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24108 Marketing Foundations
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How to study Marketing Foundations?
- Read the textbook.
- Go to every lecture and tutorial
- Do the Group/ Individual Assignment
- use the chapter summaries found at the end of each chapter in the textbook
- Write the textbook chapter summaries into your notebook.
- Use the tutorial/ textbook questions as the framework to form your notes.
- Work three weeks ahead of the class.
- Use the notes below and don’t be afraid to add your own notes to my notes.
- Do every textbook, tutorial, I study and past paper questions
- Use the I Study (USB with extra resources such as interactive quizzes provided with the
Elliott / Waller Marketing Textbook).
- Skim read every page of my notes; there are some very good Product Notes- Electronic
Marketing Notes near the end of my notes.
- Make summaries of my summaries (make my notes shorter and add your notes).
Chapter One - INTRODUCTION TO MARKETING
Marketing – set of institutions and processes for creating, communicating, delivering and
exchanging products of value for customers, clients, partners and society at large. Firms with a
market orientation perform better than firms without a market orientation. They have better
profits, sales volumes, return on investment and market share. Marketers must learn about the
needs and wants of customers. This is an ongoing process as customer preferences are
continually evolving. The best marketers are able to offer something that is unique or special to
customers e.g. I pad.
An example of marketing in action is Apple Ltd creating customer delight via market orientation
i.e. a focus on the customer. Moreover, with a clear focus on New Product Analysis coupled by
market research the company is able to achieve this objective. Apple has better profits, sales
volume return on investment and market share. The marketer has adopted marketing thinking via
mutually beneficial exchange with value creation for all parties, both parties expectations being
met and both parties benefit from the transaction.
Ethics is a set of moral principles that guide attitudes and behaviour. Corporate Social
Responsibility is the material fact that businesses have a duty to act in the best interests of the
society that sustains them. They are obliged to act ethically, within the law and fulfil
requirements such as philanthropy, protecting the natural environment, providing products that
benefit society and generating employment and wealth. Qantas’s corporate social responsibility
(‘the spirit of Australia’) is used as leverage to earn more cash money via support of community
organisations such as Clean up Australia, Land Care and the Prime Minister’s Disability
Awards. The marketing organisation has not fulfilled its obligations to all stakeholders if it
merely acts within the law. The organisation must act in the best interests of most stakeholders
such as shareholders, employees, customers, partners and government.
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Marketing can be used by not for profit organisations such as the Salvation Army that aims to
advance the welfare of the less fortunate and needy. This can be via Integrated Marketing
Communications or promotion in online news media to generate donations to help the needy.
A contemporary product that demonstrates how marketers stimulate demand is I phone. The
product’s augmentation such as special features that differentiates I phone from competing
products e.g. a digital high definition camera which allows users to take pictures when they
want.
Advertisements that are product focused include BMW ‘the ultimate driving machine’, while
advertisements that are customer focused include NAB ‘more give less take.’
.
The Marketing Process
The marketing process involves answering two questions. The first question is what customers
we serve (market segmentation and targeting). The second question is how we best serve
targeted customers (differentiation and positioning).
1.
2.
3.
4.
5.
Understand the marketplace and customer needs and wants
Design a customer-driven marketing strategy
Construct an integrated marketing program that delivers superior value
Build profitable relationships and create customer delight
Capture value from customers to create profits and customer equity
Simple Marketing Concepts
-
-
-
Needs, wants and demands – products as bundles of benefits, look for best value for money
 Needs – things that are vital for survival e.g. housing, food and water.
 Wants – a non-necessary desire e.g. designer clothes and perfume.
 Demands – wants backed by buying power
Products – offered to market to satisfy need or want (e.g. goods, experiences, place,
information)
Value, satisfaction and quality
 Value – customer’s overall perception of the utility of a product based on what is
received and what is given. Utility is the usefulness of a product.
V = Quality/ Price
= Benefits expected/ benefits received
 Customer satisfaction – extent to which perceived performance meets expectations
 Quality – how well products satisfies want
Exchange, transactions and relationships
 Exchange – the mutually beneficial transfer of products of value between buyer
and seller. It involves:
1. value creation for all parties
2. both parties benefit from the transaction
3. Both parties expectations must be met e.g. quality and price.
An example of an exchange is the Cancer Council Australia runs Television advertisements
encouraging people to protect their skin from sun damage. People become aware that they
2|M A R K E T I N G F O U N D A T I O N S
should wear protective clothing when in the sun. The Cancer Council meets its objectives
because more people are wearing protective clothing when in the sun. Long term benefits will
arise for society as the rate of skin cancer drops for the Australian population.
Transaction – marketing’s unit of measurement; trade of value
Relationship marketing – creating, maintaining and enhancing strong value-laden
relationships with customers and other stakeholders.
A market is a group of customers with heterogeneous needs and wants e.g. Geographic markets
(China, Australia and the UK), Demographic markets (Baby boomers, Gen X and Gen Y) and Product
markets (water bottle and pain killer).
Designing Customer-Driven Marketing Strategy
6. Marketing management – “analysis, planning, implementation and control of programs
designed to create, communicate and deliver value to customers and facilitate managing
customer relationships in ways that enable the organisation to meet its objects and those of its
stakeholders
Selective Customer to Serve
Demand management – understand and monitor nature of consumer demand; build profitable
relationships, cost of attracting new customer is five times higher than keeping existing one
Creating excitement
The Marketing Evolution
1. Trade (bartering and exchange of products).
2. Production orientation – what could be made? Henry Ford said that “you can have any car that
you want as long as it’s black (because black was the cheapest car to produce)”
3. Sales orientation – consumers won’t buy unless organisations undertake large-scale
promotional efforts (e.g. life insurance). “Hey come and buy the blue car, we know you can get
black but blue is better” says the used car salesman.
4. Marketing orientation – focus on the customer and finding out what they need and want.
5. Societal market orientation- used as a selling point and leverage to target socially aware
customers i.e. Corporate Social Responsibility and Ethics.
Selling and Marketing Concepts
Concept
Selling
Starting Point
Factory
Marketing Market
Focus
Existing products
Customer Needs
Means
Selling and
promoting
Integrated
Marketing
Ends
Profits through
sales volume
Profits through
customer
satisfaction
Philosophies
7. Social marketing concept – balance between ideas of SOCIETAL (HUMAN WELFARE) + COMPANY
(PROFITS) + CONSUMERS (SATISFACTION)
Preparing an Integrated Marketing Program
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8. Outlines which customers the company will serve and how it will create value
9. Developed to deliver value to target customers
10. Builds relationships; consists of marketing mix
Managing the Marketing Mix
PRODUCT – good, service or idea offered to the market for exchange.
PRICE – the amount of money a business demands in exchange for its products.
11. PROMOTION – advertising, personal selling, online marketing
12. PLACEMENT – channel management
13. Physical evidence – used to measure satisfaction i.e. as services are intangible
14. Process – in ‘high-contact’ services, customers involved in creating and enjoying experiences
15. People – many service experiences involve interacting with people; relationships
Customer Relationship Management (CRM)
16. Overall process of building and maintaining profitable customer relationships by delivering
superior value and satisfaction
17. Deals with all aspects of acquiring, keeping and growing customers
Relationship Building Blocks: Customer Value and Satisfaction
18. Customer perceived value – evaluation of difference between benefits and costs
19. Customer satisfaction – product’s perceived performance and buyer’s expectations
Capturing Value from Customers
20. Creating customer loyalty and retention – delighted customers remain loyal and will tell others
about their positive experience with brand; losing a customer is losing more than a sale
21. Growing share of customer – through variety and cross-selling e.g. restaurants want ‘share of
stomach’ whilst banks want ‘share of wallet’
22. Building customer equity - the combined discounted customer lifetime value of all a company’s
current and potential customers
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Chapter Two – MARKETING ENVIRONMENT
The Marketing Environment is all the internal and external forces that affect a marketer’s ability
to create communicate and deliver products of value. Marketers must influence their
environment. They use environmental analysis to break the marketing environment into smaller
bits to make it easier to understand. The internal environment is the people and processes
within an organisation that affect a marketer’s ability to create, communicate and deliver
products of value e.g. marketing information system and sales force.
The Micro environment is the forces within an organisation’s industry. It is not directly controllable
by the organisation. It consists of customers, clients, competitors and partners.
Partners include (LFWARS) Logistic firms (storage and transport), financiers (banking and insurance),
wholesalers (B2B), advertising agencies, retailers (B2C) and suppliers. Marketers must ensure their
products provide their target market with greater value than their competitors’ products.
The Macro environment is the forces outside of an organisation’s industry. It includes
Political, Economic, Socio cultural, Technological and Legal forces.
Political forces include lobbying for favourable treatment at the hands of government and
lobbying for favourable regulation.
Economic forces are how much money individuals and organisations have to spend and how
they choose to spend it. They include prices, income and availability of credit.
Socio cultural factors affect people’s attitudes, beliefs, behaviours, preferences, customs and
lifestyles. Social Cultural factors include demographics such as statistics about a population: age,
gender, ethnicity, educational attainment and marital status. Furthermore, the natural
environment is an example of a social cultural theme that has recently emerged.
Technological forces allow a better way of doing things. Technology changes expectations and
behaviours of customers and clients and have huge effects on how suppliers work.
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Legal factors include legislation enacted by elected officials. Laws and regulations fall under the
following categories: privacy, fair trading, consumer safety, prices, contract terms and
intellectual property.
Situational Analysis involves assessing an organisation’s current position in the market place. A
marketing plan communicates how marketers plan to get from the current situation to where
senior management thinks the organisation should be.
Marketing metrics are used to measure the current performance and the outcomes of past
activities. It includes Return on Investment, Customer satisfaction, Market share and Brand
Equity.
-Return on investment – Cost and benefit analysis which takes into account sales volume,
marketing investment (cost, share of voice) and bottom line (profit, share of industry profit).
-Customer satisfaction- churns (the percentage of customers lost) and number of complaints
received/ resolved.
-Market share is defined as the percentage share of total industry profits including the percentage
improvement in the market share growth/ decline.
-Brand equity- awareness (the percentage of the total target market) and loyalty (repeat purchase
behaviour).
A SWOT analysis is used to identify strengths (those attributes of the organisation that help to
achieve its objectives), weaknesses (those attributes of the organisation that hinder it in trying to
achieve its objectives); opportunities (factors that are helpful to achieve the organisation’s
objectives) and threats (factors that are harmful to achieving the organisation’s objectives).
Strengths and weaknesses are internal; opportunities and threats are external.
.
SWOT Analysis of Qantas
Strengths
- highest safety standard
- employees strong commitment to the Qantas Group
- Named one of the world’s top airlines in the prestigious Skytrax World Airline Awards.
Weaknesses
- operations deemed as inferior to competitors
- strikes
Opportunities
- transitioning the business from cost centres to profit centres
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Threats
- Security concerns
- Increased competition
- The federal government’s Workplace Relations policy
- Rising fuel prices
-
Respond to the Marketing Environment
Some companies view marketing environment as uncontrollable, others take on environmental
management perspective.
Marketing management should aim to be proactive rather than reactive wherever possible
Chapter Three –MARKET RESEARCH
Market Research (MR) is gathering information and knowledge about the market. For example,
a business that makes bird houses involves understanding, creating (production and operations),
communicating (promotion e.g. on Channel Nine on TV on a show such as The Voice Australia)
and delivering (e.g. a store such as Kmart or Target because older people are not as tech savvy).
The above stated market research process is interlinked and ongoing. Moreover, if a business
creates what it perceives to be a profitable product but if there are hardly any customers, then the
firm needs to do market research to find out why the consumers are not buying. The results of
market research are fed into a Marketing Information System (MIS), which holds and
organises all of the organisation’s marketing information. The MIS is in house (internal
environment).
Market research involves five major components:
- defining the research problem (profit or sales related clause)
- designing the research methodology (design) e.g. dropping prices by 5 per cent increases
sales by twenty per cent i.e. actionable results
- collecting data
- analysing data and drawing conclusions
- presenting the results and making recommendations.
What the research is intended to answer is known as the research problem e.g. 1) why is
the sale of sultanas down at the Pymble Woolworths? 2) Why is Apple’s brand image taking
a hit? As the research project proceeds the research problem may need to be redefined. A
market research brief should be prepared to guide the project. A market research brief
specifies the research problem, the info required, the time frame and the budget. A planned
methodology to answer the research problem is known as the research design. Types of MR
include exploratory, descriptive or causal research. Exploratory research gathers more
information about a loosely defined problem e.g. a focus group. Descriptive research is
used to solve well defined problem by clarifying more about certain phenomena e.g. healthy
product range for MC Donald’s Quick Service Restaurants (food done fast) . Causal
research tests if a variable affects an outcome e.g. effect of coupons on pizza sales at Pizza
Hut.
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MR draws on two types of data. Secondary data is data already exists. Primary data gathers
specifically for the current research project. Research methods can be quantitative or
qualitative research. Quantitative research collects data that can be represented numerically and
analysed statistically. Experimentation, neuroscience and observation are quantitative research
methods e.g. the survey. Qualitative research obtains rich and detailed info that underlie
observable behaviour. Interviews and focus groups are the most qualitative research methods.
MR tries to find out about the population by studying a small part of it and generalising the
results (sample).
Probability sampling ensures every member of a population has a known chance of being
selected in the sample. Non Probability sampling provides no way of knowing the chance of a
member being selected in the sample.
Once a research project has been designed, it must be implemented in compliance with the
design via project management. Data must be carefully collected and organised so that it can be
efficiently analysed. Quantitative data can be statistically manipulated to identify trends and
patterns in the data. Qualitative data can be reduced to allow statistical analysis but much of the
rich detail can be lost. Qualitative data analysis can lead to further research in the form of
quantitative research. Data analysis allows conclusions to be drawn and recommendations
formulated. The findings and recommendations of the market research project should be
presented in a concise and clear manner.
Two types of probability sampling methods are random sampling and stratified sampling. In a
random sample each member of the population has an equal opportunity of being for the sample.
In a stratified sample the population is divided into different groups based on some characteristic
e.g. age and gender and then from each groups a random sample is chosen.
Two types of non probability sampling methods are quota sampling and convenience sampling.
A quota sample divides the population into groups based on a number of characteristics. In a
convenience sample, participants are selected based on convenience e.g. interviewing your
friends and family for a project.
Unethical market research examples
Sugging – selling under the guise of market research.
Frugging- fund raising under the guise of market research.
Chapter Thirteen – International Marketing
Globalisation is the process via international individuals, organisations and government
become interconnected and similar. Barriers have diminished facilitating greater
interconnections between different countries and their people. This has resulted in close
interdependence in terms of trade, finance, living standards and security.
8|M A R K E T I N G F O U N D A T I O N S
Chapter 4 – Consumer Behaviour (CB)
Factors influencing consumer behaviour Summary
Situational factors include physical, social, time, motivational and mood factors.
Group factors- cultural (sub cultural and social class) and social (reference groups, family, roles
and status).
Individual factors- personal (demographics e.g. age, occupation and income; lifestyle,
personality and self concept) and psychological (motivation, perception, beliefs and attitudes and
learning).
Case Study: New business ventures built on understanding consumer behaviour
(Wotif.com)
Consumer behaviour involves getting inside the heads of consumers and understanding their
psychological values. Wotif.com has clear target market i.e. International business travellers and
has built a business by selling last minute cheap hotels. If you see a target market not being
served, create a product and make cash money.
Consumer behaviour is the study of the behaviour of individuals and households who buy
products for personal consumption. It provides an understanding of the reasons behind the
decisions consumers make which is central to creating an effective marketing mix. Consumer
behaviour is influenced by situational, group and individual factors. Situational factors are the
circumstances in which consumers make purchasing decisions. They relate to physical, social,
time, motivation and mood factors. Group factors comprise cultural and social influences.
Cultural influences affect the behaviours of society: culture, sub culture and social class. Culture
is the system of knowledge, values and beliefs by which society defines it. National cultures can
be described according to Hofstede’s cultural dimensions: power distance, uncertainty
avoidance, individualism, masculinity and long term orientation.
-Power distance- the degree of inequality among people that is acceptable within a culture.
Western societies tend to score low on power distance manifesting their relatively egalitarian
cultures, whereas Asian societies score high in power distance, reflecting greater social
inequality. Less social inequality (20 per cent) New Zealand, Australia (38 per cent), United
9|M A R K E T I N G F O U N D A T I O N S
States of America (40 per cent); more social inequality Japan (55 per cent), Singapore (75 per
cent) and India ( 79 per cent).
-Uncertainty avoidance- the extent to which people in a culture feel threatened by uncertainty
and relies on mechanisms to reduce it.
-Individualism is the extent to which people focus on their goals over those of the group.
Western societies are generally individualistic, whereas Asian societies are more collectivist.
- Masculinity is the extent to which traditional masculine values (e.g. status, assertiveness and
success) are valued over traditional feminine values (solidarity, quality of life).
A sub culture is a group of individuals who share common attitudes, values and behaviours that
distinguish them from the broader culture in which they are immersed. A social class is a group
of individuals who share common rank within the social hierarchy. Social influences are those
that influence an individual to conform to group norms. A reference group is any group to which
an individual looks for guidance including membership, aspirational and dissociative reference
group. An opinion leader is any reference group member who provides influential advice to
other group members. Innovators introduce innovations, early adopters including opinion leaders
drive adoption by early majority, late majority and laggards. Family influences are a vital
influence on consumer behaviour with many purchasing decisions made by certain members or
combinations of members of the household. Personal and psychological factors influence
consumer behaviour independently of social circumstances. Personal characteristics include
demographic, lifestyle and personality. Psychological characteristics include motivation which is
the internal drive to satisfy unfulfilled needs or achieve goals. According to Maslow’s hierarchy
of needs individuals try to satisfy lower order biogenic needs such as food and sleep ahead of
higher order psychogenic needs such as learning? Another psychological characteristic is
perception, how an individual manages meaning to external stimuli including marketing
communications. Beliefs and attitudes are a vital influence on consumer behaviour as they
determine the context in which product evaluations are made. Effective marketing needs to
appeal to the cognitive, affective and behavioural components of consumer attitudes. The
consumer decision making process comprises of need/want recognition, information search,
evaluation of options, purchase and post purchase evaluation. Consumer decisions involve
different levels of involvement:
- Habitual decision making involves low involvement such as buying bread and milk.
- Limited decision making involve limited information to evaluate options e.g. buying
appliances and clothing.
- Extended decision making involve high involvement and is usually for once in a life time
purchase e.g. a car, wedding ring, house or wedding dress.
Cognitive dissonance is second thoughts about the wisdom of a purchase (post purchase
evaluation/ regret).
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11 | M A R K E T I N G F O U N D A T I O N S
Roles in the Buying Process
Chapter 5- Business Buying Behaviour
The business market can be divided into reseller, producer, government and institutional
markets. Reseller markets comprise marketing intermediaries that buy products in order to sell
and lease them to another party for profit. Producer markets comprise businesses and
professionals that buy products in order to produce other products, or in their daily business
operations. Govt markets comprise federal, state and local govt’s that buy products in order to
provide services to citizens. Institutional markets comprise non public and not for profit
organisations that buy and sell products.
There are vital differences in the reflection of business markets and consumer markets. Business
markets involve high value purchases (lots of money), high volumes (lots of money) and regular
repeat purchases. Price and other conditions of the sale are open to negotiation. There are far
fewer buyers and sellers in business markets. Products alternatives are subject to extensive
formal evaluation with decisions made by committees. The relationships between buyers and
sellers tend to be long term and involve extensive after sales support. Demand in business
markets tends to fluctuate much more than demand in consumer markets.
Many business products are used in the production of another product. This creates a situation of
joint demand, where demand for one product is related to demand for another product. Because
business products are one of many used in the production of other products, demand for them
tends to be relatively unresponsive to changes in price. This is known as inelastic demand.
Demand tends to be relatively inelastic within an industry but can be elastic in relation to
individual companies. Business purchases take the form of a straight rebuy, modified rebuy or
new task purchase, each of which leads to different levels of engagement in the purchase
12 | M A R K E T I N G F O U N D A T I O N S
decision making process. The group of people who make business purchasing decisions is the
buying centre.
Chapter 6 – MARKET SEGMENTATION, TARGETING AND
POSITIONING
Sellers can take three approaches to a market. Mass marketing is the decision to mass produce
and mass distribute product and attract all kinds of buyers. One to one marketing is providing a
customised product to meet individual customer needs. Target marketing is creating a group of
customers with homogeneous needs and wants. The target marketing process involves market
segmentation, market targeting, market positioning. Market segmentation involves creating sub
groups within the total market that are homogenous. Segmentation variables used in consumer
markets include geographic, demographic, psychographic and behavioural.
In business markets, organisation size, product use and geography are used as segmentation
variables.
Market Segments
-
-
Segmentation involves dividing a market into direct group of buys who might require separate
products or marking mixes; classifying customers into groups with different needs,
characteristics or behaviour
Geographic – geographical units such as nations, regions, neighbourhood
Demographic – variables such as age, gender, life cycle, income occupation, religion
Psychographic – socioeconomic status, lifestyle, personality characteristics
Behavioural – occasions, benefits sought, user status (non-user, first=time, regular), usage rate
(light, moderate, heavy), loyalty status, buyer-readiness, attitude
Business Markets – personal characteristics, demographics, operating variables, purchasing
approaches, situational factors
Evaluate Market Segments
-
-
Size and growth – analyse data on current and projected sales growth rates; large companies
may want large current sales and high growth rates, whereas smaller companies may find it too
competitive
Structural attractiveness – competitors, power of buyers, substitute products, power of
suppliers
Company objectives and resources – evaluate whether segment fits with company’s goals and
objects; whether the company has resources to go into the segment
Targeting Strategies
-
Undifferentiated marketing – one homogenous market; one marketing mix
Differentiated marketing – several markets; several marketing mixes (different product
offerings)
Concentrated marketing – one target market though market is heterogeneous; one marketing
mix
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Differentiation and Positioning
-
Product position – way the product is defined by consumers on important attributes
Positioning strategies – product attributes, benefits, usage occasions, against/away from
competitors, product classes
Choosing and Implementing Positioning Strategy
-
Identify value differences – perceptual mapping, analyse position of brand in mind of
consumers, rating brands against each other
Identify competitive advantage – understand needs and buying processes; deliver more value
Differentiation
- Product - performance, style, design, durability, reliability, consistency
- Services - delivery, installation, repair, customer service, consulting service
- Personnel - hiring and training better employees than competitors
- Image - brand, symbols and logos, sponsorship
Selecting Overall Positioning Strategy (Positioning Statement)
Brand’s Value Proposition
More for more
More for the same (attack competitor’s
positioning)
Same for less (powerfully value
proposition)
Less for much less
More for less (winning value proposition;
hard to maintain)
Quality of
Product/Service
Most upscale
Comparable quality;
more product/service
Same quality
Less quality
More quality; more
product/service
Cost
Higher price
Lower price
Lower price
Lower price
Lower price
Communicating and Delivering the Chosen Proposition
-
Marketing mix efforts must support the positioning strategy
Position must be monitors and adapted over time to match changes in consumer needs and
competitors’ strategies
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Chapter 7 – PRODUCTS
A product is a good, service or idea offered to the market for exchange. It can be tangible,
intangible or both. Marketers analyse products using the total product concept: core, expected,
augmented and potential products.
Total Product Concept
-Core Product – basic benefit bought; eg. for a car it is transportation from A to B. For coffee it is
caffeine hit). For mobile phones it is communication.
-Expected Product – product’s characteristics (quality level, features, styling, brand image and
packaging).
-Augmented Product – bundle of benefits that differentiates the product (e.g. warranties, delivery)
e.g. for a washing machine it could be warranties, a delay function and delivery. For a mobile phone
it could be a camera.
-Potential Product- features that are being developed and prototyped. e.g. retina recognition
security for a credit card.
A product can be tangible and intangible give examples of each.
A product that is tangible and can be delivered to the consumer is a good it includes commodities
like coffee, tea, sugar, salt and minerals.
A product that is intangible and does not involve ownership is a service like a hair cut, insurance and
air plane travel.
Products can be divided into consumer products (purchased by individuals and households) and
business products (purchased by an organisation to be used in its operations or in the
production of other products).
The concept of product life cycle says that a product passes via five stages: new product
development, introduction, growth, maturity and decline.
New Product development has eight stages: idea generation, screening (eliminating unviable
ideas), concept evaluation, marketing strategy, business analysis (how the new product will
affect costs, sales and profits), product development, test marketing and commercialisation.
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The product adoption process describes the stages via which a potential customer passes, first
becoming aware of the new product, then deciding to adopt/ buy the product. In this process the
consumer who accepts a new product passes via five stages: awareness, interest, evaluation, trial
and adoption.
Product differentiation is the creation of products and attributes that distinguish one product
from one and another. Most of the differentiation occurs in the augmented product layer of the
total product concept. The design, brand image. Style, quality and features are the key product
attributes that can be used to differentiate products from competitors products.
Brand is the collection of symbols (e.g. name, logo and slogan) intended to create a
differentiated image in the customer’s mind. Brands play a major role in the consumer’s choice
of a product, namely high involvement products, as well a highly popular brand with a good
reputation will more likely be chosen rather than a cheaper and unknown brand.
Consumer Product Classifications and Market Considerations
Definition
Convenience
Products
(Staple, impulse
and emergency
products)
E.g. toothpaste,
household items,
breakfast cereals
Shopping
Products
E.g. major
appliances,
electronics,
clothes
Bought
frequently, with
little engagement
in the purchasing
decision making
process.
Specialty
Products
E.g. luxury goods
Unique
characteristics,
unique brand
identification,
willing to make
special purchase
effort
Know about
products or
doesn’t normally
think of buying
Unsought
Products
E.g. life
insurance, blood
donation, Pest
control and
Crimsafe
Moderate to high
engagement based
on quality, price
and features.
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Customer
Buying
Behaviour
Frequent
purchase, little
planning or
comparison, low
involvement
Price
Distribution
Promotion
Low
price
Widespread
distribution,
convenient
locations
Mass
promotion by
producer
Less frequent,
much planning
and shopping
effort,
comparison of
brands on price,
quality and style
Strong brand
preference and
loyalty, little
comparison of
brands, low price
sensitivity
Highe Selective
r price distribution
in fewer
outlets
Advertising
and personal
selling by
both
producer and
resellers
High
price
Carefully
targeted
promotion by
both
producer and
resellers
Little product
awareness, little
product
knowledge, little
or even negative
interest
Varies Varies – easy
access
helpful
(online
distribution
advantageous
)
Exclusive
distribution
in one or few
outlets per
market area
Aggressive
advertising
and personal
selling
Product Relationships
-Product item- a particular version of a product
-Product line – set of product items related by characteristics such as end use, target market,
technologies and raw materials
-Product mix– set of all products that an organisation makes available to customers.
Packaging
23. Designing and producing the container or wrapper for product
24. Altering packaging, secondary-use packaging, category consistent packaging, innovative
packaging, multiple packaging, handling-improved packaging
Labelling
25. Part of packaging, consist of printed information appearing on or with the package
Branding
26. Add value to product, powerful brands have consumer franchise – command strong consumer
loyalty
27. Brand equity – value of brand based on extent to which it has high brand loyalty, name
awareness, perceived quality, strong brand associations and other assets such as patents,
trademarks and channel relationships
28. Brand meanings – attributes (brand brings to mind attributes such as prestige); benefits
(customers by functional and emotional benefits); values (brand says something about buyers’
value); personality (brand projects personality)
29. Brand sponsor decision – manufacturers’ brand, private brand, licensing, co-branding
30. Brand strategy – line extension, brand extension, multibrands, new brands
31. Brand repositioning – need to change product and image, change attitudes and perceptions
towards brands, need huge promotions
17 | M A R K E T I N G F O U N D A T I O N S
Overview
of branding
decisions
LECTURE 7B – NEW PRODUCTS
What is a New Product
32.
33.
34.
35.
36.
New to the world (e.g. inventions)
New category entry (i.e. taking company to new category)
Additions to product line
Product improvements
Repositioning (e.g. retargeted for new use or application e.g. Dettol hand wash + cleaning
agent)
37. Variations of the above (e.g. new to a country, new to channel, packaging improvement)
New Product Success and Failure
38. New customer packaged goods rail 80% of time, 33% of industrial products fail at launch
39. Products may fail due to negative perception, wrong timing, poor market research, poor
commnctn
18 | M A R K E T I N G F O U N D A T I O N S
New Product Development (NPD) Process
1. Idea Generation
40. Systematic search for new product ideas
41. Internal idea sources  formal research and development, company scientists, engineers,
brainstorming
42. External idea sources  competitors, customers, distributors/suppliers, marketing
intermediaries
43. Others e.g. trade magazines, shows and seminars, advertising agencies, marketing research
firms
2. Idea Screening
44. Reduce number of ideas generated by spotting good ideas and dropping poor ideas
45. Criteria may include company objectives, production capabilities, feasibility of target market
3. Concept Development and Testing
46.
47.
48.
49.
Product idea – idea for possible product company can see itself offering to market
Product concept – detailed version of idea stated in terms meaningful to customers
Product image – way consumers perceive an actual or potential product
Concept testing – process of testing product concepts with a group of target customers
4. Marketing Strategy Developments
50. Designing of initial marketing strategy for new product
1. Describe target market, planned product positioning, sales, market share, profit
goals
2. Outline product’s planned price, distribution and marketing budget
3. Describe planned long-run sales, profit goals and marketing-mix strategy
5. Business Analysis
51. Review of sales, costs and profit projections to find out whether they satisfy company objectives
52. Assessment of financial budgets, potential markets and growth rate
6. Product Development
53.
54.
55.
56.
R&D or engineering develops product concept into physical product (prototype or test run)
Development activities  prototype, feasibility testing, preliminary market strategies
Large investments
This stage will show whether product idea can be turned into workable product
19 | M A R K E T I N G F O U N D A T I O N S
7. Test Marketing
57. Introduction of product and marketing program into more realistic market settings
58. Consumer markets  standard test markets (free samples); controlled test markets (leaving
products in certain places); simulated test markets (try selling at particular environment)
59. Business markets  product use-test
8. Commercialisation
60.
61.
62.
63.
Introducing new product into market
Full scale production, full scale marketing
Integration into the firm
Company launching product must decide WHEN, WHERE, TO WHOM and HOW
The Product Life Cycle (PLC)
Marketing Law
The law imposes a number of duties on the marketer. Each element of the marketing mix is
controlled in some way by the law, be it common law or by statute. They include:
- SOG legislation
- Consumer protection legislation
- Consumer credit legislation
20 | M A R K E T I N G F O U N D A T I O N S
-
Debt collection
Restrictive trade practices legislation
Principal and agency law
IP law
Law of contract
Law of torts
Chapter fourteen- Marketing Planning
Strategic Planning – process of developing and maintaining a strategic fit between
organisations goals and capabilities in light of changing marketing opportunities
Marketing Plan vs. Business Plan
-Business plan incorporates plans of all business functions
-Marketing plan focuses on:
a. Customer acquisition, retention and required resources
b. Resources required to implement specific marketing functions
c. Covers one year (markets keep changing)
d. Varies in length
e. Shortcomings may include lack of realism, insufficient market, short-run focus
Contents of Marketing Plan
1. Executive Summary – brief summary, aimed at senior management, no longer than a page
2. Current marketing situation – background data on target market, product, competition,
distribution and macro-environment
3. SWOT and Issue Analysis – strengths + weaknesses (internal), opportunities + threats (external)
4. Objectives – financial and marketing objectives, Smart Measurable Achievable Realistic
Timeframe
5. Marketing Strategy – specific strategies for target markets, marketing mix, marketing
expenditure level, often comes after positioning strategy statement
6. Action Programs – implementation, what will be done, when, who will do it and how much
spent?
7. Projected Profit-and-Loss Statement – budget with revenue showing sales, expenses showing
cost of production, distribution and marketing
8. Controls – monitoring plans progress; contingency plan
21 | M A R K E T I N G F O U N D A T I O N S
– PRICING, CONSIDERATIONS & APPROACHES
Price is the amount of money charged for a product or service. Is the only element in the
marketing mix that produces revenue, all other elements represent cost. It is used as a
competitive weapon.
Importance of Pricing:
 Pricing is getting more and more important due to better informed customers (e.g.
through new media) and mistakes in companies’ communication
 Pricing has a huge impact on competitors:
Competitors can expect effects from a price change that are twice as high as those from a
change in another marketing variable
Internal Factors Affecting Pricing:
Marketing Objectives:
 survival
 current profit maximization (short run)
 market-share leadership (long run)
 product-quality leadership (high prices)
Companies often have more than one objective, which may lead to a conflict of interests!
Company Resources:
 size of the company
 resources.
Pricing will be a function of costs:
 fixed cost
 variable cost
 total cost
 experience cost curves, costs decline over time as a result of accumulated production
experience
Marketing Mix Strategy:
Product:
 how important is the product?
 is it part of a range or accessory?
 quality?
Promotion:
 who does the promotion?
 is price a major selling point?
Place:
 wholesale and retail margins store image
22 | M A R K E T I N G F O U N D A T I O N S
External Factors Affecting Pricing Decisions:
The Market and Demand:
 Pricing in different types of markets
 Consumer Perceptions of Price and Value
 Price and Demand Relationship
 Price Elasticity of Demand (sensitivity)
 Competitor’s Prices and Offers
 Other External Factors
 Government regulations
 Loyalty programs
Pricing for Different Types of Markets
Pure competition
 Market consists of many buyers and sellers with each having little influence on market
price
 Trading of uniform commodity
Monopolistic competition
 Market consists of many buyers and sellers
 Range of prices occurs
Oligopolistic competition
 Market consists of a few sellers
 Sellers are highly sensitive to each other’s pricing and marketing strategies
 Difficult for new sellers to enter the market
A pure monopoly
 Consists of one seller
 Pricing is handled differently in each case
Demand:
Price and Demand Relationship
 mapped on a demand curve
Price Elasticity of Demand
 how sensitive will demand be in relation to changes in price for your product?
23 | M A R K E T I N G F O U N D A T I O N S
General Pricing Approaches:
Cost-based pricing:
 cost-plus pricing
 breakeven analysis and target profit pricing
 sets the floor for the price that the company can charge for its product
Competitor Based Pricing:
 economic value pricing
 going-rate pricing
 sealed-bid pricing
Relationship Pricing
 special relationship
 enrichment
 shared risk and reward
Break Even Analysis and Target, Profit Pricing:
 determine the price at which it will break even
Target pricing
 uses concept of a breakeven chart which shows total costs and total revenue expected at
different sales volume levels
 setting the price to break even on the costs of making and marketing a product, or to
make the desired profit
Value-Based Pricing:
 buyers’ perceptions of value are the key to pricing
 use non-price variables to build up perceived value in the buyers’ minds
 price is set to match the perceived value
Cost vs. Value-Based Pricing:
Cost-Based Pricing:
Product, design a new product
Cost, total the costs of making the product
Price, sets a price that covers cost plus target profit
Value, convince buyers that at the products value at that price justifies its purchase
Customers, purchase the products
Value-Based Pricing:
Reverse of Cost-Based Pricing
24 | M A R K E T I N G F O U N D A T I O N S
Customer
Value
Price
Cost
Product
Competition-Based Pricing:
Economic Value Pricing
The price set by a company is lower than customers’ perceived value and lower than that of its
competitors.
Going-Rate Pricing
Price based largely on competitors’ prices, with less attention paid to its own costs or demand.
Sealed-bid/Tender
Company bases its price on how it thinks competitors will price (e.g., job offers, governmental
tenders).
New Product Pricing:
Market-skimming pricing
Setting a high price for a new product
Appropriate if:
 Sales are less sensitive to price in early stages
 Capacity constraints exist. E.g. Apple used for the Ipod a skimming strategy
Market–penetration pricing
Setting a low price for a new product
Appropriate if:
 Sales are very sensitive to price
 Product faces strong potential competition. E.g. Microsoft used a penetration strategy for
Office XP in 2001
What is Price?
-
Amount charge for a product or service, or sum of values consumers exchange for the benefits
of having or using the product or service
Only element of marketing mix that produces revenue
Comprised of different components (e.g. price of production, royalties, shipping, labour)
Price is adjusted across different products, times and customers (e.g. new products attract
higher costs, discounts for children and pensioners)
25 | M A R K E T I N G F O U N D A T I O N S
Factors to Consider when Setting Prices
Internal Factors Affecting Pricing
-
Marketing objective  survival, current profit maximisation, market-share, product-quality
Company resources, size of company
Function of costs – fixed costs, variable costs, total costs, experience cost curves
Marketing mix strategy – product, promotion, place
External Factors Affecting Pricing Decisions
-
Pricing in different types of markets
Consumer perceptions of price and value
Price and demand relationship
Price elasticity (how sensitive buyers are to price)
Competitors prices and offers
Pricing in Different Markets
-
Pure competition – markets with buyers and sellers with little influence on market price (e.g.
petrol)
Monopolistic competition – many buys and sellers, different products and prices
Oligopolistic competition – few sellers, sellers highly sensitive to each other’s pricing and
marketing strategies, difficult for new sellers to enter market
Pure monopoly – one seller, pricing handled differently in each case (e.g. Australia Post)
Demand
-
Price and demand relationship can be mapped on demand curve
Price elasticity shows how sensitive demand is in relation to changes in price
26 | M A R K E T I N G F O U N D A T I O N S
General Pricing Approaches
-
-
Cost-based – cost-plus pricing; break even analysis and target pricing
Value based – buyers’ perceptions of value; non-price variables build up perceived value in
buyers’
Competitor based – economic value (cost lower than competitors and lower than perceived
value); going-rate (prices close to competitors); sealed-bid/tender (how it thinks competitors
will price)
Relationship pricing – used when there are few customers; shared risk and reward
New Product Pricing
-
Market skimming – high price for new/innovative product, sales less sensitive to price,
appropriate if capacity constraints exist, consumers may wait for prices to fall
Market penetration – low price for new product, sell large quantities, sales sensitive to price,
product faces strong potential competition, difficult to raise prices as product perceived as low
quality
Price Adjustment Strategies
-
Discount pricing and allowances – generate more sales volume
Segmented/discriminatory pricing – concessions for students, cheaper times of day
Psychological pricing - $1.99 instead of $2.00, using the ‘lucky’ number 8 in China
27 | M A R K E T I N G F O U N D A T I O N S
-
Promotional pricing – create awareness of product
Value pricing – according to delivered value (e.g. planes  first, business and economy classes
Geographic pricing – transportation costs increasing cost of goods
International pricing – certain products more popular in different countries
LECTURE 6 – SERVICES MARKETING
What are Services?
-
-
“Acts, performances, and experiences”; “deeds, processes and performances”; “activities,
benefits, and satisfactions, which are offered for sale or are provided in connection with the
sale of goods”
Service Industry – core product is service e.g. airlines (T&G)
Service Products – intangible product offerings e.g. Hewlett-Packard consultancy
Customer Service – supports the company’s core products, often free
Service as a process when there is: people processing, possession processing, mental stimulus
processing or information processing
IHIP Framework – Intangibility
-
Cannot be stored, demand difficult to manage
Not protected by patents; can be copied
Not easy to display or communicate; quality difficult to assess
Difficult to price
Solutions – tangible cues; physical evidence; personal sources of information; create strong
reputation/organisational image (T&G create strong reputation for quality; making customers
feel ‘a million dollars’ and passing on word of mouth to others)
IHIP Framework – Heterogeneity
-
People are not machines; no two services will be exactly alike (hair dressers cut differently
depending on person and their mood)
Difficult to measure and control service quality
Solutions – customisation to maximise profits; standardisation for faster, cheaper, more
consistent service; staff trained in service recovery (teaching standard techniques which can be
put together differently to offer a customised haircut)
IHIP Framework – Inseparability
-
Customer and service representative at the same place and time (customers highly involved in
haircuts, need to cooperate e.g. turning head to one side)
Mass production of services is difficult, if at all possible
Other customers may be involved in the production process (e.g. cinemas)
Service quality depends on what happens in real time
Solutions – careful selection and rigorous training of service personnel; strategies to manage
consumers (T&G Creative Academy, apprenticeships)
IHIP Framework – Perishability
-
Services cannot be inventoried (at T&G each hair dresser can do 10 haircuts a day)
Cannot be returned – service recovery is more difficult
28 | M A R K E T I N G F O U N D A T I O N S
-
Managing supply and demand a challenge (no bookings mean that time is gone, cannot get it
back)
Solutions – keeping customers ‘in stock’ (reserve bookings if another customer cancels booking)
; development of service recovery strategies; creative management of supply and demand
The 7Ps - Product
-
Service products are the core of service marketing strategy (the haircut itself)
Supplementary elements are value-added enhancements (e.g. label.M hair-care range)
The 7Ps – Place (and Time)
-
Service distribution can take place through physical and non-physical channels
Some firms can use electronic channels to deliver all or some of their service elements (e.g.
information based services can be delivered almost instantaneously electronically)
Delivery decisions – when, where, how
Convenience of place and time of great importance as customers are physically present (e.g.
salons in convenient places)
The 7Ps – Price
-
Generates income for the firm; key part of costs to obtain wanted benefits for consumers
Firms need to minimise non-monetary costs to customers (e.g. time waiting, finding parking
spot, unwanted physical effort of getting to salon)
The 7Ps – Promotion
-
Provides information and advice (promotions at hair expo’s)
Persuades the target customers of merit of service product or brand (e.g. advertising in
magazines)
-
Encourages customer to take action at specific time (discount coupons in magazines, 10%
discounts to students)
Customers may be involved in co-production and taught how to move effectively through
service process and shape customers’ roles and manage their behaviour
-
The 7Ps – Process
-
Actual procedure, mechanisms and flow of activities through which service is delivered
Length: number of steps
Duration: time it takes
Logistical effectiveness: smoothness in delivery
Service delivery may follow standardised procedure that comprises a number of activities
Activities may occur frontstage (in view of customer) or backstage (not seen) e.g. frontstage at
T&G is the process of the wash, haircut and blow-dry; backstage is washing the towels
The 7Ps – Physical Evidence
-
Setting where service is delivered; tangible components
29 | M A R K E T I N G F O U N D A T I O N S
-
Servicescapes – physical environment where the customer and provider interact (the salon)
Any tangible components that facilitate performance or communication of the service (the
shampoos used, the scissors and other tools)
The intangibility of service offerings makes tangible cues an essential part of the service process
The 7Ps – People
-
All humans who play a role in service delivery who influence the perceptions of customers
Service delivery employees (front-line staff) the hairdressers themselves
General staff of the service company (the receptionist when making a booking)
The customer
Other customers present in the servuction (service-production) and delivery process
Service as a Process: Implications
-
People processing – customers must physically enter the ‘service factory’ and cooperate with
service operation; managers must think about process and output from customers’ perspective
Possession processing – customers less physically involved; production and consumption are
separable
Mental stimulus processing – ethical standards required as customers can be manipulated;
physical presence not required; core content of service is information based; can be inventoried
Information processing – most intangible service output; transformed into enduring forms of
service output; link between information processing and mental stimulus processing can be
blurred
Using 7Ps for Services Strategy
-
Overall strategic assessment – how effective is a firm’s services marketing mix; is the mix well
aligned with overall vision and strategy; what are strengths/weaknesses in terms of 7Ps?
Specific service implementation – who is customer; what is the service; how effectively does the
services marketing mix for a service communicate its benefits and quality; what changes
needed?
30 | M A R K E T I N G F O U N D A T I O N S
Services Marketing: Key Challenges
-
How can service quality be defined and improved
Designing and testing new services to take into account intangibility
Communication and consistency of image
Dealing with demand fluctuation
Strategic and tactical decision making when inter-functional coordination is required
Balance between customisation and standardisation
Sustainable competitive advantage
Communicating the value and quality of something intangible to customers
Delivering service quality when employees and customers contribute to it themselves
LECTURE 8 - PLACEMENT
Marketing Logistics Network
64. Traditionally physical distribution; today includes logistics, marketing logistics, integrated
logistics management, supply-chain management and materials management and physical
distribution
65. Includes procuring inputs (e.g. raw materials, equipment, capital) and conversion to finished
products and conveying them to end users
66. Network players  suppliers, purchasing agents, manufacturer, marketers, transport agencies,
end-consumer
67. Other P’s
 Product – variation (colour, size, features) may impose burden on distribution
facilities
 Promotion – campaigns must reflect logistics delivery
 Pricing – source of differential advantage based on superior logistical service, need
to compare the price end-user will pay for each channel
Marketing Channels
68. Distribution channels are the pathways that companies use to sell their products to end-users
69. Network of interdependent organisations making product/service available for
use/consumption
70. Intermediaries are organisations linking producers to other intermediaries or to the customer
through contractual arrangements to purchase and resale products
Why Marketing Intermediaries are Used
71.
72.
73.
74.
75.
76.
Cost – manufacturer is paid immediately regardless of whether products are eventually sold
Increased coverage
Consumer convenience – consumers go to once place
Customised approaches to customer needs
Greater efficiency and effectiveness
Improved marketing effort
31 | M A R K E T I N G F O U N D A T I O N S
77. Reduction of number of channel transactions
Marketing Channels adding Value
Consumer Marketing Channels
78.
79.
80.
81.
82.
Information – gathering and distributing marketing research and intelligence
Promotion – developing and spreading communications about an offer
Contact – finding and communicating with prospective buyers
Matching – shaping and fitting the offer to the buyer’s needs
Negotiation – reach an agreement on price and other terms of the offer so that ownership or
possession can be transferred
83. Physical distribution – transporting and storing goods
84. Financing – acquiring and using funds to cover the cost of the channel work
85. Risk taking – assuming the risks of carrying out the channel work
Channel Organisation – Vertical Marketing Networks (VNM)
86. Information – gathering and distributing marketing research and
intelligence
87. Consists of suppliers, wholesalers, retailers acting as unified network
88. Network can be nominated by either the supplier, wholesaler or
retailer
89. Types of VMN include corporate, contractual or administered
Choosing a Distribution Model
32 | M A R K E T I N G F O U N D A T I O N S
90. New products – needs to be introduced by demonstration and explanation, retailers not
appropriate; new tools and equipment need direct marketing through commission agents
(B↔B)
91. Small customer bases – readily accessible customers have wholesalers or distributors target
customers for direct sales through commission agents; direct sales can help maximise profits
and create good customer relationships
92. Personalised service – local dealer network or reseller program to provide service
93. Buying online – e-commerce website to sell direct; sell to online retailer or distributor
94. Own specialised sales team – look for sales prospects and close deals directly with customers
Retailing
95. Retailing – activities involved in selling goods or services directly to final consumers for their
personal, non-business use
96. Retailers – businesses whose sales come primarily from retailing; classified through:
Retailer Marketing Decisions (Strategy) – Target Market and Positioning
97. Product (and service assortment) – decide on product variables of product assortment, services
mix and store atmosphere
98. Price – price policy must fit target market and positioning, product and service assortment and
competition; either high mark-ups on lower volume or low mark-ups on higher volumes
99. Promotion – use any or all of promotion tools (advertising, personal selling, sales promotion,
public relations and direct marketing); websites offering information and selling direct
100.
Placement – CBD, shopping centres (regional and strip), clusters of retailers in
commercial buildings or near hotels, ‘do it yourself’ retail parks, entertainment centres, arcades
and conversion of historical buildings
33 | M A R K E T I N G F O U N D A T I O N S
Wholesaling
101.
All activities involved in
selling goods and services to those buying for resale or business use
102.
Wholesalers perform one
or more functions: selling and promoting, buying and assortment building, bulk breaking,
warehousing, transportation, financing, risk bearing, market information, management services
and advice
Types of Wholesalers
103.
Merchant wholesalers –
independently owned business that take title to the merchandise they handle; largest single
group of wholesalers
34 | M A R K E T I N G F O U N D A T I O N S
104.
Full service wholesalers –
provide full set of services (e.g. carrying stock, using sales-force, offering credit, making
deliveries and providing management assistance)
105.
Limited service wholesalers
– cash and carry wholesalers, trust wholesalers, drop shippers rack jobbers, producers’
cooperatives, mail order wholesalers
106.
Brokers – brings buyers
and seller together and assists negotiation; paid by parties hiring them; do not carry inventory
or get involved in financing nor assume risk
107.
Agents – represent buyers
or sellers on a more permanent basis; there are (1) manufacturer’s agent (2) selling agent (3)
purchasing agent (4) commission merchant
No lecture 9 – Labour Day holiday
LECTURE 10 – INTEGRATED MARKETING COMMUNICATION:
ADVERTISING
What is promotion? How do marketing communication activities assist the other elements of the
marketing mix in an organisation's marketing strategy?
Promotion is the marketing communication that makes potential customers, partners and society
aware and attracted to the benefits of a business's products. It comprises of a strategic mix of
advertising, public relations, sales promotion and personal selling. Promotion sends messages
about other parts of the marketing mix mix: product, pricing and distribution.
Integrated Marketing Communication
- Coordination of organisation’s promotional efforts
- Use major communication elements such as advertising, sales promotion, public
relations, direct and online marketing, personal selling.
- Meets objectives such a to inform, persuade and remind customers
How does the model of communication help in explaining how an
advertisement works? Analyse a current advertising campaign in
your answer.
The communication process: a message is encoded and sent by a sender via a message channel
to a target audience who decodes the message and responds by some form of feedback. Anything
that gets in the way of the effective communication process is known as noise. The AAMI
35 | M A R K E T I N G F O U N D A T I O N S
advertisement where Rhonda is on the beach with Ketut is very effective in communicating that
with AAMI you save so much that you can go on a holiday.
Definition
Paid, non-personal
presentation and
Advertising promotion of ideas, goods
or services by an
identified sponsor
Short-term incentives,
Sales
encourage purchase;
Promotion alters price-value
relationship
Non-personal
Public
communication in news
Relations story form through
medium for free
-
Benefits
Cost efficient
Repeats message
Can control message
Create favourable
images
- Appeal to price-sensitive
- Generate extra interest
- Can measure effect
- More credible
- Low cost
Limitations
- Hard to measure
effectiveness
- Delayed feedback
- Credibility problems
- Clutter in media
- Short-term impact
- Doesn’t contribute to
brand image
- Promotional wars
- Lack of control
- Can be negative
Elements in the Communication Process
Lecture 9:
Marketing Logistics Networks:
Managing the network of players providing customer fulfillment, ranging from:
 suppliers (raw materials, components and capital equipment)
 purchasing agents
 manufacturer
 marketers
 transport agencies
 end-consumer (managing their expectations)
36 | M A R K E T I N G F O U N D A T I O N S
Marketing Logistics Network and the Other P’s
Product:
 variations (colour, size, features, styles)
 may impose a burden on distribution facilities
Promotion:
 campaigns must reflect logistics delivery
Pricing:
 a source of differential advantage based on superior logistical service
 if you use multiple channels, compare the price that the end-user will pay; if a customer
can buy from one channel at a lower price than another, your partners will rightfully have
concerns.
Marketing Channels:
A set of interdependent organisations involved in the process of making a product or service
available to users.
 Distribution channels are the pathways that companies use to sell their products to endusers.
 Network of interdependent organisations (or intermediaries)
 making product or service available for use or consumption
 Intermediaries are organisations linking producers to other intermediaries or to the
customer through contractual arrangements to purchase and resale products (i.e. transport
 companies, Dan Murphy’s)
How Marketing Channels Add Value:
 Information—gathering and distributing marketing research and intelligence.
 Promotion—developing and spreading communications about an offer.
 Contact—finding and communicating with prospective buyers.
 Matching—shaping and fitting the offer to the buyer’s needs, including such activities as
manufacturing, grading, assembling and packaging.
 Negotiation—reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred.
 Physical distribution—transporting and storing goods.
 Financing—acquiring and using funds to cover the costs of the channel work.
 Risk taking—assuming the risks of carrying out the channel work.
Levels and Channel Conflict:
Channel level is a layer of intermediaries who perform some work in bringing the product and its
ownership closer to the final buyer.
 Channel 1, manufacturer
Consumer (no intermediary levels)
 Channel 2, manufacturer
Retailer
Consumer
 Channel 3, manufacturer
Wholesaler Retailer
Consumer
Channel conflict is the disagreement among marketing channel level members on goals and
roles, on who should do what and for what rewards.
Channel Organisation:
37 | M A R K E T I N G F O U N D A T I O N S
Vertical Marketing Networks (VMN) are a distribution channel structure in which producers,
wholesalers and retailers act as a unified network, one channel member owns the others.
Vertical Marketing Networks (VMN) consists of:
 suppliers
 wholesalers
 retailers acting as a unified network
The vertical marketing network can be dominated by the suppliers, wholesaler or retailer.
Types of VMN:
 corporate, combines successive stages of production and distribution under single
ownership
 contractual, independent firms at different levels join together to obtain economies of
scale
 wholesaler-sponsored voluntary chain, wholesalers organise voluntary chains of
independent retailers to help them compete with large corporate chain organisations
 retailer cooperatives, retailers organise a new, jointly owned wholesale business
 franchise organisation, a channel member called a franchisor links several stages in
the production-distribution process
 administered, coordinates successive stages of production and distribution, not through
common ownership but through the power of one of the parties
Retailing
All activities involved in selling goods or services directly to final consumers for their personal,
no-business use.
Retailing Classification:
Retail stores can be classified four ways:
Amount of Service:
 self service retailer, provides few or no services to shoppers, shoppers perform their own
locate-compare-select process, e.g. discount stores
 limited service retailer, provides only a limited number of services to shoppers, e.g.
smaller hardware chains
 full service retailer, provides a full range of services to shoppers, e.g. first class
department stores

Product Line
 specialty store, carries a narrow product line with a deep assortment within that line
 combination store, a combined grocery and general merchandise store
 department store, carries a wide range of product lines, each line is operated as a separate
department managed by specialist buyers or merchandisers
 supermarket, a large, low cost, low margin, high volume, self service store that carries a
wide variety of food, laundry and household products
 convenience store, a small store located near a residential area, open long hours seven
days a week, carrying a limited line of high turnover convenience goods
 superstore, twice the size of a supermarket carrying a large assortment of routinely
purchased food and no food items and services such as dry cleaning
38 | M A R K E T I N G F O U N D A T I O N S

service business, the product line is a service, e.g. hotels, airlines and restaurants
Relative Prices
 discount stores, sells at lower prices, accepting lower margins and selling at higher
volume
 off price retailer, buys at less than regular wholesale prices and sells at less than retail
 DFO, carries the manufacturer’s surplus, discontinued or irregular goods
 independent off-price retailer, owned and run by an entrepreneur
 warehouse club, sells a limited selection of brand name grocery items, appliance and
clothing at discounts to members who pay an annual membership fee
Organisational Approach
 chain store, two or more outlets that are commonly owned and controlled and employ
central buying and merchandising
 voluntary chain, a wholesaler sponsored group of independent retailers that engages in
group buying and common merchandising
 a contractual association between a manufacturer, wholesaler or service organisation and
independent business people who buy the right to own and operate a franchise system.
Retailer Marketing Decisions:
Target Market and Positioning Decision
 must define their target markets and then decide how to position themselves.
 until they define and profile their markets, retailers cannot make consistent decisions
about product assortment
Product and Service Assortment Decision
Retailers must decide on three main product variables:
 product assortment
 services mix
 store atmosphere
Price Decision
 a retailer’s price policy must fit its target market and positioning, product and service
assortment, and competition.
 most retailers seek either high markups on lower volumes or low mark-ups on higher
volumes.
Promotion Decision
 use any or all of the promotion tools advertising, personal selling, sales promotion, public
relations and direct marketing to reach consumers.
 most retailers have also set up websites offering customer information and other features
and often sell merchandise directly.
Placement Decision
 Central Business District (CBD)
 Shopping Centres
regional shopping centres.
strip shopping centres.
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
Other types of store clusters include:
clusters of retailers in commercial buildings or surrounding major hotels.
‘Do it yourself’ retails parks.
entertainment centres.
arcades and the conversion of historical buildings.
Wholesaling
Wholesaling includes all activities involved in selling goods and services to those buying for
resale or business use. Wholesalers are performing one or more of the following functions:
 selling and promoting
 buying and assortment building
 bulk breaking
 warehousing
 transportation
 financing
 risk bearing
 market information
 management services and advice
Types of Wholesalers:
Merchant Wholesalers
 independently owned businesses that take title to the merchandise they handle. The
largest single group of wholesalers.
Full Service Wholesalers
 Provide a full set of services, such as carrying stock, using a sales-force, offering credit,
making deliveries and providing management assistance.
Limited Service Wholesalers
 cash-and-carry wholesalers, truck wholesalers, drop shippers rack jobbers, producers’
cooperatives, mail order wholesalers.
 Limited services to supplies and customers
Brokers
 brings buyers and sellers together and assists in negotiation. Brokers are paid by the
parties hiring them. They do not carry inventory, get involved in financing or assume
risk.
Agents
 Represent buyers or sellers on a more permanent basis. Types of agents:
1. manufacturer’s agent
2. selling agent
3. purchasing agent
4. commission merchant
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Lecture 10:
Integrated Marketing Communication (IMC):
The concept under which a company carefully integrates and coordinates its many
communications channels to deliver a clear, consistent and compelling message about its
products
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Co-ordination of the organisation’s promotional efforts
Uses major communication elements such as:
advertising,
sales promotion,
public relations,
direct and online marketing
personal selling.
Meets objectives such as to inform, persuade, and remind consumers
Advertising:
Any paid form of non-personal presentation and promotion of ideas, goods or services by an
identified sponsor.
Benefits:
 cost efficient in reaching a large audience (unlike personal selling)
 lets the advertiser repeat the message several times and in several different media (unlike
personal selling)
 ability to control message (unlike publicity)
 able to create favourable images (unlike some sales promotions like price discounts, buy
one get one free)
Limitations:
 difficult to determine or measure its effectiveness in terms of sales, for example (unlike
sales promotion – eg coupons)
 delayed feedback from customers in terms of intention to buy, for example (unlike
personal selling)
 credibility problems(unlike publicity)
 clutter in many media (billboards, TV etc)
Sales Promotion:
 Short-term incentives (activity or material) to encourage purchase of a good or service.
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
(Attempts to alter the price-value relationship of a product in the prospect’s mind, usually
for a limited time.)
Benefits:
 a way to appeal to price-sensitive consumers
 can generate extra interest in ads
 easier to measure effects of sales promotion (such as coupons, price discounts) on sales,
for example
Limitations:
 often has short-term impact only
 often does not contribute to brand image (unlike advertising)
 can lead to promotional wars among competitors
Public Relations:
A broad set of communication tools or methods used to create and maintain favourable
relationships between an organisation and its stakeholders (employees, customers, shareholders,
government officials, society at large etc). Example of PR Tools: Publicity Sponsorship, (even
advertising!)
Publicity, a tool of Public Relations:
It is non-personal communication in a news story form about an organisation/product transmitted
through a medium for “free”.
Benefits:
 Publicity via news items (editorial in print/blogs/TV broadcasts etc) is more credible than
advertising in mass media.
 Low cost way to communicate
Limitations:
 Lack of control (unlike advertising)
 Can be negative
Decisions in Developing IMC:
Identifying the Target Audience
Audience may be:
 potential buyers or current users,
 those who make the buying decision,
 those who influence it
Identify Response Sought:
Buyer Readiness States:
Awareness Knowledge Liking
Selecting a Message:
Ideally the message should:
 Get Attention
 Hold Interest
 Arouse Desire
 Obtain Action
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Preference
Conviction
Purchase
(A framework known as the AIDA model)
Message Content:
Rational Appeals
 relate to the audience’s self interest
 show how the product will produce the benefits
Emotional Appeals
 stir up positive or negative emotions that can motivate purchase
Moral Appeals
 directed to the audience’s sense of what is right and proper
Message Structure-there are three message structure issues:
 whether to draw a conclusion or leave it to the audience?
 whether to present a one-sided or two-sided argument?
 whether to present the strongest argument first or last?
Message Format
 communicator needs a strong format for the message.
 in print ads, the communicator decides on the headline, copy, illustration and colour.
 for radio, the communicator chooses words, sounds and voices.
 for TV, all elements plus body language have to be planned. May be expensive now but
you save in the long run
Setting the IMC Budget and Mix:
 affordable method, setting the promotion budget at what management thinks the
company can afford
 percentage of sales method, setting the promotion budget at a certain percentage of
current forecast sales, or as a percentage of the sales price
 competitive-parity method, setting the promotion budget to match competitors outlays
 objective and task method, developing promotion budget by defining objectives,
determining the tasks that must be performed to achieve these objectives and estimating
the costs of these is the proposed promotion budget
Considerations in Developing Integrated Marketing Communication:
Companies consider many factors when developing their IMC program:
 type of product and market
 ‘push versus pull’ strategy
 buyer-readiness state
 product life cycle stage

A push strategy is a promotion strategy that calls for using the sales force and trade
promotion to push the product through marketing channels to final consumers
 A pull strategy is a promotion strategy that calls for spending a lot on advertising and
consumer promotion to build up consumer demand
Advertising:
43 | M A R K E T I N G F O U N D A T I O N S
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An advertising objective is a specific communication task to be accomplished with a
specific target audience during a specific period of time.
Advertising objectives can be classified by purpose: whether their aim is to inform,
persuade or remind. Resulting in:
informative advertising
persuasive advertising
comparison advertising
reminder advertising
Advertising Media:
Newspapers (versus Magazines):
Advantages:
 Flexibility – ads for newspapers can be produced in a matter of hours, and deadline for
receiving ads is usually 24 hours before publication (unlike magazines)
 Geographic selectivity – local, regional, national newspapers (like magazines)
Disadvantages:
 Poor reproduction quality (unlike magazines)
 Lack of demographic (eg gender) or lifestyle selectivity (eg gardening enthusiasts)
(unlike magazines)
 Small pass-along audience (unlike magazines)
 Short life span (unlike magazines)
Television (versus Radio)
Advantages:
 Greater creativity and impact (than radio)
 Greater attention (than radio)
Disadvantages:
 Less demographic/geographic selectivity (than radio)…few local TV stations than local
radio stations
 Higher cost (than radio)
Lecture 11:
Public Relations:
Major mass-communication tool.
Aims at building good relations with the company’s various publics using different tools:
 news
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speeches
special events
written materials
audiovisual materials
corporate identity materials
community service activities
Sales Promotion
Influencing customer perception and behaviour to:
 build market share,
 increase sales and
 reinforce brand image
Used to:
 Attract new triers (Non-users, loyal users of another brand, and brand switchers)
 Reward and retain brand-loyal customers
 Reduce time between purchases
 Turn light users into medium or heavy users
 Regain past purchasers
 Evaluation of performance
Sales Promotion Tools
 Contests and games of skill and chance, give consumers the chance to win something of
value by luck
 Samples, free or discounted goods provided at store level through the media
 Redeemable coupons, a coupon carried on pack or in other media that when forwarded to
a marketer will be redeemed for a product or service
 Cash-back offers, a cash discount
 Cents-off deals or Price Packs, a reduced price that is marked by the producer directly on
the label or package
 Premiums, goods offered free of charge or at reduced price as an incentive to buy a
product
 Advertising Specialties, a article imprinted with an advertisers name, given as a gift to
consumers
 Patronage Rewards, a cash, merchandise or service reward offered to consumers who
make continual use of a company[s product or service, e.g. frequent flyer plans
 Point-of-Purchase, an offer ranging from a theme promotion in store to a specially
arranged selling area
Role of Personal Selling
Personal selling involves two-way, personal communication between salespeople and individual
customers
 face-to-face
 by telephone
 through video conferences
 or by other means
 Sales people are concerned with producing sales but should also be concerned with
customer satisfaction and profit
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Major Steps in Effective Selling:
Selling Process:
The steps that the salesperson follows when selling. These are:
 Prospecting, salesperson identifies qualified potential customers
 Preapproach, salesperson learns as much as possible about a prospective customer before
making a call
 Presentation, salesperson tells the product story to the buyer, showing how the product
will save them money
 Handling objections, salesperson seeks out, clarifies and overcomes customers objections
to buying
 Closing, salesperson asks the customer to an order
 Follow-up, salesperson follows up after the sale to ensure customer satisfaction and
repeat business
Personal Selling and Relationship Marketing:
Relationship marketing:
 process of creating, maintaining and enhancing strong, value-laden relationships with
customers and other stakeholders
 stresses profitable long-term relationships with customers by creating superior customer
value and satisfaction
 Winning and keeping accounts requires more than making good products and closing lots
of sales
Direct and Digital Marketing:
This is an interactive system of marketing which uses one or more advertising media to affect a
measurable response or transaction to any location.
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Internet is a public network.
Intranet:,secure websites accessed by company employees only.
Extranet, websites accessed by both employees and known customers.
Customer relationship management (CRM):
 one-to-one marketing (OnetoOne)
 direct marketing or direct-order marketing
 E-marketing
 interactive marketing
Forms of Online and Direct Marketing:
 Sales Promotion
 Direct print and reproduction, involves mail outs of letter, product lists and catalogues to
a list of known database of customers
 Direct-response, TV and Radio, use of mass promotion media combined with a direct
response offer, usually involving telemarketing
 Telemarketing, use of telephone operators to attract new customers or contact existing
customers
 Integrated database marketing,
 Telesales, routine order taking by telephone operators
46 | M A R K E T I N G F O U N D A T I O N S
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Electronic shopping, purchasing via an electronic bulletin board or Telstra’s Discovery,
or via interactive cable television
Direct selling, selling directly to consumers or businesses rather than using a reseller,
such as a retailer or agent
Electronic dispensing & kiosks, a machine that dispenses products or services usually by
inserting cash or a transaction
Direct and Digital Database Use:
Direct and online database marketing
 development and maintenance of electronic databases to interact with past, present and/or
potential customers and others in the marketing channel
 maintain value-ladden relationships
How Are Direct and Digital Marketing Databases Used?
Marketing organisations use their databases in a number of ways:
1. identifying prospects
2. deciding which customers should receive
1. a particular offer
2. deepening customer loyalty
3. reactivating customers
4. data mining
Lecture 12:
Social and Ethical Issues in Marketing:
 A number of social and ethical issues arise from marketing practice and emerge as areas
of attention for marketing scientists and regulators.
 These matters generate considerable criticism of marketing practice, some of which is
justified but much of which is not.
The Impact of Marketing on Individual Consumers:
Consumer worries include:
 high prices
 poor-quality
 dangerous products
 misleading advertising claims
 deceptive practices
 breaches of privacy
 high-pressure selling
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planned obsolescence
poor service to disadvantaged consumers
The Impact of Marketing on Society:
The marketing system has been accused of adding to several ‘evils’ in society:
 false wants and over concern with materialism.
 too few social goods.
 cultural pollution.
 too much political power.
Marketing’s Impact on Other Businesses:
There are three major problems involved:
 acquisition of competitors
 marketing practices that create barriers to entry
 unfair competitive marketing practices
Private and Public Actions to Regulate Marketing:
There are movements that attempt too ensure that:
 ethical business practices are adopted
 particularly at times when executive salaries seem to be disproportionately high or when
fraud and misappropriation of company monies are uncovered (e.g. Enron)
The two major movements are:
 Consumerism, an organised movement of citizens and government agencies whose aim is
to improve the rights and power of buyers in relation to sellers
 Environmentalism, an organised movement of concerned citizens, businesses and
government agencies seeking to protect and improve people’s living environment
Consumerism:
Consumerism is an organised movement of citizens and government agencies to improve the
rights and power of buyers in relation to sellers
Why the push for consumerism groups?
 consumers have become better educated,
 products have become more complex and hazardous,
 marketing organisations have raised consumers’ expectations
Environmentalism:
 False Wants and Too Much Materialism
 Too Much Political Power
 Too Few Social Goods
 Cultural Pollution
 Eco-Systems
 Pollution
 Long-Term
Ethical Marketing:
 approach by which organisations recognize that the task of marketing is to be both
enlightened to society’s views and ethical in the organisations’ approach to society as a
whole and to customers.
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most organisations respond positively to consumerism and environmentalism.
develop corporate marketing ethics policies.
Adopting Ethical Marketing:
Societal marketing is a principle of enlightened marketing which holds that an organisation
should make marketing decisions by considering consumers wants, the organisations
requirements and the long term interests of consumers and society.
Makes marketing decisions by considering:
 consumer’s wants and interests,
 the company’s requirements and
 society’s long term interests.
Products may be classified according to their degree of immediate customer satisfaction and
long-term consumer benefit:
 deficient products, products such as bad tasting and ineffective medicine that have
neither immediate appeal nor long term benefits
 pleasing products, products that give high immediate appeal nor long term benefits
 salutary products, products that give high immediate satisfaction, but they may hurt
consumers and society in the long run
 desirable products, products that give both high immediate satisfaction and high long
term benefits
PART THREE: DEVELOPING THE MARKETING MIX
CHAPTER NINE: NEW PRODUCTS
1. Identify the challenges companies face in creating a new-product development strategy.
A new product is a product that is new in any way for the company concerned. It can be;
1. New to the world – innovations
2. New category entries
3. Additions to product lines- eg vehicles
4. Product improvements
5. Repositioning- products re-targeted for new use, application or to a new user
6. Variations of the above-variations such as new to the country or new to the channel are not
commonly accepted as new products
Organisations must develop new products. Their current products face limited life spans and
must be replaced by newer products. But new products can fail—95% never reach the market,
<3% of those that survive last for 5 years-the risks of innovation are as great as the rewards. The
key to successful innovation lies in a total company effort, strong planning and a systematic
new-product development process. A new product can be obtained through acquisition or
internal new-product development process.
New product success is based on;
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Reasons for product failure;
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Product superiority/quality
Economic advantage to the user-value
for money
Overall company/project fit
Technological capability
Familiarity with the company
Market needs, growth, size
Competitive situation-ease of entry into
the market
Defined opportunity
Project definition-how well defined the
product & project are internally
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Bad timing
Insignificant point of difference
Poor quality
Poor marketing execution markets too
small or inaccessible
Lack of top management commitment
Must have an adequate budget to meet
sales goals
New-product development- the dev of original products, product improvements, product
modifications and new brands through the company’s own R&D efforts.
Common reasons for new product failure include the inability of potential consumers to see the
product concept or how it might apply to them, no perceived need or perceived inferior product,
wrong timing, poor market research and poor marketing implementation as well as inadequate
promotional budget and lack of support.
To create successful new products, a company must understand its consumers, markets and
competitors and develop products that deliver superior value to customers. M orgs also need to
understand how leading-edge users and opinion leaders are involved in spreading positive word
of mouth in the diffusion process.
Challenges:
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Keen competition
Meeting growing social and gov constraints
Many companies cannot afford or raise the funds needed for new product development
High degree of complexity and a multitude of decisions
Conflicting set of mgt demands that product innovators must comply with
The new-product development process consists of 8 stages:
1.
2.
3.
4.
5.
6.
7.
8.
ideas generation,
ideas screening,
concept development and testing,
marketing strategy development,
business analysis,
product development,
test marketing and
commercialisation.
2. List different sources for ideas generation and discuss how an idea moves ahead through
ideas screening, concept development and concept testing.
Ideas generation - the systematic search for new product ideas.
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Sources of new ideas include;
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Internal sources – sales force
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Customers
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Competitors
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Distributors
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Retailers
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Wholesalers
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Suppliers
Ideas screening - Screening new product ideas in order to spot good ideas and drop poor ones as
soon as possible. It aims to reduce the number of ideas as product development costs rise greatly
in later stages. The company only wants to go ahead with the product ideas that will turn into
profitable products.
Screening criteria includes;
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Company objectives
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Production capacity
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Production capability
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Marketing capability
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Product risk
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Product fit
Concept development & testing involves testing new product concepts with a group of target
consumers to find out if the concepts have strong consumer appeal. It considers:
1. Product idea –An idea for a possible product that the company can see itself offering to the
market.
2. Product concept- a detailed version of the idea stated in terms that are meaningful to
customers. The idea that consumers favour products that offer the most quality, performance
and features and that the organisation should therefore devote its energy to making continuous
product improvements.
3. Product image- the way consumers perceive an actual or potential product.
4. Concept testing- process of testing product concepts with a group of target consumers.
Example: ‘The Hydro Car’
Concept 1—an inexpensive small sized vehicle designed as a second family car to be used
around town (ideal for loading groceries and hauling children, and easy to enter).
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Concept 2—a medium-cost, medium-sized car designed as an all-purpose family car.
Concept 3—a medium-cost sporty compact appealing to young people.
Concept 4—an inexpensive sub-compact appealing to conscientious people who want basic
transportation, low fuel cost and low pollution.
3. Outline how a potential product advances from a concept to a product through
marketing strategy development, business analysis and product development.
Marketing strategy development - Designing an initial marketing strategy for a new product
based on the product concept, i.e. the process of designing an initial marketing strategy for a new
product. It consists of 3 parts:
1. Describe target market, planned product positioning, and the sales, market share and profit goals
for the first few years
2. Outline product’s planned price, distribution and marketing budget for the first year.
3. Describe planned long-run sales, profit goals and marketing-mix strategy.
Business analysis- A review of the sales, costs and profit projections for a new product to find
out whether these factors satisfy the company’s objectives. If they do, the product can move to
the product-development stage. It involves the assessment of financial budgets, potential market
and growth rate.
Product development- so far the product only exists on paper. R & D or engineering develops
the product concept into a physical product. It is a strategy for promoting company growth by
offering modified or new products to current market segments; developing the product concept
into a physical product to ensure that the product idea can be turned into a workable product.
Development activities incl. prototype, feasibility testing, preliminary market strategies. This
step involves large investments.
4. Explain the purpose of test marketing and distinguish between standard, controlled and
simulated test markets.
Test marketing –the stage of new-product development in which the product and marketing
program are introduced into more realistic market settings.
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It gives the marketer experience with marketing the product, finding potential problems and
learning where more information is needed before going to the great expense of full introduction.
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The basic purpose is to test the product itself in real market situations.
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It also allows the company to learn how consumers and dealers will react to handling, using and
repurchasing the product.
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Thus a good test market can provide a wealth of information about the potential success of the
product and its marketing program.
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Consumer markets;
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
o
Standard test markets- test the new consumer product in situations like those it would face
in a full-scale launch. The results are used to forecast national sales and profits, to discover
potential product problems and to fine-tune the marketing program.
o
Controlled test markets- several research firms keep controlled panels of stores that have
agreed to carry new products for a fee. The company with the new product specifies the #
of stores and the geo locations it wants. The research firm delivers the product to
participating stores and controls shelf location, amount of shelf space, displays and pointof-purchase promotions and pricing, according to specified plans. Sales results are tracked
to determine the impact of these factors on demand. Take less time than standard test
markets & usually cost less.
o
Simulated test markets- Company or research firm shows a sample of consumers the ads
and promos for a variety of products, incl the new product being tested. The consumers are
given a small amount of money & are invited into a real or lab store where they may keep
the money or use it to buy items. The company notes how many consumers buy the new
product and competing brands. This provides a measure of trial purchase and assesses the
commercial’s effectiveness against competing commercials. Consumers are then asked the
reasons for their purchase or non-purchase. Some weeks later they are interviewed to
determine product attitudes, usage, satisfaction & repurchase intentions.
Business markets; product-use tests.
5. Evaluate the product life-cycle theory, detailing the extent to which you accept the
sequence of the introduction, growth, maturity and decline stages.
Product life cycle- The course of a product’s sales and profits during its lifetime. Each product
has a life cycle marked by a changing set of problems and opportunities. Management’s goal is
to maximise lifetime and sales. Company needs to recover all R&D costs. The sales of the
typical product follow an S-shaped curve made up of 5 stages. Exact shape and length is not
known in advance.
1. The cycle begins with the product development stage when the company finds and develops a new
product idea.
2. The introduction stage is marked by slow growth and low profits as the product is being pushed
into distribution. The new product is first distributed and made available for purchase.
3. If successful, the product enters a growth stage marked by rapid sales growth and increasing
profits. During this stage the company tries to improve the product, enter new market segments
and distribution channels and reduce its prices slightly.
4. Then comes a maturity stage in which sales growth slows down and profits stabilise. The company
seeks strategies to renew sales growth, including market, product and marketing-mix modification.
5. Finally, the product enters a decline stage in which sales and profits dwindle. The company’s task
during this stage is to identify the declining product and decide whether it should be maintained,
harvested or dropped. If dropped, the product can be sold to another firm or liquidated for salvage
value.
Marketers apply it to describe how products and markets work;

Forecasting product performance or for developing m strategies presents some practical problems
53 | M A R K E T I N G F O U N D A T I O N S

Managers may have trouble identifying which stage of the PLC the product is in

Difficult to forecast the sales level at each PLC stage, the length of each stage and shape of the PLC
curve
Yet when used carefully, the PLC concept can help in developing good m strategies for diff stages of
the PLC.

Stage
Introduction





Application
Starts when the new product is first launched
Profits are negative or low bc of low sales and high dist and promotion
expenses
Goals: inform consumers of the new product & get them to try it
Focus selling on those buyers who are the readiest to buy- usually the higherincome groups
Strategy 1: Mgt might launch the new product with a high price and low
promotion spending. High price helps to recover as much gross profit per unit
as possible and low promo spending keeps m spending down.
-Used when: the m is ltd in size, when most consumers in the m know about
the product and are willing to pay a high price and when there is little
immediate potential competition.

Growth









Strategy 2: introduce its new product with a low price and heavy promo
spending. This promises to bring the fastest m penetration and highest m
share.
-Used when: m is large, potential buyers are price sensitive and unaware of
the product, potential comp is strong and the co’s unit manufacturing costs
fall with the scale of production and accumulated manufacturing experience.
Early adopters will cont to buy and later buyers will follow their lead, esp if
they hear favourable word of mouth
Attracted by the opportunities for profit, new competitors will enter the m
They’ll introduce new product features and the m will expand
↑ in comps = ↑ # dist outlets and sales jump just to build reseller inventories
Prices remain where they are or fall only slightly
Companies keep their promo spending at the same or a slightly higher level;
educating the m remains a goal but now the co must also meet the comp
In high-tech m, the early growth stage is typified by niche strategies with
customer-tailored solutions e.g. spreadsheet packages were first targeted at
financial professions only. .
During rapid growth, strategies change towards more mass-market solutions
involving a common standard infrastructure. E.g. enormous growth in laser
and ink jet printers to multi-billion dollar industry led by Hewlett Packard
reflects this. HP geared up for huge production and extended dist channels
and kept driving for lower price points.
Profits increase during this growth stage as promo costs are spread over a
large volume and unit manufacturing costs fall.
54 | M A R K E T I N G F O U N D A T I O N S

The co uses several strategies to sustain rapid m growth as long as possible:
-improves product quality and adds new product features and models.
-enters new m segments and new dist channels.
-shifts some advertising from building product awareness to building
production conviction and purchase
-lowers prices at the right time to attract more buyers.
Maturity

Co faces trade-off bw high m share and high current profit: by spending a lot
on product improvement, promo and distribution, it can capture a dominant
position but it gives up the max current profit in the hope of making this up in
the next stage.

This stage lasts longer than previous stages and poses strong challenges to
marketing management
Most products are in the maturity stage of the PLC
High-tech products require a change in strategy towards more customised
solutions that focus on specific adaptations of the infrastructure for added
value through mass customisation.
M extension occurs through more targeted niche-based strategies e.g. most
marketers of printers target home users with a low-cost ink-jet printer that
automatically connects to a digital camera and even displays digital photos.
Companies such as Brother and HP conduce niche campaigns promoting their
compact, portable printers to appeal to those with ltd space, multifunction
devices for those who do not have a fax, and higher-performance colour
printers for people wanting to create their own promotional material.
Slowdown in sales growth results when many producers have many products
to sell = this overcapacity leads to > competition
Competitors mark down prices, increase their advertising and sales promos
and push up R&D budgets to find better versions of the product. These = drop
in profit.
Some of weaker competitors drop out & eventually the industry contains only
well established competitors
Attack is the best defence so product managers should consider modifying
the market, product and the marketing mix.







1. Market modification:
-co tries to increase consumption of the current product by looking for new
users and new m segments. E.g. Johnson & Johnson targeted the adult m
with its baby powder and shampoo.
-Also look for ways to increase usage among present customers. E.g. Golden
Circle offers recipes and convinces customers that ‘canned fruit is good and
easy to use.’
-May also want to reposition the brand to appeal to a larger or faster growing
55 | M A R K E T I N G F O U N D A T I O N S
segment. E.g. Nescafe appealed to the beach-going segment by offering trials
of iced coffee as a cool and refreshing drink, aiming to increase its usage
beyond rinks at coffee lounges and in cooler weather.
2. Product modification: change a product’s characteristics- quality, features of
style to attract new users and more usage.
3. M Mix modification: prices can be cut to attract new users and competitors’
customers, a better advertising campaign can be launched, aggressive sales
promotion (trade deals, contests etc) can be used, the co can move into
larger m channels using mass merchandisers if these channels are growing
and/or it can offer new or improved services to buyers.
Decline







Decline may be slow e.g. canned foods across the globe or rapid as for VCR
games
Reasons: technological advances, shifts in consumer tastes and increased
competition.
As sales and profit decline, some co’s withdraw from the m. Those remaining
might reduce the # of their product offerings, drop the smaller m segments
and marginal trade channels or cut the promo budget and reduce their prices
further.
Carrying a weak product can be very costly to the firm- profit as well as
hidden costs: it may take up too much of mgt’s time, it often requires
frequent price and inventory adjustments, it requires advertising and
salesforce attention that might be better used to make ‘healthy’ products
more profitable, its failing reputation can cause customer concerns about the
co and its other products.
Biggest cost may lie in the future- keeping weak products delays the search
for replacements, creates a lopsided product mix, hurts current profits and
weakens the co’s foothold on the future.
1st task: for co’s is to identify those products in the decline stage by regularly
reviewing sales, m shares, cost and profit trends
2nd: for each declining product mgt must decide whether to maintain, harvest
or drop it.
-Maintain= brand w/out change in hope that competitors will leave the
industry. Or mgt may decide to reposition the brand in the belief that it will
move back into the growth stage
-harvest= reducing various costs (plant and equipment, maintenance, R&D,
advertising, salesforce) and hoping that sales hold up. If successful, it will ↑
the co’s profits in te short run.
Drop= the product from the line. It can sell it to another firm or simply
liquidate it at salvage value.
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Table 9.6
Summary of product life-cycle characteristics, objectives and strategies
Introduction
Characteristics
Sales
Costs
Profits
Customers
Competitors
Growth
Low sales
Rapidly rising sales
High cost per customer Average cost per
customer
Negative
Rising profits
Innovators
Early adopters
Few
Growing number
Maturity
Decline
Peak sales
Low cost per customer
Declining sales
Low cost per customer
High profits
Middle majority
Stable number,
beginning to decline
Declining profits
Laggards
Declining number
Marketing objectives
Create product
awareness and trial
Maximise market share Maximise profit while Reduce expenditure and
defending market share milk the brand
Strategies
Product
Offer a basic product
Price
Use cost-plus
Distribution
Build selective
distribution
Build product
Offer product
extensions, service,
warranty
Price to penetrate
market
Build intensive
distribution
Build awareness and
Advertising
57 | M A R K E T I N G F O U N D A T I O N S
Diversify brand and
models
Phase out weak items
Price to match or best
competitors
Build more intensive
distribution
Stress brand differences
Cut price
Go selective: phase out
unprofitable outlets
Reduce to level needed
Sales promotion
awareness among early
adopters and dealers
Use heavy sales
promotion to entice trial
interest in the mass
market
Reduce to take
advantage of heavy
consumer demand
and benefits
Increase to encourage
brand switching
to retain hard-core
loyals
Reduce to minimal level
Fads- Fashions that enter quickly, are adopted with great zeal, peak early and decline fast. Tend to
attract only a limited following. Often have a novel or quirky nature.
Fashion- A currently accepted or popular style in a given field. Fashions pass through many stages;
1. A small # of consumers taken in interest in something new to set themselves apart
2. Other consumers become interested out of a desire to copy the fashion leaders
3. The fashion becomes popular and is adopted by the mass market.
Style- A basic and distinctive mode of expression. A style has a cycle showing several periods of
renewed interest.
6. Explain the differences experienced by technology products in the technology adoption cycle.
A variation of the classic life-cycle model is the technology adoption cycle. This refers to the adopted
acceptance pattern of a technology innovation identifying different stages of adoption with different
adopter groups. It highlights the challenge of crossing the chasm from attracting innovators to
attracting early adopters.
1. The early market – a time of excitement, customers are technology enthusiasts and visionaries
2. The chasm-a time of despair, early market’s interest disappears, mainstream m still not accepting the
immaturity of the solutions available
3. The bowling alley-a period of niche based adoption in advance of the general marketplace, driven by
compelling customer needs and willingness of suppliers to design niche-specific whole products.
58 | M A R K E T I N G F O U N D A T I O N S
4. The Tornado-period of mass m adoption, general marketplace switches over to new technology.
5. Main Street- period of further dev, base technology infrastructure has been deployed and goal now is to
extend its potential.
6. End of life- often come very soon with high tech innovations, bc price and performance are driven to
unheard-of levels
8.
Commercialisation
New product
development
Introducing a new product into the market. It involves;

Full scale production

Full scale marketing

Integration into the firm

The company launching a new product must make 4 decisions: when (seasons,
gift-giving times, a lot of products launched at xmas time), where (local area), to
whom (women, mothers, opinion leaders) and how.
The dev of original products, product improvements, product modifications
and new brands through the company’s own R&D efforts.
Speeding up new product development through;
1. Sequential product development- A new product dev approach in which one company department
works individually to complete its stage of the process before passing the new product along to the
next department and stage.
2. Simultaneous product development - An approach to dev new products in which various company
departments work closely together, overlapping the steps in the product dev process to save time
and increase effectiveness.
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CHAPTER TEN: PRICING CONSIDERATIONS AND APPROACHES
1. Discuss how marketing objectives, marketing-mix strategy and costs and other company
factors affect pricing decisions

Price- the amount of money charged for a product or service, or the sum of the values consumers
exchange for the benefits of having or using the product or service.

It is the only element of the m mix that produces revenue, all other elements represent costs

Pricing structure usually covers different items in a firm’s product line

Adjustments of product prices to reflect changing costs and demand and to account for variations
in buyers and situations

the price the co charges will be between 1 that is too low to produce a profit and 1 that is too high
to produce any DD
Marketing objectives
Some of the most common objectives are:





Marketing-mix strategy 
Survival- low price hoping to increase DD
Current profit maximisation- set a price that will max profits
Market-share leadership- maintaining dominance= undercut
competition by setting prices as low as possible
Product-quality leadership- charge a premium (high price to cover
high quality and high cost of R&D)
Other objectives- prices can be set to keep customer loyalty or avoid
gov intervention, can be temporarily reduced to create excitement for
a product or to draw customers into a retail store.
Price decisions must be coordinated with product design, distribution
and promotion decisions to form a consistent and effective m program

Decisions made for other m mix variables may affect pricing decisions
e.g. producers who use many resellers who are then expected to
support and promote their products may have to build larger reseller
margins into their prices

Sometimes the intended price determines what product features can
be offered and what production costs can be incurred. E.g. Yamaha, a
traditional marketer of high-quality specialised music equipment,
designed a mini stereo system to compete with Sony and Phillips. It
had discovered a m segment for affordable stereos and designed
60 | M A R K E T I N G F O U N D A T I O N S
models to sell within the price range the segment was willing to pay.
Here, price was a crucial product-positioning factor that defined the
product’s market, competition and design
Costs

Some firms use ‘target costing’- starts with a target cost and works
back

Often the best strategy is not to charge the lowest price, but rather to
differentiate the m offer to make it worth a higher price

If the product is positioned on non-price factors then decisions about
quality, promotion and distribution will strongly affect price

If price is a critical positioning factor then price will strongly affect
decisions made about other m mix elements

Costs set the floor for the price that the co can charge for its product

The co wants to charge a price that covers all its costs for producing,
distributing and selling the product, and also delivers a fair rate of
return for its effort and risk

Types of costs-fixed costs: don’t vary with production or sales levels
-variable costs: vary directly with the level of production
-total costs: sum of fixed and variable costs for any given level of
production
-production level costs
-costs as a function of production experience: average cost tends to
fall with accumulated production experience (experience curve: the
drop in the average per-unit production cost that comes with acc
production experience)
-organisational considerations: mgt must decide who within the org
should set prices
2. List and discuss factors outside the company that affect pricing decisions &
3. Explain how price setting depends on consumer perceptions of price and on the pricedemand relationship
1. THE MARKET AND DEMAND

Pricing in diff types of markets:
o Pure comp- m consists of many buyers and sellers with having little influence on m price.
Trading of uniform commodity. E.g. wheat, vegetables, fin securities.
61 | M A R K E T I N G F O U N D A T I O N S
o
o
o
Monopolistic comp- many buyers and sellers, range of prices occurs bc sellers can
differentiate their offers to buyers.
Oligopolistic comp- few sellers who are highly sensitive to each other’s pricing and m
strategies. Product can be uniform (aluminium, acid) or non-uniform (food processors, cars).
It is difficult for new sellers to enter the m.
Pure monopoly- a single seller. E.g gov monopoly- Aus Post. Pricing is handled differently in
each case.

Consumer perceptions of price and value:
o In the end, the consumers will decide whether a product’ price is right
o Effective buyer-oriented pricing involves understanding how much value consumers place
on the benefits they receive from the product and then setting a price that fits this value
o Bc consumers vary in the values they assign to different product features, marketers often
vary their pricing strategies for different price segments. They offer diff sets of product
features at different prices.

Analysing the price demand relationship:
o Each price charged by a co will lead to a diff level of DD
o DD curve- shows the # of units the m will buy in a given time period, at diff prices that might
be charged
o Normally, DD and price are inversely related= higher price=lower DD.
o Luxury goods DD curve slopes upwards (direct rship)
o Impact of non-price factors on DD are shown through shifts in the DD curve rather than
movements along it
 E.g. Dairy Farmers Thick and Creamy Yoghurt- increased product quality

Price elasticity of DD:
o Price elasticity- a measure of the sensitivity of DD to changes in price
 Formula- % change in quantity demanded
% change in price
o Inelastic DD- DD hardly changes with a small change in price
 the less elastic the DD, the more it pays for the seller to raise the price
o Elastic DD- DD changes greatly with a change in price
 If DD is elastic, sellers will consider lowering their price
 A lower price will produce more total revenue
o buyers are less price sensitive when:
 the product they are buying is unique or when it is high in quality, prestige or
exclusiveness e.g. antique car, art, first class airlines.
 substitute products are hard to find or when they cant easily compare the quality of
substitutes e.g insurance policies, mobile phone plans.
 the total expenditure for a product is low relative to their income or when the cost
is shared by another party
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2. COMPETITOR’S PRICES AND OFFERS




the co’s pricing strategy may affect the nature of the comp it faces e.g. if Timex follows a high-price,
high-margin strategy, it may attract comp.
the co needs to learn the price and quality of each comp’s offer
4. OTHER EXTERNAL FACTORS
Economic conditions- economic factors- inflation, boom or recession and IR affect pricing decisions
bc they affect the costs of producing a product and consumer perceptions of the product’s price and
value
Gov- laws affecting price.
o Trade Practices Act- prohibits price fixing, resale price maintenance and forms of price
discrimination as well as predatory pricing by monopolistically positioned competitors and
deceptive pricing
o ACCC- plays a major role in investigating possible breaches
5. Compare the four general pricing approaches
I.


Cost-based pricing (product-driven)
Cost-plus pricing: adding a standard markup to the cost of the product (simplest method). E.g.
construction companies.
o
Mark-ups are smallest on staple goods and high on products such as fresh chicken,
seasonable items and perishables, specialty items, slower moving items, items with high
storage and handling costs and items with inelastic DD.
o
Mark-up pricing only works if that price actually brings in the expected level of sales.
o
Key reasons for popularity: increased certainty, minimise price comp & perceived fairness
Breakeven analysis and target profit pricing: setting price to breakeven on the costs of making and
marketing a product or to make the desired profit.
o
Used by many Aus importers; and by public utilities which are constrained to make a fair
return on their I.
o
Uses the concept of a breakeven chart which shows the total cost and total revenue
expected at diff sales vol levels.
63 | M A R K E T I N G F O U N D A T I O N S
II.
o
As price increases, breakeven vol drops. It is imp to consider the analysis in a competitive
context.
o
Breakeven volume = fixed cost / (unit sell price – unit variable cost)
Value-based pricing

Setting price based on buyers’ perceptions of value rather than on the seller’s costs

E.g. various prices diff restaurants charge for the same items due to the value added by the
atmosphere and service

Co uses non-price variables in the m mix to build up perceived value in the buyer’s mind
III.
Competition-based pricing

Economic value pricing: costs perceived by customers extend well beyond trhe price charged (eg
may incl installation costs). Equip purchases are evaluated over their economic lives and
comparisons bw competitors go beyond straight price assessment. Thus, moving away from price
comparisons to differentiating products on the basis of economic value to customers. E.g. aircraft
tyre manufacturer prices its tyres on basis of cost per one hundred landings instead of cost per tyre.

Going-rate pricing: setting price based largely on following competitors’ prices rather than on co
costs or DD. In oligopolistic industries that sell a commodity such as steel co’s normally charge the
same price. Is quite popular.

Sealed-bid/tenders: setting price based on how the firm thinks competitors will price rather than its
own costs or DD- used when a co bids for jobs.
IV.

Relationship Pricing (not important!)
Concerned with managing customer expectations and the rship so that a continuous stream of
transactions results and the lifetime value of each customer is optimised.
6. Describe the major strategies for pricing new products
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1. Market skimming pricing: setting a high price for a new product to skim max revenue from the
segments willing to pay the high price; the co makes fewer but more profitable sales. E.g. Apple
adopted this with the release of its iPod MP3 player. It is effective when:
o
The product’s quality and image are consistent with a high price
o
There are enough buyers to purchase the product at that price
o
the costs of producing a small vol are not so high that there is an inadequate margin
o
when the firm has a new product that is patent-protected like many new ethical drugs or
contains design benefits that aren’t easily emulated by competitors
2. Market penetration pricing: setting a low price for a new product in order to attract a large number
of buyers and a large market share. E..g Microsoft, warehouse stores and discount retailers use it.
Several conditions favour setting a low price:
o
M must be sensitive to diff price levels so that a low price produces more rapid m trial and
more m growth
o
Production and dist costs fall as sales vol increases
o
Low price may help to keep out or delay comp
o
Adopted for many FMCG bc they are e.g. of continuous innovation
Pricing for an imitative new product is rather difficult: position on quality or price?
7. Comprehend the way in which companies establish a set of prices that maximises the
profits from the total product mix
The strategy for setting a price on an offer has to be changed when the product is part of a mix.
Pricing is difficult bc the various g/s have related DD and costs and face different degrees of
comp.
Strategy
Description
Product/service line pricing
Setting the price steps bw various products in a product line,
based on cost differences bw the products, customer
65 | M A R K E T I N G F O U N D A T I O N S
evaluations of different features and competitors’ prices.
Optional produce/service
pricing
Pricing of optional or accessory products along with a main
product. E.g. car companies must decide which items to build
into the base price and which to offer as options.
Captive product/service
pricing
Pricing of products that must be used along with a main product
such as blades for a razor or film for a camera. Also ink
(consumables) for inkjet printers (captive products).
Two-part pricing: a strategy for pricing services in which
price is broken into a fixed fee plus a variable usage rate.
By-product pricing
Setting a price for by-products in order to make the main
product’s price more competitive. E.g. in the production of
processed meats, petroleum products, chemicals and other
products, there are often by products. The manufacturer will
seek a market for these by products and should accept any price
that covers more than the cost of storing and delivering them.
This allows the seller to reduce the main product’s price to
make it more competitive.
Product-bundle pricing
Combining several products and offering the bundle at a
reduced price. E.g. sport teams sell season tickets.
8. Explain how companies adjust their prices to take into account different types of
customers and situations
Companies apply a variety of price-adjustment strategies to account for differences in consumer
segments and situations;

Discount pricing allowances- co est cash discounts, quantity discounts, functional discounts,
seasonal discounts and allowances.

Segmented pricing- co sets different prices for different customers, product forms, places or times.
E.g. toothpaste tubes vs. pumps, train fares for seniors, students, children, Happy Hour.

Psychological pricing- co adjusts the price to communicate more effectively a product’s intended
position.

Promotional pricing- co decides on loss-leader pricing (supermarkets), special event pricing and
psychological discounting.

Value pricing- co offers just the right combination of quality and good service at a fair price.

Geographic pricing- co decides how to price to distant customers, choosing from such alternatives
as FOB pricing, uniform delivered pricing, zone pricing, basing-point pricing and freight-absorption
pricing.
66 | M A R K E T I N G F O U N D A T I O N S

International pricing- co adjusts its price to meet diff conditions and expectations in diff world
markets.
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CHAPTER ELEVEN: PLACEMENT
Placement – covers many concepts including physical distribution, location, channels of
distribution and logistics management. The appropriate assortment of products must be in the
right place, at the right time and in the right condition to maximise customer satisfaction.
Logistics is an area of potentially high cost savings and improved customer satisfaction.
Traditionally, management focused on the physical distribution of goods. Now it focuses on the
logistics of making and distributing products.
1. Describe the nature of marketing logistics network management
Marketing logistics network - system of efficiently and effectively making and getting
products and services to end-users. It involves coordinating the activities of the entire chain to
deliver maximum value to customers. It begins earlier than physical distribution and includes;

Procuring inputs (raw materials, K equipment)

Conversion of these to finished products &

Conveying them to end users
No such network can both maximise customer service and minimise logistics costs. Instead, the
goal of marketing logistics management is to provide a targeted level of service at an
affordable cost, where the customer perceives value. Marketing logistics networks management
also entails managing marketing distribution channels; the major functions include effective
and efficient conversion operations, order processing, warehousing, inventory management and
transportation.
Marketing Logistics Decisions includes making trade-offs to meet customer’s service
requirements;
1. Cycle time reductions
5. Order processing and costs
2. Conversion operations location
6. Warehouse numbers and costs
3. Purchasing decisions
7. Inventory levels and costs
4. Manufacturing and operations process
decisions
8. Transport type and costs
9. Restructure the marketing channels
There is a critical interaction bw logistics & each of the firm’s marketing functions & this
requires careful coordination.



Product variations may impose a burden on distribution facilities
Promo campaigns must realistically coordinate with potential logistics delivery
Pricing may be the firm’s differential advantage based on superior logistical service
2. Describe the nature of marketing channels and explain why marketing intermediaries are used
68 | M A R K E T I N G F O U N D A T I O N S
Marketing channels refer to a network of interdependent organisations (or intermediaries)
involved in the process of making a product or service available for use or consumption by the
consumer or industrial user. The functions of marketing channels are:
1.
2.
3.
4.
5.
6.
7.
8.
Information; gathering and distributing marketing research and intelligence
Promotion; developing and spreading communications about an offer
Contact; finding and communicating with prospective buyers
Matching; shaping & fitting the offer to the buyer’s needs, incl such activities as manufacturing,
grading, assembling and packaging
Negotiation; reaching an agreement on price and other terms of the offer
Physical distribution; transporting and storing goods
Financing; acquiring & using funds to cover the costs of the channel work
Risk taking; assuming the risks of carrying out the channel work
Intermediaries are organisations linking producers to other intermediaries or to the customer
through contractual arrangements to purchase and resale products. They are used because of:






Cost
Increased coverage
Consumer convenience
Customized approaches to customer needs
> efficiency
Improved marketing effort
Marketing intermediaries can reduce the overall costs of market exchanges by efficiently
performing certain functions.
3. Explain the organisation and behaviour of marketing channels
Marketing channels are complex behavioural networks in which people and companies interact
to accomplish individual, company and channel goals. Some channel networks consist only of
informal interactions among loosely organized firms; others consist of formal interactions
guided by strong organisational structures. Channel networks do not stand still, new types of
intermediaries surface and whole new channel networks evolve.
Marketing distribution channel decisions are among the most complex and challenging
decisions facing the firm. Each channel network creates a different level of sales and costs. Once
a marketing channel has been chosen, the firm must usually stick with it for a long time. The
chosen channel strongly affects, and is affected by, the other elements in the marketing mix.
A marketing channel consists of dissimilar firms that have banded together for their common
good. Ideally, because the success of individual channel members depends on overall channel
success, all channel firms should work together smoothly. By cooperating, they can more
effectively sense, serve and satisfy the target market. Although channel members are dependent
on one another, they sometimes act alone in trying to meet their own short-run best interests.
This may result in channel conflict - a disagreement among marketing channel members on
goals and roles- who should do what and for what rewards.
69 | M A R K E T I N G F O U N D A T I O N S
 Horizontal conflict- conflict between firms at the same level of the channel (ie communication
difficulties inhibit coordination) e.g. Franchisees of large fast food chains might complain about
the pricing practices of other franchisees in the same image chain.
 Vertical conflict- even more common and refers to conflicts between different levels of the
same channel. E.g. when Kmart started in Australia, some paint manufacturers were wary about
supplying them with the manufacturer’s branded product because of the potential backlash
that would occur from other retailers who stocked the brand.
 Some conflict may be in the form of healthy competition.
Marketing channels in the services context;

Experiences aren’t shipped or moved but in this context consider
o Physical facilities for delivery
o Location
o Direct distribution vs. channels
o Web-based delivery, contact centres, etc.
The channel will perform better if it contains a company, agency or mechanism that has the
power to assign roles and manage conflict. In recent years, new types of channel organisations
have appeared that provide stronger leadership and improved performance.
Conventional marketing channel: consists of one or more independent producers or
suppliers, wholesalers or retailers where each is a separate business seeking to maximize its
own profits, even at the expense of profits for the network as a whole.
Vertical marketing
Horizontal marketing
Hybrid marketing channel
networks (VMN):
networks
networks (aka multichannel
networks)
A
distribution
channel A channel arrangement in Multichannel
distribution
structure in which producers, which 2 or more companies at systems in which a single firm
wholesalers and retailers act one level join together to sets up 2 or more marketing
as a unified network- one follow a new marketing channels to reach one or
channel member owns the opportunity.
more marketing segments.
others, has contracts with
them or wields so much power  Companies might join forces  Benefit- > sales as multiwith competitors and nonconsumer segments are
that they all cooperate.
Can be dominated by the 
retailers, wholesaler or
producers.
 They achieve economies
through size, bargaining
power and elimination of
duplicated services.
 3 major types:
1. Corporate VMNs-combines
successive
stages
of
production & distribution
under single ownership.
2. Contractual VMNs- consists
of independent firms at

competitors.
Usually formed to move into 
new markets (esp. global
markets)
70 | M A R K E T I N G F O U N D A T I O N S

reached
Risks- may offend existing
channel members who cry
‘unfair
competition,’
channel
members
are
sometimes compensated by
exclusive
or
special
allowances.
E.g. Inghams sells dressed
chicken portions to KFC as
well as to a myriad of
independent
take-away
food shops and also sells
breaded portion-controlled
chicken products to every
different
levels
of
production & distribution
who join together through
contracts to obtain more
economies or sales impact
than they could achieve
alone. 3 types of contractual
include;
wholesalersponsored voluntary chains
(networks
in
which
wholesalers
organize
voluntary
chains
of
independent retailers to
help them compete with
large
orgs),
Retailer
cooperatives (networks in
which retailers organize a
new, jointly owned business
to carry on wholesaling and
possibly production) &
franchise organisations (a
channel member called a
‘frachisor’ links several
stages in the productiondistribution
process. It
includes
manufacturersponsored retailer franchise
networks,
manufacturersponsored
wholesaler
franchise
networks
&
service-firm-sponsored
retailer franchise networks).
3. Administered
VMNscoordinates
successive
stages of production &
distribution through the size
and power of one of the
parties.
part of the food services
industry, incl McDonald’s
and KFC.
It has been argued that the Web will revolutionise the distribution of marketing channels by;










Rebuilding the supply chain
Transforming or obliterating channels
Speedily conveying and receiving information
Improving communication with channel members
Allowing firms to reach distant parts of the world
Providing customers with the option of worldwide vendors
Providing services instantaneously across international borders
Offering web-enhanced services for each distribution function
Cheaper channels
Establishing LT relationships
71 | M A R K E T I N G F O U N D A T I O N S
4. Discuss traditional & online store retailing and the different ways of classifying stores: by amount of
service provided, breadth and depth of the product line, relative price levels, control of outlets and
type of store cluster.
Retailing includes all activities involved in selling g/s directly to final consumers for their
personal, non-business use. Retailers can be classified as store retailers and non-store retailers.
Although most g/s are sold through ‘bricks and mortar' stores, direct and online forms of
retailing have seen rapid growth. This was followed by a falling away as mistakes were made
due to initial stock market support for, and then a retreat from, flawed business models for online
intermediaries.
Retailing classifications:
1. Amount of service


2. Product line(s) sold
and customer service
Self Service Technologies (SSTs): technological interfaces that allow
customers to create services themselves, without direct assistance from
service personnel. E.g. automated hotel check-in and check-out
facilities, ATMs, self-service kiosks, retail self scanners & internetbased tools such as self-booking services (flights). Adv – cost
reduction, offer consistent service & don’t have to I money and time in
training. Dis- v impersonal.
Retailers can be classified by the length and breadth of their product
assortments:








3. Relative prices
Diff products needs diff amounts of service
preferences vary.
Three levels of potential service;
o Self service retailer
o Limited service retailer
o Full service retailer
Specialty stores
Department stores e.g. David Jones
Combination stores e.g. Woolies and Liquorland
Supermarkets
Convenience stores
Mass merchants e.g. Bunnings
Hypermarkets
Service businesses
Most retailers charge regular prices and offer normal quality goods and
customer service. Some offer higher quality g/s at higher prices.
Retailers which feature low prices are:
72 | M A R K E T I N G F O U N D A T I O N S



4. Control of outlet





5. Type
of
cluster
Discount stores – sells standard merchandise at lower prices by
accepting lower margins & selling at higher volume.
Off price retailers – retailers that buy at < retail, usually carry a changing
and unstable collection of higher-quality merchandise, often left over
goods, overruns and irregulars obtained from manufacturers at reduced
prices. E.g. factory outlets.
Catalogue showrooms – a retail operation that sells a wide selection of
high mark-up, fast-moving brand name goods at discount prices.
Corporate chains – 2 or more outlets that are commonly owned &
controlled, employ central buying and merchandising & sell similar lines
of merchandise.
Retailer cooperatives – a group of independent retailers that band
together to set up a jointly owned central wholesale operation and
conduct joint merchandising and promotion efforts.
Voluntary chains- a wholesaler-sponsored group of independent
retailers that engages in group-buying and common merchandising.
Franchise organisations – a contractual association between a
manufacturer, wholesaler or service organisation (the franchisor) and
independent business people (franchisees) who buy the right to own
and operate 1 or more units in the franchise system.
Merchandising conglomerates- companies that combine several
different retailing forms under central ownership and share some
distribution and management functions.
store Most stores cluster to increase their customer pulling power & to give
consumers the convenience of one-stop shopping. Main types are;


CBD – the area of business at the heart of a city or town
Shopping centre- a group of retail businesses planned, developed,
owned and managed as a unit.
Community shopping centre- a centre containing 15-50 retail stores &
even a branch of a discount department or variety store, a supermarket,
specialty stores, professional offices & sometimes a bank.
Strip community centre- a group of retail businesses located along an
arterial road.
5. Compare the different types of wholesalers, including full-service and limited-service
merchant wholesalers, brokers & agents, & manufacturers’ sales branches.
Wholesaling includes all the activities involved in selling goods or services to those who are
buying for the purpose of resale or for business use. Wholesalers perform many functions,
including;
1.
2.
3.
4.
5.
6.
7.
8.
selling and promoting
buying and assortment building
bulk breaking, warehousing
transporting
financing
risk bearing
supplying market information
Providing management services and advice.
73 | M A R K E T I N G F O U N D A T I O N S
Types of wholesalers:
1. Merchant
wholesalers



2. Brokers
agents
Ind owned businesses that take title to the merchandise they
handle
Largest single group of wholesalers
Include:
o Full service wholesalers- provide a full set of services
o Limited service wholesalers- cash & carry wholesalers
(fish markets), truck wholesalers (food vans that go to
hospitals), drop shippers (at wharf sites inv dropped in),
rack jobbers (serve grocery and pharmaceutical retailers),
producers’ cooperatives (assemble farm produce to sell
in local markets) & mail order wholesalers.
and Broker
A wholesaler who does not take title to goods and whose
function is to bring buyers and sellers together and assist in
negotiation.


Are paid by the parties hiring them
Do not carry inv, get involved in financing or assume risk
Agent
A wholesaler who represents buyers or sellers on a more
permanent basis, performs only a few functions and does not
take title to the goods.

Types of agents include;
o Manfacturer’s agent
o Selling agent
o Purchasing agent
o Commission merchant

They are paid a commission for aiding buying and selling.
3. Manufacturers’ Wholesaling by sellers or buyers themselves rather than through
sales branches independent wholesalers.
& offices
 Manufacturer’s often set up their own sales branches and offices
to improve inv control, selling & promotion
 Sales branches carry inv & are found in such industries as timber
and car equipment & parts
 Some large retailers set up purchasing offices in major market
centres elsewhere in the world. These purchasing offices perform
a role similar to that of brokers or agents but are part of the
buyer’s org.
6. Explain the wholesaler marketing decisions of target market and positioning and
marketing-mix decisions, and describe trends in wholesaling.
Trends in wholesaling;


Consolidation will reduce the # of firms in the industry
The remaining wholesalers will grow
74 | M A R K E T I N G F O U N D A T I O N S




Distributors will need to learn how to compete effectively over wider and more diverse
areas
The increased use of technology will help management
The distinction between large retailers and wholesalers will continue to blur
Wholesalers will continue to increase their services to retailers: pricing, advertising,
information etc.
75 | M A R K E T I N G F O U N D A T I O N S
CHAPTER TWELVE: IMC 1: ADVERTISING & PUBLIC RELATIONS
1. Describe integrated marketing communication (IMC) and classify IMC media,
tools and technologies.
IMC- the concept under which a company carefully integrates and coordinates its
many communication channels to deliver a clear, consistent and compelling message
about the org and its products. It aims to most effectively meet objectives such as to
inform, persuade and remind consumers as well as to reinforce their attitudes and
perceptions.
It entails coordinating the org’s promotional efforts using major communication
elements such as





Advertising
Sales promotion
PR
Direct and online marketing
Personal selling
Table 12.1
A classification of integrated marketing communication media, tools and technologies
Integrated marketing communication
category
Mass communication
Targeted communication
In-store communication
One-to-one communication
Media, tools and technologies
Advertising via FTA-TV; radio; newspapers; magazines; outdoor;
cinema; cooperative advertising; motion pictures. With or without sales
promotion incentives.
-to a large diverse market
Pay-TV (satellite, cable and narrowcast microwave TV with no backchannel); home shopping (FTA-TV or pay-TV); public relations; doorto-door selling; catalogues; telephone directories (Yellow Pages); events
(Formula One championship); sponsorships; mobile and static trade
exhibitions; automatic vending machines. With or without sales
promotion incentives.
-to more specific groups.
Retail counter selling; merchandising; location-TV and radio (narrowcast
or closed); aisle displays; electronic aisle messaging; point-of-purchase
media (e.g. trolley advertising); packaging. With or without sales
promotion incentives.
-at point of purchase, throughout store, at end of aisles
Database marketing in all its forms: direct mail; interactive TV;
telemarketing (telephone or fax); telesales; electronic dispensing and
kiosks; direct selling (home and office); online value transformation.
With or without sales promotion incentives.
2. Outline the steps in developing IMC including identifying the target audience, and
determining the response sought.
76 | M A R K E T I N G F O U N D A T I O N S
1. Sender-Party sending the message to another party
2. Encoding-Process of putting thought into symbolic form
3. Message-Set of symbols that the sender transmits-the actual advertisement
4. Media- Communication channels through which the message moves from sender to
receiver
5. Decoding-Process by which the receiver assigns meaning to the symbols encoded
by the sender-a consumer watches the ad and interprets the words and illustrations it
contains
6. Receiver-Party receiving the message sent by another party-the consumer who
watches the ad.
7. Response-Reactions of the receiver after being exposed to the message-any of
hundreds of possible responses.
8. Feedback-Part of the receiver's response communicated back to the sender.
9. Noise- Unplanned static or distortion during the communication process that results
in the receiver getting a different message from the one which the sender sent
Identifying the Target audience:
M communicator starts with a clear target audience in mind. Audience may be
potential buyers or current users, those who make the buying decision or those who
influence it. Audience may be ind, groups, special publics or the general public
Determining response sought:
The m communicator needs to know where the target audience now stands and to
what state it needs to be moved. The target audience may be in any of 6 buyerreadiness states:
1. Awareness-of the product or org. May be through simple name recognition. This process
can begin with simple messages repeating the name.
2. Knowledge- effective communicators need to learn how many people in their t audience
have little, some or much knowledge about the product or org.
3. Liking- if the audience looks unfavourably on the org or its products, the communicator
must learn why and then dev a m communication campaign to create favourable
feelings.
4. Preference- communicators must try to build consumer preference, promoting the
product’s quality, value, performance and other features.
5. Conviction- the communicator’s job is to build conviction that taking the next step and
buying the brand is the right thing to do.
6. Purchase- communicator must lead consumers to take the final step. Actions might incl
offering the product at a low price, offering a premium or letting consumers try it on a
limited basis.
3. Describe the communication process: selecting a message, selecting the media,
selecting a message source and collecting feedback.
77 | M A R K E T I N G F O U N D A T I O N S
Selecting a message:

Ideally the message should (AIDA model):
o Get ATTENTION
o Hold INTEREST
o Arouse DESIRES
o Obtain ACTION

Message content- the communicator has to work out an appeal or theme that will
produce the desired response:
o Rational appeals- relate to the audience’s self-interest. Show that the product
will produce the desired benefits. E.g. car ads- price, features
o Emotional appeals- attempt to stir up either – or + emotions that can motivate
purchase. E.g. fear, guilt, shame.
o Moral appeals- directed to the audience’s sense of what is right and proper. E.g.
social causes, “save the world.”

Message structure- communicator must decide
o Whether to draw a conclusion or leave it to the audience (principle of closure)
o Whether to present a one-sided or two-sided argument (one-sided usually more
effective)
o Whether to present the strongest arguments first or last

Message format- need a strong format to effectively deliver the message. This varies in
print, radio and TV mediums.
Selecting the media:
There are two broad types of communication channels the communicator can select
from:

Personal communication channels – channels, through which two or more people
communicate directly with each other, including face-to-face, person-to-audience, over
the telephone or through the mail. Also, word-of-mouth and opinion leaders.

Non-personal communication channels – media that carry messages without personal
contact or feedback, including media (print media, broadcast media and display media),
atmosphere (designed environments that create or reinforce the buyers leanings
towards buying a product) and events (occurrences staged to communicate messages to
target audiences).
Selecting the message source:




Message’s impact on the audience is also affected by how the audience views the
sender
Messages delivered by highly credible sources are more persuasive
E.g. marketers hire well-known actors and athletes to deliver their messages
Three factors most found in a credible source are expertise, trustworthiness and
likeableness
Collecting Feedback:

After sending the message the communicator must gauge its effect on the target
audience
78 | M A R K E T I N G F O U N D A T I O N S


This involves asking the target audience whether they remember the message, how
many times they saw it, what points they recall, how they felt about the message, and
their past and present attitudes towards the product and company.
The communicator would also like to measure behaviour resulting from the message
4. Define the ways of setting an integrated marketing communication budget:
affordable, percentage-of-sales, competitive parity and objective-and-task methods.
Method used
to set total
advertising
budget
1. Affordable
method
2. % of sales
method
Definition
Advantages

Setting the promotion
budget at what
management thinks the
company can afford.
They begin with the
total revenues, deduct
operating expenses and
capital outlays, and then
devote some portion of
the remaining funds to
the IMC element in
question.
Setting the promotion
budget at a certain % of
current or forecast sales
or of the sales price. E.g.
car companies usually
budget a fixed % for IMC
based on the planned car
price.




79 | M A R K E T I N G F O U N D A T I O N S
Disadvantages
Spending is
likely to vary
with what the
company can
afford
Helps
management to
think about the
relationship
between
marketing
communication
spending,
selling price and
profit per unit
It supposedly
creates
competitive
stability
because
competing firms
tend to spend
about the same
% of their sales
on IMC





ignores the
effect of
marketing
communication
on sales volume,
leading to an
uncertain annual
IMC budget,
which makes
long range
market planning
difficult.
often results in
underspending.
It wrongly views
sales as the
cause of IMC
rather than the
intended result.
The budget is
based on
availability of
funds rather
than on
opportunities.
It may prevent
the increased
spending
sometimes
needed to turn
around falling
sales.
Because the
budget varies
with year to
year sales, long
range planning
is difficult.
It does not

3. Competitive Setting the promotion
Parity
budget to match
Method
competitors’ outlays.
provide any
basis for
nominating a
specific %,
except what has
been done in
the past or what
competitors are
doing.
Neither
argument is
valid.
Two arguments support
this method:
1. Competitors budgets
represent the
collective wisdom of
the industry
2. Spending what
competitors spend
helps prevent
promotion wars
4. Objective
and task
method
Developing the
promotion budget by
1. Defining specific
objectives
2. Determining the tasks
that must be
performed to achieve
those objectives
3. Estimating the costs
of performing these
tasks. The sum of
these costs is the
proposed promotion
budget

makes mgt spell
out its
assumptions
about the
relationship
between dollars
spent and IMC
results

is the most
difficult method
to use.
5. Explain IMC media, tools and technologies – advertising, PR, direct and online
marketing, sales promotion and personal selling – and the factors involved when
setting the IMC program; type of product and market, push vs pull strategies, buyerreadiness states and lifecycle stage.
IMC media, tools and technologies
Orgs need to divide budget among major marketing communication categories,
specific media, tools and technologies. Mix of marketing communication needed to
achieve marketing objectives defers greatly between companies, even those within the
same industry.
Tool
Advertising 
Adv
Advertising’s public nature suggests 
that the advertised product is standard
and legitimate.

80 | M A R K E T I N G F O U N D A T I O N S
Dis
it is impersonal and can’t be as
persuasive as a company sales person.
Is asynchronous communication (able

PR
Direct and
Online
Marketing
Sales
Promotion
Lets the seller repeat a message many
times and it lets the buyer receiving
compare the messages of various 
competitors.
 Very expressive, letting the company
dramatise its products through the
artful use of print, sound and colour.
 Can be used to build up a long term
image of a product and also to trigger
quick sales.
 Can reach masses of geographically
spread out buyers at a low cost per
exposure.
 Believability is higher to readers than
ads
 Can reach many prospects who avoid
sales people and ads
 Like advertising PR can dramatise a
company or product
E.g. scattergram dropped in post office 
boxes, mailouts left in household
letterboxes addressed to the
householders by name
There is a very large privacy issue
when we look into the means by which
direct marketers gain their database
info, who they sell it to and how it is
used

SMEs make up 90% of business firms in
Australia and given their lower costs of
direct marketing, this aspect of
promotion has been keenly adopted

Attracts consumer attention and
provides info that may lead the
consumer to buy the product
The offer strong incentives to
purchase with inducements or
contributions that give additional
value to consumers
They invite and reward quick response
Can be used to dramatise product
offers and boost sagging sales

Sales promotion efforts are usually
short-lived and may not be effective in
building long run brand preference
oral presentation in a conversation with
one or more prospective purchasers for
the purpose of making sales.

Requires a longer term commitment
than advertising
Is the companies most expensive IMC
tool



Personal
Selling
to carry on only a one-way
communication with the audience).
Can be very costly.



Involves personal interaction between
2 or > people so each person can
observe the other’s needs and
characteristics and make quick
adjustments
Also lets relationships spring up
The buyer usually feels a > need to
respond and listen
81 | M A R K E T I N G F O U N D A T I O N S

Factors involved when setting the IMC program



















Type of product and market
Consumer goods companies spend most on advertising then sales promo, then
personal selling, followed by PR
B2B of industrial goods spend most on personal selling, followed by sales promo,
advertising and PR
Personal selling is more heavily used with expensive and risky goods and in markets
with fewer and large sellers
Push versus pull strategy
Push strategy is a promotion strategy that calls for using the salesforce and trade
promo to push the product through channels; the producer promotes the product to
wholesalers, the wholesalers promote to retailers and the retailers promote to
consumers
Pull strategy is a promo strategy that calls for spending a lot on advertising and
consumer promo to build up consumer demand; if successful, consumers will ask
their retailers for the product, retailers will ask the wholesalers and wholesalers will
ask the producers
Most large companies use a combination of both. Recently, consumer goods
companies have been decreasing the pull portions of their IMC mixes
Buyer-readiness state
Advertising and PR play major roles in awareness and knowledge states
Customer liking, preference and conviction are more affected by personal selling
and advertising
Closing the sale is mostly done with direct marketing, sales calls and sales promo
Product lifecycle stage
Intro – advertising, direct marketing, online marketing and PR are good for
producing high awareness.
Early trial – sales promo is useful.
Personal selling must be used to get the trade to carry the product.
Growth stage – advertising, direct marketing, online marketing and PR continue to
be powerful but sales promo can be reduced.
Mature stage – sales promo becomes more important relative to advertising.
Decline stage – advertising kept at a reminder level, PR is dropped and sales people
give the product only a little attention. Sales promo might continue to be strong.
82 | M A R K E T I N G F O U N D A T I O N S
6. Describe the nature of media advertising, including the major decisions involved:
advertising budget, setting strategy, creative execution, media selection and
evaluation in terms of communication and sales outcomes.
Setting Objectives



Advertising objectives should be based on past decisions about the target market,
positioning and marketing mix. The marketing positioning and mix strategies define the
job that advertising must do in the total marketing program.
Advertising objective- a specific communication task to be accomplished with a specific
target audience during a specific period of time
Different types of advertising
o Informative advertising- used when introducing a new product category,
objective is to build primary demand
o Persuasive advertising- more important as comp increases, objective to build
selective demand. Some has become comparative advertising which compares
one brand with one or more other brands
o Reminder advertising- important for mature products, keeps consumers
thinking about the product
Setting the Advertising Budget



Factors that should be considered when setting a budget are
o Stage in product lifecycle
o Market share
o Competition and clutter
o Advertising frequency
o Product differentiation
Budget to be set for each product
Role of advertising is to affect demand for a product. Company wants to spend the
amount needed to achieve the sales goal.
Advertising Strategy



Consists of creating advertising messages and selecting advertising media
Large advertising budget doesn’t guarantee a successful advertising campaign
Typical message execution styles
o Slice of life- shows people using product in a normal setting
o Lifestyle- shows how a product fits in with a lifestyle
o Fantasy- creates a fantasy around the product or its use
o Mood or image- builds one around the product
o Musical- shows people or cartoon characters singing a song about the product
o Personality symbol- creates a character that represents the product
o Technical expertise- shows companies expertise in making the product
o Scientific evidence- presents scientific evidence that the brand is better or
better liked than another
o Testimonial evidence- features believable or likeable source endorsing the
product
Media Selection:

Four major steps in media selection are
o Deciding on reach, frequency and impact
o Selecting major media types
o Selecting specific media vehicles
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o
Deciding on media timing
Advertising Evaluation:

Communication effects
o Measuring the communication effect tells whether an ad is communicating
well. Called copy testing, it can be done before or after an ad is printed or
broadcast.
o Three major methods of advertising pre-testing are direct rating, portfolio
tests and lab tests.
o Two popular methods of post testing advertisements are recall tests and
recognition tests.

Sales effects
o One way to measure is to compare past sales with past advertising
expenditures.
7. Define public relations and outline the more common forms of this IMC tool.
PR – building good relations with the companies various publics by obtaining
favourable publicity, building up a good corporate image and handling or heading off
unfavourable rumours, stories and events. It is a form of major mass communication
tool. Major PR tools include press relations, product publicity, corporate
communication, lobbying and counselling.







News- some occur naturally or PR person can suggest events/activities that would create
news
Speeches-create product and company publicity
Special events- news conferences, press tours, grand openings and fireworks to laser
shows that will reach and interest target publics
Written materials- annual reports, brochures, articles and company newsletters and
magazines
Audiovisual materials- slide shows, films
Corporate identity materials- logos, stationary, brochures, signs, business cards,
uniforms, company cars
Community service activities- to improve public goodwill
8. Explain the need for socially responsible marketing communication and how this is
achieved.
Advertising:


Companies must avoid false or deceptive advertising
Sellers must avoid bait-and-switch advertising that attracts buyers under false
pretences
Personal Selling:

Companies must ensure their sales people follow the rule of fair competition
Direct and Online Marketing:



Marketers and customers usually enjoy mutually rewarding relationships
Unfairness, deception and fraud are the dark side that may emerge
Growing concerns about invasion of privacy issues.
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CHAPTER THIRTEEN: IMC 2: SALES PROMOTION AND PERSONAL SELLING
1. Describe sales promotion tools and techniques that may be used to create
immediacy and close sales, as well as reward loyal customers
Sales promotion- short term incentives to encourage purchase of a product or
service; act of influencing customer perception and behaviour to build market share
and sales which reinforces brand image. They are value-adding tools used to prompt
an immediate sale by adding urgency. May take many forms depending on the
objectives to be met, type of market and product and the budget available and has its
origins in Fast Moving Consumer Goods (FMCG).
Sales promotion is used to:

Attract new triers (non-users, loyal users of another brand and brand switchers)

Reward and retain brand-loyal customers

Turn light users into medium or heavy users

Regain past purchasers who have ceased buying
Sales promotion objectives- are as varied as the methods used. Sellers may use
consumer promotions to increase ST sales or to help build LT market share. The
objectives may be one of the following:




Entice customers to try a new product/brand
Lure consumers away from competitor’s products/brands
Get consumers to ‘load up’ on a mature product
Hold and reward loyal customers
In general terms, sales promo should promote the product’s positioning and include
a selling message along with the deal. Ideally, the objective is to build positive
consumer attitudes, stronger brand equity, > market share and increased profitability
rather than to prompt temporary brand switching. If properly designed, every sales
promo tool has consumer franchise-building potential, even where a price cut is
included.
Sales promotion tools1. Consumer promotion tools
TOOL
Samples
Redeemable
coupons
DEFINITION
Free or discounted goods provided at store
level or through the media designed to
facilitate product trial. Offers of a trial of a
product. Expensive but effective way to create
awareness of and trial a new product.
Coupons carried on-pack or in another media
that can be forwarded to a marketer or
appointed agent and will be redeemed for a
product or service, even a discount on the
85 | M A R K E T I N G F O U N D A T I O N S
EXAMPLE/APPLICATION
Often low-priced categories
and FMCG.
On back of shopping dockets
next purchase.
Cash discounts usually received by
Cash-back
forwarding a proof-of-purchase where state
offers (rebates)
legislation permits.
Cents-off deals Price deals, usually offered at retail level but
also by direct marketers. Most common form
or price packs
of promotion at store level in Australia.
Premium offers Goods offered free of charge or at reduced
price as an incentive to buy a product. Part of
the augmented product.
Useful articles imprinted with an advertiser’s
Advertising
name, given as gifts to consumers.
specialties
2 for 1 deals & in those lines
where they complement each
other well
Pack itself may be a reusable
commemorative mug
Pens, key rings and other
novelty items. Found a lot at
hotels
Cash, merchandise or service rewards Loyalty programs e.g. Qantas
Patronage
offered to consumers who make continual use Frequent Flyer programs
rewards
of a company’s product or service.
Offers ranging from theme promotions in- 1. Displays- at cash register
Point-of2. Demos- e.g. cooking in
purchase (POP) store to specially arranged selling areas.
supermarkets (food draws
promotions
us in by our senses)
Contests
and Promotional events that give consumers the
games of chance chance to win something of value by luck or
skill. It creates interest and involvement.
and skill
2.Trade promo tools



Many sales promos aimed at consumers are accompanied by trade promos whereby the
various dpt managers at store level can win prizes for the best merchandising display or
the highest sales levels during a promo
Manufacturers also pay allowances to retailers for such activities as advertising, displays
and physical distribution
In some industries push money (cash or incentives) is paid to dealers or their sales force
to ‘push’ the manufacturer’s goods.
3. Business-to-business promo tools
 Industrial markets also use promos to gain awareness for new products or to increase
penetration of a particular industry by increasing business leads for their sales force.
 Concentrate on conventions and trade shows and sales contests


Conventions and tradeshows- used by vendors to find new sales leads, contact
customers, introduce new products, meet customers, sell more to existing customers
and educate customers with publications and audiovisual presentations
Sales contest- organised by business marketing to other businesses is an attempt to give
incentive to a firm’s sales force, a distributor’s sales force or a dealer network to
increase their sales performance during a specified period.
Decisions to be made in order to develop a sales promotion program include



Size of the incentive-not too large (can you cover costs, decreases brand image e.g.
luxury products)
How to promote and distribute the program (other medias, sales staff, PR campaign)
Length of the promotion
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
Sales promotion budgeting (% of total budget or the marketer can choose the promos
and estimate their total cost)
2. Discuss the role of a company’s salespeople in creating value for customers and
building customer relationships
Salespeople- are involved in two-way personal communication with customers with
whom they build LT relationships.






Personal selling is the interpersonal arm of the promotion mix.
This personal communication may be through face to face, telephone, video
conferences or by other means.
They represent the co to the customers and vice versa and serve as a critical link
between a co and its customers.
Salespeople should not only be concerned about producing sales but also producing
customer satisfaction and company profit.
Salespeople can probe customers to learn more about their problems. They can adjust
the marketing offer to fit the special needs of each customer and can negotiate terms of
sale.
They can build LT personal relationships with key decision makers.
4. Identify the 6 major salesforce management steps
Salesforce management- the analysis, planning, implementation and control of
salesforce activities.
Major salesforce management steps are;
1.
2.
3.
4.
5.
6.
Designing salesforce strategy and structure
Recruiting and selecting salespeople
Training salespeople
Compensating salespeople
Supervising salespeople
Evaluating salespeople
5. Explain how companies recruit, select and train salespeople
Recruiting salespeople
The company must first decide which traits its salespeople need to possess. Among
the most common of these traits are:









Commitment to sales and job
Strong consumer orientation and linking skills
Enthusiasm
Persistence
Initiative
Self-confidence
Independence
Self-motivation
Listening skills
Recruiting procedures

After deciding on needed traits, management must recruit.
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
The personnel dpt looks for applicants by getting names from current salespeople, using
employment agencies, placing job ads and contacting university students.
Selecting salespeople




Recruiting will attract many applicants from which the company must select the best.
The selection procedure can vary from a single informal interview to lengthy testing
and interviewing.
Many companies give formal tests to sales applicants. Tests typically measure sales
aptitude, analytical and organisational skills, personality traits and other characteristics.
Key areas of concern in recruiting and selecting are importance, quality, selection and
procedures.
Training salespeople





The average training period is 4 months
The initial period might focus on selling skills, product knowledge, the company and the
distributors that sell the company’s products.
Among other things, they learn that distributors have dozens of salespeople calling on
them all the time.
After the initial training, companies often bring their salesforce back to company HQ for
follow-up training
The goals of training programs are
o Help salespeople to know and identify with the company = describe company’s
history and objectives, its org, its financial structure and facilities, and its chief
products and markets
o Salespeople need to be familiar with the company’s products = sales trainees
are shown how products are produced and how they work
o Need to know customers’ and competitors’ characteristics = training program
teaches them about competitor’s strategies and about different types of
customers and their needs, buying motives and buying habits
o Need to know how to make effective presentations = trained in principles of
selling
o Need to understand field procedures and responsibilities = learn how to divide
their time between active and potential accounts, how to use an expense
account, prepare reports and route communication effectively.
6. Describe how companies compensate and supervise salespeople, and how they evaluate
salesforce effectiveness
Compensating salespeople
To attract needed salespeople, a company must have an attractive compensation
plan. These plans vary greatly both by industry and by companies within the same
industry. The level of compo must be close to the ‘going rate’ for the type of sales
job and needed skills. Compensation consists of;




a fixed amount-usually a salary; gives the person a stable y
a variable amount- commissions or bonuses based on sales performance; rewards
the salesperson for > effort
expense allowances- repay salespeople for job-related expenses; allow them to
undertake needed and desirable selling efforts
fringe benefits- paid holidays, sickness or accident benefits, life insurance and
childcare; provide job security and satisfaction.
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Different combinations of fixed and variable compensation give rise to 4 basic types
of compensation plans- straight salary, straight commission, salary plus bonus and
salary plus commissions.



This plan can be designed to motivate salespeople and to direct their activities. E.g. if
sales mgt wants salespeople to emphasise new account dev, it might pay a bonus for
opening new accounts.
The compo plan should direct the salesforce towards activities that are consistent with
overall marketing objectives.
More and more companies are moving away from high-commission plans that may drive
salespeople to make ST grabs for business rather than building LT, value-laden
relationships.
Supervising salespeople
Through supervision, the company directs and motivates the salesforce to do a better
job.




Most companies classify customers based on sales volume, profit and growth potential
and then they set call norms accordingly.
Companies often specify how much time their salesforces should spend prospecting for
new accounts.
One tool to help salespeople use their time efficiently is the annual call schedule which
shows which customers and prospects to call on in which months and which activities to
carry out. Another tool is time and duty analysis.
Advances in technological developments have allowed dramatic improvements in
salesforce productivity.
Motivating salespeople

Mgt can boost salesforce morale and performance through its organisational climate,
sales quotas and positive incentives.
o Org climate- describes the feeling that salespeople have about their
opportunities, value and rewards for good performance within the company. If
they are held in high esteem, there is less turnover and better performance.
o Sales quotas- standards set for salespeople stating the amount they should sell
and how sales should be divided among the company’s products.
o Positive incentives- sales meetings, sponsoring sales contests, honours,
merchandise and cash awards, trips and profit-sharing plans.
Evaluating salespeople
Sources of information about its salespeople are obtained from:





Expense reports
Sales reports
Work plan
Annual territory marketing plan
Call reports
Formal evaluation produces three benefits:
I.
II.
III.
Mgt must develop and communicate clear standards for judging performance
Mgt must gather well rounded information about each salesperson
Salespeople know they will have to sit down one morning with the sales manager and
explain their performance
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The formal evaluation process may involves



Comparing salespeople’s performance – can be misleading due to differences such as
territory potential, workload, level of comp and company promo effort
Comparing current sales with past sales
Qualitative evaluation of salespeople-usually looks at their knowledge of the co, its
products, customers, competitors, territory and tasks and may also rate personal traits.
7. Discuss the personal selling process, distinguishing between transaction-oriented
marketing and relationship marketing
The selling process consists of several steps that the salesperson must master. These
steps focus on the goal of getting new customers and obtaining orders from them.
However, most salespeople spend much of their time maintaining existing accounts
and building LT customer relationships.
1. Prospecting and 
qualifying



2. Preapproach


3. Approach


4. Presentation and 
demonstration



5. Handling
objectives


Prospecting- salesperson identifies qualified potential
customers.
This may involve asking current customers for names of
prospects, building referral sources such as suppliers and
bankers, joining organisations to which prospects belong or can
engage in speaking and writing activities that will draw
attention, searching for names in newspapers or directories
and using the phone/mail to track down leads.
Qualifying- identify the good leads and screen the poor ones.
Prospects can be qualified by looking at their financial ability,
volume of business, special needs, location and possibilities for
growth.
Salesperson learns as much as possible about a prospective
customer before making a sales call.
Salesperson should set call objectives, decide on the best
approach and give thought to an overall sales strategy for the
account.
Salesperson meets and greets the buyer to get the rship off to a
good start
Involves salesperson’s appearance, opening lines and follow-up
remarks
Presentation- salesperson tells the product ‘story’ to the buyer,
showing how the product will make or save money
Concentrate on customer benefits
Companies can use 3 styles of sales presentation- canned
approach (memorised/scripted talk), formula approach (id
buyer’s needs, attitudes and buying style; shows how the
product will satisfy buyer’s needs-follows a general plan) and
need-satisfaction approach (search for customer’s needs by
getting customer to do most of talking)
Any presentation can be improved with demonstration aids e.g.
booklets, flip charts, slides, videotapes and product samples.
Salesperson seeks out, clarifies and overcomes customer
objections to buying
Must be able to foresee these questions: is it hard to install?
Any after sales service?
90 | M A R K E T I N G F O U N D A T I O N S
6. Closing



7. Follow-up


Salesperson asks the customer for an order
Salespeople should know how to recognise closing signals from
the buyer, including physical actions, comments and questions
Closing techniques- asks for the order, review points of
agreement, offer to help write up the order, ask whether the
buyer wants this model or that one or note that the buyer will
lose out if the order is not placed now. They may offer the
buyer special reasons to close, such as a lower price or an extra
quantity at no charge.
Salesperson follows up after the sale to ensure customer
satisfaction and repeat business
This visit would reveal any problems, assure the buyer of the
saleperson’s interest and reduce any buyer concern that might
have arisen the sale
The principles of personal selling as just described are transaction oriented- their
aim is to help salespeople close a specific sale with a customer.
Relationship marketing: the process of creating, maintaining and enhancing strong,
value-laden rships with customers and other stakeholders.



It emphasises building and maintaining LT rships with customers by creating superior
customer value and satisfaction.
More companies are recognising that winning and keeping accounts requires more than
making good products and directing the salesforce to close lots of sales.
Winning and keeping accounts requires more than making good products and closing
lots of sales.
91 | M A R K E T I N G F O U N D A T I O N S
CHAPTER FOURNTEEN: DIRECT AND ONLINE MARKETING
1. Explain the nature of direct and online marketing
Direct and online marketing- integrates marketing communication techniques, using
traditional and new media, with traditional and electronic fulfilment approaches and
sophisticated customer rship mgt techniques (CRM).



It is both a form of one to one communication and also a step beyond marketing
product, or info about delivery or even how to install the product or overcome a
problem.
Another feature of direct and online marketing is ‘accessible memory’- m orgs use a
database to accumulate what they learn from customers.
A company’s knowledge base- database of frequently asked questions or solutions to
problems maintained by a company to assist customers.
Direct marketing- an interactive system of marketing which uses one or more
advertising media to effect a measurable response and/or transaction at any location.


refers to those activities that embrace ‘targeted media’ which may serve to attract
potential and current customers but which permit transactions such as those already
described, and which enable interaction via one-to-one media.
They key point is that there is continuous interaction and not simply episodic one-way
communication and purchase activity.
Table 14.1
Forms of direct and online marketing
Direct print and reproduction
Direct-response television and radio
Telemarketing
Telesales
Electronic dispensing and kiosks
Direct selling
Electronic shopping (also referred to as ecommerce/e-business. See ‘What is online
marketing?’ later in this chapter)
Direct and online database marketing (see the
section on this topic later in the chapter)
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Making a tailored offer using printed or reproduced materials such as a
mailing, a printed catalogue or CD-ROM version delivered to a list or
database. Synchronous if the customer responds in real time when the offer is
received.
Interactive marketing, using FTA-TV, pay-TV, narrowcast TV and radio, as
well as interactive TV and radio. In some cases, there will be a back-channel
for order placement; in other cases, the telephone or mail is used to order.
Inbound or outbound personal selling or automated voice response unit selling
to a list or database. May be interactive in situations where a donation is made
or a vote is cast, or where orders are taken immediately the offer is made.
Outbound calls, usually order-taking with prompts, from a known and stable
database of customers; usually involves calls to intermediaries.
A range of technologies used in receiving orders and payments as well as
delivering products and services; now includes the use of ‘smart’ card
technologies and digital cash, to a known database of customers or to potential
customers.
Personal selling into the home or office to potential customers or a known
clientele (database).
Recording responses, including taking orders, from inbound electronic signals
or messages, in response to communications via any number of media: FTATV, broadband interactive TV, pay-TV, narrowcast TV, the Internet (email,
secure transaction websites, and fax), quick response direct marketing where
same-day or fast-track fulfilment is involved, e.g. gifts ordered from
Wishlist.com.au.
The development and maintenance of electronic databases to interact with
past, present and/or potential customers and others in the marketing channel,
on a one-to-one basis, often in real time, and where the databases are used to
maintain value-laden relationships and to generate a measurable response
and/or transactions through the integrated use of electronic network tools and
technologies.5
Table 14.2
Mass marketing versus one-to-one marketing
Mass marketing
Average customer
Customer anonymity
Standard product
Mass production
Mass distribution
Mass advertising
Mass promotion
One-way message
Economies of scale
Share of market
All customers
Customer attraction
One-to-one marketing
Individual customer
Customer profile
Customised market offering
Customised production
Individualised distribution
Individualised message
Individualised incentives
Two-way messages
Economies of scope
Share of customer
Profitable customers
Customer retention
Online marketing- this type of marketing entails interaction with known customers
and others in the marketing channel, on a one-to-one basis, often in real time, to
maintain value-laden rships and to generate a measurable response and/or transactions
using electronic network tools and technologies.


M orgs around the world have changed both in form and value as a result of
globalisation, deregulation and digitisation.
Terms used to describe online marketing
o Intranet- secure websites accessed by company employees only
o Extranet- websites accessed by both employees and known customers
o Customer rship marketing (CRM)- one to one marketing, direct order
marketing, direct marketing, eMarketing and interactive marketing.
2. Discuss the benefits of direct and online marketing to both marketing organisations
and their customers and identify the reasons for the rapid growth in this area of IMC
93 | M A R K E T I N G F O U N D A T I O N S




Quadrant 1- m orgs are best suited to using a mass m approach including mass media
advertising, to position their brands in consumers’ minds and to ensure they have
merchandising space in traditional retail outlets.
Quadrant 2- may find niche marketing most appropriate strategy to adopt.
Quadrant 3- FMCG manufacturers have large segments of customers who all want the
same product however it is their supermarket customers who account for the bulk of
their sales.
Quadrant 4- m orgs that have customers with a wide range of requirements and some
customers are worth much more than others.

Figure above: customers have highly differentiated needs and diff customers rep diff
valuations to the business. Comp A and B are more able to meet customers’
requirements. The co must realign its m strategy by taking adv of the situation and being
capable of customising its order and interacting on a OnetoOne basis with customers.
The firm would be wise to realign by adopting an online OnetoOne m strategy that
incorporates the use of the Web in interactive m communication and to enhance rships.
 However it isn’t enough to simply mount a ‘vanity’ website that remains locked into a
one way mass-m communication paradigm, completely overlooking the fact that
customers today are learning customers more so than ever before and that the use of
the Web coupled with database technology means that businesses have become
learning organisations.
 Learning organisation- an org defined by its ability to innovate, adopt and change in line
with its changing env.
 while widespread use of the Net is yet to reach its full potential, due partly to the more
realistic valuations being placed on new and existing businesses that employ Net
technologies by world K markets, more sophisticated online OnetoOne m continues to
dev in Australasia in 3 areas of m: m communication, m channel and CRM.
Direct and online database marketing
 Entails the dev and maintenance of electronic databases to interact with past, present
and/or potential customers and others in the m channel.
 One a one-to-one basis
 Often in real time
 Used to maintain value-laden rships
 To generate a measurable response and/or transactions through the integrated use of
electronic network tools and technologies.
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M orgs use their databases in a number of ways:
Goal
Description
1. Identifying prospects




2. Deciding which customers
should receive a particular
offer


3. Deepening customer loyalty

4. Reactivating customers

5. Data mining

Many co’s generate sales leads by advertising
their products or offers.
Ads generally have a response feature such as a
toll free phone number
The database is built from these responses
Co sorts through the database to id the best
prospects then reaches them by mail etc in an
attempt to convert them to customers
Co’s id the profile of an ideal customer and search
their databases for ind most closely resembling
this ideal type
By tracking ind responses the co can improve its
targeting precision over time
Co’s can build customers’ interest and enthusiasm
by remembering their preferences and sending
appropriate information, gifts or other materials
The database can help a co to make attractive
offers of product replacements, upgrades or
complementary products just when customers
might be ready to act
Checking databases for patterns and trends that
might exist or to find new connections bw data
items
3. Discuss
the
various
95 | M A R K E T I N G F O U N D A T I O N S
direct marketing techniques and their application
Direct print and Involves mail-outs of letters, product lists, samples and paperreproduction
based and digital catalogues to a list or known database of
customers, or to a targeted group that the marketer wishes to
convert to a database entry.
Direct mail
Printed materials sent by mail and conveying offers to
customers, whether targeted to the recipient by name, or to the
business or householder by a broader targeting method.
Catalogues
A printed listing of products, often featuring high-quality
illustrations of the items on sale. Different types include; full-line
merchandise catalogues e.g. Ikea, B2B catalogues e.g.
Officeworks, specialty consumer catalogues e.g. Radio Parts
Group.
Direct-response Use of mass promotion media combined with a direct response
television, radio offer, usually involving telemarketing.
and print
Telemarketing
Use of telephone operators to attract new customers, contact
existing customers to ascertain satisfaction levels or take orders.
Major use relates to customer service. Outbound and inbound
(people ring in and out).
Telesales
Routine order taking by telephone operators. Are used by
marketing firms of all persuasions, not just by direct marketers.
Diff bw this and telemarketing is that in telesales the calls are
routinely made to regular customers such as retailers. Outbound
calls to facilitate orders on products.
Electronic
 Electronic dispensing machines- machines that dispense products
and services (cash) usually by inserting cash, transaction or stored
vending


Direct selling
Electronic
shopping
value card
EFTPOS (Electronic funds transfer at point of sale)- retailer cash
register electronically linked to bank accounts; consumers pay
directly using a cashcard or credit card, and funds may also be
credited to an account if goods are returned.
Kiosks- electronically networked mini-offices, staffed or unstaffed,
capable of dispensing information, products and services and of
receiving payments by instalment or in full.
Selling directly to consumers or businesses rather than using a
reseller, such as a retailer or agent. E.g. door to door selling by
Tupperware, Avon, Nutrimetics.
Purchasing via an electronic bulletin board or Telstra’s Discovery,
or via interactive cable tv.
4. Explain how direct and online marketing campaigns are developed, pretested,
implemented and evaluated
Evaluation- the most common assessment is to compare sales before, during and after a
sales promotion or other direct and online marketing program or campaign. The profitability
of such offers and the return on I are even more important.
 Evaluating direct marketing
o Performance has multiple dimensions
96 | M A R K E T I N G F O U N D A T I O N S
o
Direct and online m orgs set up programs to allow later monitoring of such
factors as;
 Sales lead generation
 Database generation
 Fulfilment response*
 Product inquiries
 Sales response
 Profitability
 Return on the I made in programs and campaigns
 Lifetime customer value
*fulfilment response-order processing, delivery response times and accuracy of
delivery must be considered when responding to product orders.

Evaluating online marketing- by considering its 3 major aspects:
Online m communication  Those orgs using the Net/Web in IMC seek to measure both
effectiveness (did they reach the target market) and efficiency (how
cost-effectively did they reach the target market).
 Only sure way to track ind behaviour at a website is to allow only
subscriber access to the site. This works well in the case of extranet
usage by B2B and B2G subscribers but would be unrealistic for home
users to subscribe to its particular site.
 3 categories of measures are involved:
1. Web-centric measures- evaluating success of websites in m
communication began with use of web centric measures such as
analysis of;
o Hits- # of files requested by guests to a web pg.
o Log files- a record maintained by all host servers of the IP
address of the guest’s computer and of every file sent out.
o Pg impressions- # of web pages viewed by a single visitor
to a site.
2. Audience-centric measures- are now favoured by many orgs. 3rd
party research companies such as ACNielsen provide these
measures using Web-user panels. A quasi-solution to est web use
identity is the use of cookies.
 Cookies- short identifier pieces of text, deposited on a visitor’s
computer by a website. On subsequent visits, the website software
records the cookie response and thus measures repeat guest visits.
3. Network-centric measures- many m orgs use services of
Hitwise.com, to ascertain their performance in their own right or
to est on which navigation sites to buy banner ad space. The
measures provided incl the # of pg downloads and dwell-time
duration on consecutive pages visited. Hitwise also provides info
on clickstream (the path followed by website visitors).
Online m channel
 The web is an online m channel or it may be used to supplement
performance
traditional m channels.
 Online m channels are judged in the same way that more traditional
direct m is judged- fulfilment response, in terms of product inquiries,
sales response and profitability.
Rship mgt and customer
 With all forms of direct and online m, it is possible to calculate in
97 | M A R K E T I N G F O U N D A T I O N S
lifetime value

advance what response rate will be required to break even, as well as
other vital response rates such as average purchase levels.
Customer lifetime value- the amount by which revenues from a
customer over time will exceed the company’s costs of attracting,
selling and servicing that customer.
it is ‘more valuable to a business to achieve qualified customers
upfront and focus on retaining them than it is to constantly search out
new customers’ (p 526)
5. Discuss the public policy and ethical issues facing direct and online marketers
Privacy concerns- A major direct and online m issue in most countries is PRIVACY.
Cross referencing of data

Unwanted post and email 


When an ind’s personal info such as health status and
work attendance level is interconnected and used
without permission.
One solution is to ask people which product categories- if
any- they would like to receive information about.
Spamming- sending unsolicited email, usually to large #s
of people, with a view to making a sale.
Concerns also exist about the means used to build the database and the possibilities of
database abuse, particularly in online m where spamming threatens many commercial
uses of the Net. Privacy guidelines are now in place.
Direct and online database marketing- entails dev and maintenance of electronic
databases to interact with past, present and/or potential customers and others in
marketing channel.
Uses of databases
1. Identifying prospects
 Ads generally have a response feature, such as a business reply card or toll-free
phone number
 Database is built from these responses
2. Deciding which customers should receive a particular offer
 Companies identify the profile of an ideal customer for an offer
 Search of databases for individuals most closely resembling the ideal type
 By tracking individual responses, the company can improve its targeting precision
over time
3. Deepening customer loyalty
 Create customised information, gifts or other materials
 Customised to individual customers preferences
4. Reactivating Customers


Create attractive offers of product replacements, upgrades or complementary products
Deciding on right timing of offering
5.Data mining


Entails checking databases for patterns and trends that are hypothesised to exist
Entails finidng new connections between data item
Evaluating database performance
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Profitable use of a database requires customer relationship mgt and keeping track of
sales so as to be able to predict future sales levels more accurately. Three criteria to
use are:



Recency of purchase
Frequency of purchase
Monetary value of purchase
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PART FOUR: RESPONSIBLE MARKETING
CHAPTER FIFTEEN: ETHICS AND MARKETING COMPLIANCE
1. Discuss social criticisms of marketing’s impact on individual consumers
Consumers hold mixed or even slightly unfavourable attitudes toward m practices.
Consumers are worried about high prices, poor quality and dangerous products,
misleading advertising claims and several other marketing related problems incl
planned obsolescence.
2. Identify and define criticisms of marketing’s impact on society as a whole
Advertising has been a special target. Criticisms of marketing’s impact on society are:

False wants and too much materialism- m urges too much interest in material
possessions. People are judged by what they own rather than by who they are.

Too much political power- advertisers are accused of holding too much power over the
mass media, limiting their freedom to report independently and objectively. All
industries promote and protect their interests.

Too few social goods- business has been accused of overselling private goods at the
expense of public goods. E..g increase in car ownership (private good) requires more
highways, traffic control, parking spaces and police services (public goods). Overselling
private goods results in social costs e.g. traffic congestions, air pollution, deaths and
injuries from accidents.

Cultural pollution- our senses are being assaulted constantly by advertising.
Marketing’s impact on other businesses:

Critics claim that an org’s m practices can harm other companies and reduce
competition 3 major problems are:
1. Acquisition of competitors
2. M practices that create barriers to entry- large m companies can use
patents and heavy promotion spending and tie up suppliers or dealers to
keep out or drive out competitors
3. Unfair competitive m practices- setting prices below costs, threatening to
cut off business with suppliers, or discouraging the buying of a competitor’s
products.
3. Outline citizen and public actions to regulate marketing – consumerism,
environmentalism and regulation- and the way they affect marketing strategies
Consumerism
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=An organised movement of citizens and gov agencies whose aim is to improve the
rights and power of buyers in relation to sellers
Regulation

E.g. Choice magazine- no bias, no advertising

Traditional seller’s rights;


o
Right to introduce any product
o
Right to charge any price
o
Right to spend any amount to promote the product
o
Right to use any product message
o
Right to use any buying incentive schemes
Traditional buyer’s rights;
o
Right not to buy a product
o
Right to expect product to be safe
o
Right to expect the product to perform as claimed
Additional rights that consumer advocates have won are such matters as;
o
knowing the true IR and total costs of consumer credit
o
true cost per unit of a brand
o
ingredients in a product
o
nutritional value of foodstuffs
o
product freshness
o
True benefits of a product (truth in advertising).
Environmentalism
= An organised movement of concerned citizens, businesses and gov agencies seeking
to protect and improve people’s living environment.

Concerned with
o
Ecosystems
o
Pollution
o
LT effects e.g. LT health
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o
Growth issues

The marketing system’s goal should to be to maximise QOL.

Want env costs included in both producer and consumer decision making

Hit some industries hard such as steel industry

Companies have responded with ‘green marketing’ – developing ecologically safer
products, recyclable and biodegradable packaging, better pollution controls and more
energy-efficient operations.
o

E.g. Virgin Blue- you can choose for your flight to be carbon neutral
Sustainable development
4. Explain the business actions towards socially responsible marketing that can
foster marketing ethics and lead to different philosophies of enlightened
marketing

Ethical marketing- an approach by orgs whereby they recognise that the task of
marketing is to be both enlightened to society’s views and ethical in the org’s approach
to society as a whole and to customers.

Most m orgs have responded positively to consumerism and environmentalism in order
to serve customers’ needs better

In adopting socially and ethically responsible marketing, m orgs often take philosophical
positions which they instil in their employees

Companies need to develop ‘corporate marketing ethics policies’ as not all managers
have fine moral sensitivity

Societal marketing- a principle of enlightened marketing that holds that an org should
make m decisions by considering consumers’ wants the org’s requirements, consumers’
long run interest and society’s long run interests.

Under the societal marketing concept, each manager must look beyond what is legal and
allowed and develop standards based on personal integrity, corporate conscience and
long-run consumer welfare.

Ethics and social responsibility require a total corporate commitment. They must be a
component of the corporate culture
5. Discuss the need for and value of legal compliance programs in marketing
and the issues involved in implementing them

One of the best ways to ensure that an org acts ethically and legally is to have a culture
of good ethical practice and a legal compliance program.

Legal compliance program- a system designed to identify, manage and reduce the risk
of breaking the law.
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
a compliance program can also be a competitive advantage in the m place by ensuring
ethical practice, high quality performance and the positives created by such behaviour.

Australian Standards guide business in many ways

Australian Standard AS306 is useful in guiding the implementation of a compliance
program in marketing as it draws together comments from courts, opinions of legal
practitioners and best practice. It est requirements for
o
+ commitment to compliance at board and CEO level communicated to staff
o
+ promotion of compliance by all managers
o
Continuous monitoring and improvement of all compliance procedures
o
Integration of all compliance procedures into the org’s day to day operating
procedures, systems and documents
o
Adequate #s of senior staff with high status and sufficient ‘clout’ to take
responsibility for compliance
o
Ongoing education and training for all staff
Legal education

Legal education programs tend to cover 4 sets of rships that need to be monitored in a
compliance program:
o
Rships with competitors- to avoid m rigging, group boycotts and price fixing
o
Rships with suppliers – to avoid resale rice maintenance and such vertical
restraints as may serve to reduce competition
o
Rships with other parties such as patent licensees- to avoid infringing
intellectual property rights and patents an licence agreements generally
o
Rship with the industry itself- to avoid using trade associations or groupings of
firms that might violate sections of the legislation prohibiting arrangements or
understandings that substantially lessen competition.
Coverage of a legal compliance program
main source of Australian comp law is Part IV of the Trade
Competition law
Practices Act and case decisions interpreting this legislation
Laws governing the sale of g/s deal with the matter
Contract and
differently in different countries although the intent of
consumer law
legislation is much the same. In Australia, the laws
governing the sale of g/s come from a three-tiered scheme
that includes common law (reported decisions of courts),
state legislation (e.g. Sale of Goods Act and Fair Trading
Act in each state) and Commonwealth legislation (Trade
Practices Act 1974).
Movement to standardise legal requirements bw countries
Standards
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Product liability
M communication
Sales and after sales
finance
Franchising
(eg WTO) and trading partners (e.g. Aus and NZ CERTA)
continues.
Class actions more likely in Aus with the introduction of
legislation in 92 which liberalised the ability of plaintiffs to
engage in representative or class actions.
the details of any credit sale must be spelt out
Is an area where specialised legal knowledge is required bc
of the exclusive rights and obligations granted under a
franchise agreement. 98 Franchising Code of Conduct falls
under Part IVB of the Trade Practices Act and requires a
comprehensive set of disclosures and provides a dispute
resolution procedure for franchise disputes. The Code is
enforced by the ACCC.
Intellectual property IP law involves such areas as copyright, trade mark, patents,
designs, trade, secrets and domain names.
(IP)
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