of speed and illumination. The
tester can find the speed at which a message is received. It is possible to assess thee rate at which packaging
information is conveyed, and therefore provides a measure of visual impact and awareness.
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Understanding
For radically new product concepts intended to satisfy a latent demand, it is critical that the pack
communicates what it is/how it can be used/who it is for. The projection imagery test finds out what
respondents feel would be in the packet, and who would buy it.
Functional Objectives
Pseudo Product Test Design
Suppliers, consumers and distributors can be provided with two packs (with no brand names/visual cues on
them), and asked for their preferred choice.
Post-Experience Preferences
For established brands in the market, these groups may be asked if they have experienced any problems with
their packing. For example, packing of own label tea might be tested by asking the following questions:
 Is it easy to open?
 Does the packing tear on opening?
 Does it pour easily?
 Does the freshness of the product remain after opening?
 Does the packing remain intact after repeated usage?
 What arte the problems experienced?
 What are the recommendations for improvement?
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These questions should not be evaluated in isolation, but relative to the brand leader, and other national
brands of standing.
Problems with Interpretation
Respondents may need to be probed, especially if they provide over evaluative information, such as ‘great
nice I like it’. This information is not specific, and is therefore difficult to use as a basis of decision making.
Probing can provide a salient battery of attributes, which can then be quantified. For example, a consumer
may believe the packing is sophisticated because of its gold colour. A useful measurement technique is to
use a form of attitudinal scaling which can measure both communication and functional objectives of
packaging.
The semantic differential scale uses a series of bipolar adjectives. Both image and functional attributes can
be tested. For example, park A, compared to pack B is:
Special
Exciting
Dull
Hard to use
+3
-
+2
-
+1
-
-1
-
-2
-
-3
-
ordinary
boring
bright
easy to use
This can indicate the relative strengths and weakness of particular pack designs. It provides an overall index
of packing effectiveness, using the aggregate scores of each respondent. A frequency diagram then be
produced people are dissatisfied than satisfied.
An alternative use of the semantic differential is to measure the means of each factor for every respondent.
This allows you to identify specific strengths and weakness. In the aggregate analysis the overall index may
be satisfactory, but ratings of specific criteria may not be. Therefore, both measures of analysis are
necessary and should be compared to the main competitors. It should be noted that attitude scales are widely
used on a variety or research problems, not just packing research
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Trade off techniques such as conjoint analysis can also be used to identify preferences in h.
combinations of offerings. For example, respondents might be asked to rank various combinations of price
levels, pack sizes and promotional offers. This may be done by comparing criteria pair wise, or by
simultaneously rating a suitable array of combinations of criteria, designed by a software manufacturer
wanting to establish the best combination. Various computer packages then attribute utilities or levels of
importance to each criterion and combinations of criteria. The most appropriate combination can then be
made to consumers, based on their preferences.
Further Applications: Questionnaire Design
Since the surveys is one of the most popular forms of data collection, it is important for you to understand
how questionnaires should be designed. Well-designed questionnaires increase response rates due to
improved interviewer rapport. Nevertheless, social changes are causing some problems. The effects of rising
crime, together with the increasing numbers of women in the workforce, has contributed to the increasing
non-response rate as more people refuse or are not available for interview. Another contributory factor is
that the public are becoming increasingly tired of filling in questionnaires and becoming more cynical about
the underlying motives of market researchers, which is not helped by sales made under the guise of market
researchers, which is not helped by sales made under the guise of market research.
Professional market researchers tend to adhere to an ethical code of conduct which forbids this practice. It is
in their interests because unethical practices damage the industry as a whole. Successful questionnaire
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design involves establishing a rapport with respondents, since one of the main difficulties is non-response.
You need to establish the purpose of the questionnaire without necessarily compromising client
confidentiality. Offering an incentive such as a report on the result helps. Moreover, the structure, layout
and content of the questionnaire often needs to be pre-tested on a small sample of the target audience in
order that adjustments can be made to enhance comprehensive.
Remember you are setting up a dialogue with future potential customers. Words and phrases should be
structured logically, but also be familiar, clear and unambiguous. A number of pertinent questions should be
considered when designing a questionnaire. These will influence response rates, either in terms of ability of
willingness to respond. Ability to respond requires sequencing. Before reading on, look at the first section of
questions and logical respondent’s background. When designing a questionnaire you should use these
questions to ensure you can answer yes to them.
You might think about how you might resolve any negative replies here. For example, the second question
may be overcome by a simple explanation of terms or by simplifying the jargon, for in question in the
subject matter may be a more fundamental problem. It might indicate that there are more appropriately
qualified respondents to answer who normally shops in the supermarket, then it is he who should be asked
questions about shopping habits, not his wife.
Companies spend vast amounts of money on asking respondents questions about their attitudes towards past
events, which requires them to stretch beyond attitudes towards, says the quality of a sales response to their
telephone enquiries were made about six weeks earlier. The author had great difficulty in offering an
accurate response on scale from 1 to 10. So you should be careful when interpreting responses which
requires great details about past events or issues.
Where respondents are required to stretch their imagination, they are likely to opt for middle of the road
scores (say between 4 and 7 from a scale of 1-10), which may not reflect their true feelings at the time of the
event. Such research is over analysed and wasteful, yet the company I was referring to is a brand leader in
financial services. This demonstrates the importance of good design in data collection, which makes
interpretation easier.
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Sometimes questions are double edged; that is they can be interpreted in two ways. For example, you should
never start a question with a negative because it can be interpreted on two levels. For instance, the question:
can’t you read the labels on this product? Could be answered ‘yes’ to indicate ‘I cant read them’ or ‘yes’ to
indicate ‘yes ….. I can read them’ as a signal of condemnation to the question. Negative questions also pre
judge the respondent’s view - they are weighted in favour of a negative reply. Thus any analysis of results
arising from negative questions would be flawed.
Ability to answer can be tested through pre-testing or piloting your first draft of a questionnaire to a small
percentage of your sample respondents. Feedback will enable you to refine the questionnaire. When a
respondent is most busy, time is valuable and answering questionnaires will take a low priority. The art is to
research when respondents are least busy and most receptive to answering. Respondents are also less willing
to answer questions they feel threaten their social status of good character. Consequently, people are more
liable to lie about issues relating to their politics, sexual habits and orientation, church going and charity
giving. They may be required for segmentation purposes that can be asked for in age and income bands and
presented at the end of the questionnaire (since asking them at the beginning might discourage further
responses). Other questions may be considered unnecessary or confidential (such as your business). If this is
a probable reaction by respondents, you should prepare yourself by justifying the reason for asking such
questions.
Structuring the Questionnaire
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Assume you are the manufacturer of a radio clock alarm and want to design a new, improved product for the
consumer. Typically, you will need to find out if consumers are currently satisfied with the products they
already have. But this presumes that consumer’s already own a travel radio and alarm clock. Existing
owners may vary in their attitudes from non-owners. Such information might be commercially beneficial to
you when designing your new product.
Sampling Methods
There is some trade off between cost, time and accuracy in these methods. Usually there is the question of
the type and number of respondents to be used for analysis. There are two main sampling methods random
sampling and quota sapling.
Random sampling assures that every member of the population has an equal chance of being selected. The
population is all the individuals of interest to researchers for a particular study. Quota sampling requires that
pre-defined numbers of people qualifying under specific market segments be filled. This can be achieved by
asking questions about potential members to assess whether they qualify for a specific group. The sampling
frame is the source form which the sample is derived. In the case of a random sample, names and addresses
can be taken from the electoral roll, perhaps by matching random number tables to the order of names on the
rolls. The size of the sample will reflect objectives in terms of cost and accuracy. A larger sample size will
provide greater accuracy, but will be far more expansive than a small one. However beyond a certain sample
size, there are diminishing returns in terms of additional accuracy. It is why a sample is often used instead of
a census (i.e surveying the whole population form the sampling frame may not always be cost effective).
If researchers believe there are variations in attitudes or behaviour between individuals within the
population of interest, then sampling may be stratified randomly. This involves identifying how the
population varies. Say a research company is investigating the market potential in different types of music
on behalf of a music company. You may expect that musical taste would vary according to different age
ranges. If this was considered significant, then different sampling sizes might be allocated for different age
brands. These are allocated on the basis of the relative proportions of members falling within each age band.
Having made a decision about the total sample size of the entire population, the sample sizes under each age
band then be derived, from which members can be selected randomly. The following example illustrates
how stratified random sampling works.
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Consider a local radio station playing pop music. It wishes to know whether it should vary its music to
accommodate an older range, owing to changing demographics. It therefore seeks the attitudes about
different types of music from both listeners and non-listeners.
A research agency has recommended stratifying the radio station’s catchments are into listeners and nonlisteners and to stratify this by age and: 0-115, 16-24, 25-44, 45-64, 65+. The relative population in the
catchments area is 2,000,000 people, made up of the following:
Table 6
Age band
0-115
16-24
25-44
45-64
65+
%
12
15
25
26
22
Listeners
(once or more
per week)
15
30
15
4
Nil
Non-listeners
85
70
85
96
100
Question: in deciding a total sample of 0.5 per cent of the catchments (i.e. 10,000) calculate the stratified
random sample size for each age band.
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Procedure: multiply the percentages within each age band by the total sample size. Then split this further by
mode of listening.
Table 7
Age band
0-15
16-24
25-44
45-64
65+
Calculated
Samples size
for each age
band
1,200
1,500
2,500
1,600
2,200
Listeners
180
450
325
104
Nil
Non-listeners
1,020
1,050
2,175
1,496
2,200
Of course, the radio station may simply want to know the views of its listeners but if it is ambitious to
expand, attitudes about musical tastes by non-listeners, especially the younger age ranges, may reveal how
the station can attract larger audiences. For commercial radio this is important, because advertising rates can
be increased with bigger audiences.
Note: random sampling has been stratified here according to age bands. Stratified random sampling may be
applied to any population in which it is considered there are significant variations in behaviour and/or
attitudes amongst different members of a given population of interest.
Interpreting Research Data
Zaltman and Moorman (1988) suggest researchers should be aware of the potential consequences in
interpreting findings for their clients, particularly if they are adverse. Whilst there is a need to be honest in
declaring any problems, there is a greater need to justify the explanation of the findings under such
circumstances. In other words, credibility has to be earned.
The problem is that research often brings out fresh lines of enquiry requiring further research, on which the
client may need to make a decision NOW. Into his situation, the ability of the researcher to make intuitive
judgments about what should be done is beneficial to the client. Effectively, the researcher is filing in the
gaps arising from the missing information. This is important because many research findings are not
conclusive.
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Reporting the Findings
After the findings of the research have been interpreted, the last stage is to report them. The figure below
shows the agenda of a research report, which is usually published. This should include, first, whom the
report is designed for and why it was commissioned, the date for compilation of data and publication, and
means of access to the authors if further enquiries or feedback are necessary. It is likely that this will be
followed by a statement of the research objectives, often given in a series of research questions, propositions
or hypotheses. Sometimes a summary of the report is given first.
1. Terms of reference: who the report is intended for and why (e.g. to solve a particular marketing
problem).
2. Date in which report was compiled and published, and by whom, with telephone and fax numbers.
3. Statements of main methods of data collection and analysis.
4. Research objectives, propositions or hypotheses: statements of intent, what the research aimed to
achieve.
5. Conclusions and recommendations, including limitations and follow up studies, if required.
Details relating to 3 and 4 above. Details of sample size’s ample frame, data collection and statistical
with reports of main tables of statistical analysis.
Conclusions in more details.
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6. Appendices cross referenced in next.
7. References/sources of data used in desk research (e.g. other reports used).
The next section of the report may include a statement about the main methods used in collecting the data,
and how the data were prepared and analyzed. For example, much quantitative research is analysed
statistically by cross tabulating two (or more) variables of data, e.g. various test markets in different parts of
a country might be conducted to test deferent prices differentials. It is important, however, not to cramp the
main issues of the report with details. A statement as to the main statistical techniques used is usually
sufficient here, together with the main findings arising from the analysis.
This is followed by the most important issues for commercial reports: the conclusions and
recommendations. Since this is the part of the report on which action is taken, more details is required,
including limitations in the study (such as the proportion of non-responses in data collection, or perhaps
caution in making final decisions from a small sample size). Usually, the details relating to method of data
collection and analysis follow, or are in a supplementary document.
It is important that a report is expressed simply and is orderly to enable busy executives to find more details
about a particular finding or analysis supporting specific conclusions in the main text. According to
Scipione (1995), tables, charts or graphs are a more precise way of communicating quantitative findings
compared to descriptive words to describe numbers (such as, for example, ‘much less than’, ‘a minority of’,
etc). the danger in using words to describe numerical values than’, ‘a minority of’, etc). The danger in using
words to describe numerical values is that users of research reports may hold different value perceptions of
such words form the compliers of the report, and therefore misinterpret them. Appendices and references
including sources of data are usually allocated to the end of a report. In academic or technical reports the
detail on levels of analysis may be greater, with more technical jargon, matched to the ability of the user.
Thus the agenda content and presentation should always consider the target audience. It is also customary
for references to be relatively more important if reports are designed for academic audiences.
Customer – Led Communications
Customer Communication
We begin by focusing on the definitions, models and process underlying informed customer
communication. This is done as a prelude to establishing a framework for understanding communication
and the two-way customer dialogue required with both external and internal customers.
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Commercial Communication
Communicating is something we all do and take for granted, yet if we want to manage and improve
performance we need to understand communication more closely. It is about imparting and conveying
information, involves two or more parties and requires transmission from one party to another. Most authors
define communications as involving a transaction between parties and a transfer of meaning. As such,
effective customer communication is central to marketing exchange and is at the ‘sharp end’ of doing
business.
It is associated with the marketing mix of promotion and the commercial communications tools of selling,
advertising and a range of other activities in their support, such as public relations and merchandising. Some
definitions of communication require intent but in the context of customer relationships it is clearly possible
to communicate messages and values accidentally or by default. Communication between organizations and
their customers may also to be held to operate at a number of levels but at its best involves listening and
targeting. In quality terms, internal communications within the organization as well as between the
organization and its external customers is important. It is a process capable of making or breaking customer
loyalty.
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Communicating with the customer, however, is more than just promotion. Each element of the marketing
mix is capable of saying something, including out people, processes and the physical evidence of service we
provide. Factors as diverse as word-of-mouth reputation, staff motivation and the company mission
statement also communicate and influence customer relationships. In fact, at every point of customer
contact, during each transaction, every ‘episode’ and within every part of a customer’s experience there is
an opportunity for total communications.
The Communications Process
Organizations operate by communicating with their customers and we can model the process. The sender
organization encodes messages and then places them in various media communications vehicles, such as
newspapers, magazines or television, and signals them to the receiving customer. If the message is
meaningful, at the same the receiver will decode, understand and hopefully respond. Effective transferences
rest on knowledge, feedback and skill, as well as a little luck sometimes. It depends on what is called a
common field of experience between sender and receiver and on them understanding each other.
The customer is not at all passive, however, and may interpret the signal in intended ways. There may be
unexpected reactions, interference or noise can block out or distort the signal or it may simply miss, for
example where the customer is not turned in during transmission. Noise, ranging from competitor action to
customer distraction and plain physical interference may be completely outside our control. Without
communications feedback an organization may be none the wiser and repeat the signal pointlessly at great
expense. Similarly, all publicity is not good publicity and the sender may be transmitting unintentional
signals which are being picked up the customers and unintended receiver groups alike with negative effects.
In this context, its not just what we say and do, its also how we do it. Where things go wrong a
communications model is also a good fault-finding mechanism.
In essence, organizations are attempting, by their actions and communications campaigning, to sequentially
move the customer from a state of unawareness to a state of loyalty and repeat purchase. Magazines articles,
simple advertising copy or a sales promotion may grab attention, remind and raise external customer
awareness. Informative advertising communicating brand reputation, product comparison and demonstration
can then engender liking and preference. Face-to-face sales persuasion, point-of-sales material and the
recommendation of opinion leaders may secure subsequent conviction and purchase while continuing postpurchase involvement, support and, above all, positive experience can then reinforce customer value,
cement involving parallel dialogue with service providers using presentations, training, in-house
newspapers, etc. to inform and secure employee commitment. Messages are both communicated at a
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corporate, business unit level and through customer interaction with marketing and promotional mix
variables.
The Role of Communication
Customer communication completes the ‘marketing cycle’, linking customers with product and availability.
At a societal level, in order to connect mass production and consumption there simply must be mass
communications. At its best, commercial communication engages in real dialogue, transmitting value and
meaning, while responding to feedback and remaining close to the external customer. Its role is to
announce, inform, promise, persuade and influence customers to ‘buy in’ by communicating and delivering
customer satisfaction. Putting things right, saying sorry and supporting long-term relationships are
increasing also its goals.
Recognizing that employees deliver quality, internal communications encourages affiliation with
organizational values as well as providing everyday working information. Communication to both external
and internal and customers is central to both marketing transactions and relationships. In the modern market
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place the core difference and unique selling proposition of a product may be almost entirely created by the
quality and credibility of brand communication. Brand value alone may be what customers are relating to
and associating with when they repeat purchase. It is most emphatically not the role of marketing
communication to misinform and where there is actually little or no substance to communicate there is little
point in ‘flogging a dead horse’.
Commercial communications should be based on clear intent. A communication campaign generally seeks
to both ‘push’ product on to and ‘pull’ products off the shelf and ‘position’ the offer competitively in the
mind of the consumer. Its component parts need to hang together as a cohesive whole and remain consistent
with core brand values. Over a product life cycle communications may have very different roles to play.
With new, introductory products, getting attention, trial and acceptance is the task, while when sales take
off, brand identity will be promoted.
Later, during market maturity, maintaining loyalty, defending market share and adding value become most
important. In decline, the need to revitalize and reposition the product or direct customers towards
alternatives, perhaps reducing communications to ‘bare bones’ dominates. Within a campaign individual
messages may be charged with differentiating, reminding, informing or persuading (DRIP) or sequentially
securing attention, arousing interest, building desire and promoting action (AIDA) and moving a customer
from unawareness through purchase to brand loyalty. It may be that there are considerable hurdles and
countervailing forces to be overcome.
A Systematic Approach
If we hold that having a ‘common field of experience’ with customers is strength, then we need a vehicle to
deliver customer information. However, formal or informal, our capacity to make ‘output’ decisions such as
which communications mix to use rests on obtaining and accurately processing good customer ‘input’ data.
Of course, should we pay attention to all the information out there we would rapidly suffer ‘information
overload’ and must actively filter much out. Communications managers make choices about what data to let
in while paying attention to feedback loops indicating campaign results, but it is all too easy or a customer
information gap to evolve.
What is required is an information system that connects the various sources of customer information,
ensuring that appropriate data reaches the decision makers who need it. B2B organizations with smaller
numbers of customers and closer, more direct relationships may have the edge here. The maxim, however,
remains the same, quality decisions rest on quality information and ‘garbage in, garbage out’. Not just
‘joined-up’ information processing but systematically joined-up communication needs to be employed.
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Customer communication and campaigns need integrated focus, many organizations traditionally structured
around their products their products are re-conforming themselves towards customers and channeling
communications through designated ‘customer champions’, while taking a holistic view of total
communications. The last thing a sales manager who has just secured an important new customer needs is to
have weeks spent building up trust and rapport undone by an inaccurate, automatic ‘red letter’ demand for
payment sent from the accounts office. An integrated communications campaign systemically builds upon
itself to achieve single objectives.
The Importance of Proactivity
It is important not just to respond and react to customer information but also to be proactive and create the
type of competitive relationship desired. Few of us go to work dreaming of how to maximize negative
feedback from customers, but it may even be necessary to initiate complaints. Where our customers regard
our service even be necessary to initiate complaints. Where our customers regard our service negatively but
don’t tell us, there is little choice. We need to approach them and form a picture of what is going wrong.
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Judging customer satisfaction by action, even repeat purchase, may also not be wise. They may feel they
have no option that our competitors are just as bad, they cannot be bothered to change for now or are giving
us one last chance.
Inside the organization things may be much the same for who dares tell the managing director that customer
service is terrible. A modern manager needs to facilitate dialogue and feedback rather than assuming that
‘no news is good news’. Feedback, even where negative, is more of an opportunity than a threat, and service
recovery may well result in intensified customer satisfaction and loyalty. Listening is a critical part of
effective communication. We need to know what our customers likes as well as dislikes about our
performance and it is equally within our power to find out.
Likes can tell us more about the criteria consumers use when choosing us over our competitors and why
they come back. They may then form the platform for future promotional messages and prove highly
effective in retaining and attracting business or indeed staff. A restaurant manager, for instance, would
impress a business user just by calling the day after a function to see if they were pleased, and could easily
enquire what they liked the most and what they thought could be improved. Again, with positive feedback
there is a need for proactivity and it is unwise to assume either external or internal customers will tell you.
Praise is hard earned in British culture, when did your boss last say ‘good job’?
Missed Communication
Communicating with external customers does not always go smoothly and sometimes it seems if anything
can go wrong it will, occasionally with unexpected results. Difficulties are experienced through the lack of
clear objectives in the first place, insufficient resources, defective knowledge of the customer, weak
messages or media, too much competing noise, entrenched customer attitudes and poor feedback
information. Frequently there is a weak field of experience and don’t assume the ‘big guys’ always get it
right. Marlboro launched an advertising campaign for the Far East using the classic image of the lone
cowboy gazing out across the prairie.
While in the West this might communicate rugged, masculine individuality, in the East, with different
cultural norms, it was interpreted along the line of lonely failure and outcast. Needless to say sales fell and
now three cowboys feature.
Everything an organization does, as well as the way its employees perform, communicates to its customers.
This is particularly true when service is being provided and customers come into direct contact with the
employees who they vary in their performance. Everybody needs to be motivated, ‘singing from the same
hymn sheet’ and seeing themselves as an organizational representative. Here internal communication
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supports and nurtures external customer care. Opportunities for mismatch are legion where the rumour mill
probably works very much faster than official communication channels. A Los Angeles advertising agency
thought it would be fun and different to have a ‘be rude to the customer day’ and proceeded to humorously
abuse everybody they spoke to. They had lost several of their clients by lunchtime.
Influencing External and Internal Customers
Incorporating and building on the models and processes underlying informed customer communications, we
now move forward to explore how organization actually engages in influencing their external and internal
customers.
Communicating with External Customers
Once aware of external customer profiles and opportunities, organizations are in a position to target
communications. Appreciative of customer’s needs and wants and choice criteria, they are in a position to
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match benefits sought with products offered and communicate a promise to deliver. If we know that
supermarket customers dislike being made to feel in the wrong when taking goods back, we might
communicate that we are the company that doesn’t make you feel bad, that its safe to talk to us if you don’t
like something, and seek to differentiate ourselves from our competitors in that way. Kellogg’s discovered
that adult consumers associated their cornflakes with positive childhood memories and were able to add
nostalgia for a bygone age to their products’ attributes. Saga Holidays, realizing that marketing
communication has traditionally been youth-oriented, launched their own highly successful magazine and
created a ‘mature’ channel of communication with their customers who were aged 50 or more. Commercial
communications campaigns, individual messages and indeed all organizational action signal a promise to
external customers and attempt to trigger responses.
As we have seen in the previous section, an organization attempts to influence and assist targeted customer
groups to move up a ladder, beginning with total unawareness of a product and ending in repeat purchase.
To this end communications may be sustained before, during and maintained after purchase as customers
move through stages of awareness, interest, comprehension, liking, preference, conviction and purchase, and
ultimately lead to brand loyalty.
Within a communications campaign different communications tools will be sequenced to maximize effect,
for example public relations information proceeding personal selling and advertising for best results. It is
important that the whole campaign concentrates on the organization’s core communications message.
Table 8
‘Mass selling’ to gain attention, promise, remind and reinforce
Advertising
Branding & packaging
Awarding difference, focus, personality and recognition
Direct marketing
Allowing access, interaction and rapid feedback
Merchandising
Incentivising and promoting sales at the point of sales
Selling
Face-to-face representation capable of demonstration, overcoming
objection and personal persuasion
Public relations
‘Mass telling’ and informing external and internal publics including
Exhibitions
To show, present and meet
Media exposure
To gain credibility and inform
Presentation
For direct explanation and feedback
Sponsorship
Allowing access and association
Company
Building relationships and goodwill
Hosted events
Creating impact and a platform for further communications
A typical communication mix and blend of methods of influence tend to distinguish different types of
market. In B2B markets direct selling, exhibitions and trade public relations predominate. In fast moving
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consumer, ‘self-service’ markets the emphasis is on advertising, branding, packaging and merchandising,
such as shelf positioning and incentives at the point of sale, while consumer durables such as cars also
employ showroom selling. Public sector institutions may do little hard selling or advertising and concentrate
on internal marketing communications and external customer information giving, while small organizations
have no budget to initiate anything that is not ‘in-house’ and localized. As well as the high-profile
techniques, a lot of persuasion is very low key and face-to-face. Whether seeking to influence their
customers to buy, vote, volunteer or change working practices and/or their opinion, information and
managed communication is increasingly the method.
Not everything is equally difficult to communicate, however. Sometimes campaigns take off because you
are simply in the right place at the right time or the message’s time has come. At other times spin-off media
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interest multiplies the impact of a single communication and occasionally a ‘feeding frenzy’ takes place.
Some messages are easier to communicate than others.
Advances in information and communication technologies, particularly to do with new database
possibilities, the Internet and mobile telephones, is revolutionizing business communication. Publishing and
transmitting information, customer interaction, making transaction and linking up directly with others both
internally and externally is increasingly possible, as well as cost-effective, worldwide. New technology
makes direct, tailor-made messages, rapid responses and data-led listening to and tracking of customers
easier. Developments in digital television and radio and broadband will further extend the possibilities for
interaction and ‘person-to-person’ marketing communication.
Another effect for the technically proficient has been to promote opportunist, quick, ‘hit and run’ guerilla
communications that exploit windows of opportunity or even seek to undermine the messages of
competitors. Associated with unconventional, non-traditional communications, which often go to the edge,
they almost inevitably involve the Internet. Any modern communications plan is almost certain to contain
online as well as offline components.
The Customer’s Communication Needs
However, communications literate, consumers are engaged in making choices, problem solving and
comparing between alternatives. They need enough information to form a judgment, are increasingly ‘time
poor’ and face a bewildering array of competing information sources and ‘information overload’, yet rely on
input information to construct a lifestyle. In addition, once a purchase has been made, they may seek the
reassurance of further confirming communication. They demand to be listened to and treated with respect,
and demand the ability to seek redress if not satisfied. They have the right to expect decency, legality,
honesty and truthfulness and want communications they can understand.
The clever use of copy, such as employing the term ‘farmhouse’ to describe factory-produced food and
short-term ‘spin’ or ‘hype’, are increasingly seen as misleading. Communications managers need to be
aware not only of the law and voluntary codes of conduct but also the need to communicate social
responsibility. Consumers are also becoming resistant to unsolicited incoming messages and are hostile to
the ‘junk mail’ and ‘Spam’ with which they are bombarded. Permission to inform and communicate with
customers may need to be sought.
Evaluating Performance
In order to maintain influence and adapt, organizations keenly evaluate and track the impact of their
communications. Communications are important, high-profile and expensive in terms of both money and
time, so considerable amounts of presetting and post-publication analysis can occur, for example tracking
changes in customer attitudes or awareness and recall testing to ascertain if they remember where they saw
or heard messages and understood what they were trying to say. Given the time lapses in response, the
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interactive nature of different communications methods and the impact of changing external variables, it is
however notoriously difficult to evaluate the influence of individual tools, let alone whole campaigns.
Coupon returns, enquiry rates, numbers of visitors to an exhibition and sales force feedback may be
measured along with changes in hard sales. When organizations test the market or trial their products they
are largely evaluating the promotional mix and noting communication spend in order to ‘gross it up’, know
what works and how much it costs to roll the campaign out nationally.
Communication may be appraised as both strategy and tactics, involving, for example, both a brand
repositioning exercise and altered packaging. In the longer term it is likely that it will be evaluated for its
contribution to strengthening the relationship between an organization and its key clients. Each step along
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the way can also be monitored against shorter-term criteria, such as the time taken to achieve more rapid
enquiry response rates or reduce customer-waiting times. Some communications tools are implicitly tactical
and more straightforward to measure, such as the sales promotional take up of special offers and
competitions. The importance of setting SMART (specific, measurable, acceptable, realistic and timed)
communications objectives to evaluate against cannot be overemphasized. Strategically, the idea may well
be to move customer relationships from a focus on short-run sales to longer-term involvements and
partnerships.
Brand Positioning
The distinctive of a product offering can be created by its name, symbols, style and packaging, and its
attractiveness and associated brand values, which are largely created and sustained by marketing
communications. Establishing brand reputation may award quality certification to both the product and its
user. It communicates powerfully in itself and is associated with both customer preference and loyalty. Thus
brand building is a major focus in commercial communications and an asset to both producer and customer.
In ‘commodities’ service markets with little tangibility or physical evidence almost virtual imagery may
signify and communicate brand personality – a red telephone and jingle representing direct line insurance –
without which the organization would be almost indistinguishable. Though Pepsi is generally perceived of
as being younger than Coca-Cola, both continue to offer and communicate benefits to their respective
customers, the former by sponsoring music artists who appeal to the youth market.
Competing brands are positioned in a market place and need maintenance from time to time. It may be
necessary to reinforce drifting attributes such as masculinity in Bacardi rum or infuse additional properties.
Periodically, in response to changing customer and competitive circumstances and in order to prolong their
lives, brands will be repositioned from one domain to another.
Communications usually lead the way. For example, Guinness was successfully repositioned from
something primarily associated with the traditional working-class, building trade and grannies drinking half
pints for the iron content to a more up-market, fiercely independent post-yuppie drink consumed by men,
young and old. The chemical properties and the name Guinness remain the same, but its image, central
distinctiveness and communicated values have all changed dramatically, helped immeasurably by
groundbreaking advertising campaigns.
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Table 9: Communication ladder
Relationship communication Full and continual ‘partnership’ Dialogue possible
Loyalty communication
Interactive and integrated conversation based on customer feedback
and responsiveness
Customized communication
Personalized, tailor-made messages adapted to match customer needs
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Targeted communication
Focused messages aimed towards particular customer groups and
profiles
Residual communication
Telling, uncoordinated public announcements on a take it or leave it
basis
Figure 3: Brand repositioning map
Up/mid-market
Contemporary user
Old-fashioned
Modern
Traditional user
Down market
Well-blended, unconfusing communications maintain brand awareness and perception, sometimes over long
time periods, for example we really do appear to perceive Andrex toilet tissue as being the softest. All
elements of any sensible communications mix and plan will reinforce and contribute consistently to core
brand values. Away from household consumer markets, B2B and not-for-profit organizations are also
interested in maintaining and communicating the reputation and a good ‘brand’ name and are becoming
more sophisticated. Large corporate bodies have long recognized the need to sustain a reputation for social
responsibility via sponsorship and charitable giving, seeing it as important to employees and shareholders as
well as external customers.
Internal Communications
Internal marketing communication was first proposed in the mid-1970s as a way to achieve consistent
service quality. In services, the internal P of People, who ultimately controls levels of customer access,
interaction, participation and satisfaction, is vital. Both training and communicating with the staff and
adding customer value matter, particularly where staff are enabled and empowered to help customers at the
point of contact and customer services and decentralized. Internal customers must be informed and apprised
of what is going on, including being briefed about forthcoming external communications campaigns. At
times, as an organization adapts to customer and market conditions, changes to working structures ad
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practices will also be necessary. The quality of explanation, discussion and listening deeply affects levels of
employees resistance, understanding, ‘ownership of’ and ultimately, the likelihood of change succeeding.
Customer-led organizations use multiple communications channels and are communications rich, their
communications objectives depending heavily on levels of internal awareness and experience.
Communications messages may well be adapted for different internal stakeholders, some of whom may be
positive about the message, while others are indifferent towards or even negatively against what is being
said and need more persuasion. Majoring on public relations and personal persuasion, and typically
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employing the media of internal newsletters, staff magazines, bulletin boards and face-to-face briefings
internal communications impart identity to workers and managers and signal organizational goals and
values. They are also a useful conduit for feedback from those in customer contact and those responsible
directly for delivery, along with the suggestions’ box and more everyday management. The larger the
organization the more important it is that internal service provider informed its call ‘mushroom in the dark’.
Recently, an insurance services provider informed its call center staff they were being made redundant,
leading to them walking out immediately. Once again, how you communicate is almost as important as what
you say.
The concept of internal customers and markets is also embedded in Total Quality Management, where
downstream teams are seen as the customers of those before them on the production line and are empowered
to refuse to accept substandard and the pursuit of ‘zero defects’. Such organizations facilitate
communication and interaction, abandoning strict hierarchical structures and the ‘need to know’ cultures
that are sometimes associated with large publicly accountable bodies which badly inhibit information flow.
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