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PART 2 - MARKETING Role of marketing Strategic role of marketing goods and services: Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives (AMA). The strategic role of marketing is to translate the finical goal of profit maximization into reality. Marketing today places a strong emphasis on customer-orientated marketing. The marketing plan is a document that lists activates aimed at achieving particular marketing outcomes in relation to a good or service. The marketing plan: o The marketing plan outlines the strategies to be used to bring the buyer and seller together. o The core of marketing is satisfying existing customer wants, which should lead to repeat sales. o Marketing is the revenue-generating activity of any business. Nothing is achieved until a sale is made. The customer should always be the central focus of the marketing plan. Interdependence with other key business functions: The marketing concept is a business philosophy that states that all sections of the business are involved in satisfying customers needs and wants while achieving the businesses goals. To be effective, therefore, all employees of the business must embrace the marketing concept, not only by those involved in marketing activities. The marketing manager cannot work in isolation and often has to work with other managers in the business to ensure the success of the marketing plan. Production, selling, marketing approaches: The focus of today is to develop a marketing plan based on the marketing concept – that is, an emphasis placed on customer satisfaction. However, before this concept that we currently use today, there were the production and sales approaches. Production approach: o The production approach focused businesses on the production of goods and services. o The industrial revolution created a tremendous burst of industrial output, which saw demand for goods (and some services) exceed the production capabilities of many businesses. o Up until WW1, businesses concentrated their efforts on the production of goods and services. Businesses were usually able to sell all there output. o Production design was based more on the demands of mass production techniques than on customer needs and wants. Marketing consisted of simply taking orders and delivering products. Sales approach: o The sales approach emphasised selling because of increased competition. o After WW1, production became more efficient and productivity increased. Slowly the output of businesses started to catch up with demand. o High-quality, mass-produced products came on to the market, and competition between businesses increased. o To stimulate demand for their goods and services, businesses increased their spending on advertising, making use of newly developed electronic communications systems such as radio and film. o Businesses faced the challenge of persuading customers to buy a specific brand. o Businesses still neglected the needs of the customer, and it was not until the 1960s in which they did something about it. Marketing approach (STAGE 1: 1960s – 1980s): o The marketing approach began with the economic boom after WW11, as businesses began to practice marketing in its current form. o The marketing approach focuses on finding out what customers want – through market research – and then satisfying that need. o The market approach is characterized by the importance placed on identifying and satisfying customer needs and wants prior to producing the goods or services – the motivation being that the business would produce what the customer desired. Marketing approach (STAGE 2: 1980s – present): o CSR – Marketing managers now realize that businesses have a corporate social responsibility. External pressure from customers and environmental organisations, as well as, political forces, is presently influencing the marketing plans of many businesses. One major change has been the increase in demand for ecologically sustainable products. o Customer orientation – refers to the process of collecting information from customers and basing marketing prices on customers wants and interests. A customer-orientated approach goes beyond the sale of the product, as company’s whom adopt this approach will continually strive to exceed customer expectations. o Relationship marketing – is the development of long-term and cost effective relationships with individual customers. This type of marketing places a high priority on customer retention and continual satisfaction. The core of relationship marketing is customer loyalty – so as to generate repeat sales. Types of markets: A market is a defined group of individuals, organisation or both that: o Need or want a product (goods or services) o Have the money (purchasing power) to purchase the product o Are willing to spend their money to obtain the product o Are socially and legally authorized to purchase the product Resource market: Agricultural businesses Industrial market: Secondary and tertiary businesses (services) Intermediate market: Wholesalers and retailers Consumer market: Individuals and households o Mass Market: vast numbers of individuals o Niche Market: small target market Influences on marketing Factors influencing customer choice: Psychological Influences Psychological factors are influences within an individual that affect his or her buying behavior. Five main psychological factors influence customer choice. These are perception, motives, attitudes, personality and self-image, and learning. Even though these psychological factors operate internally, they are also very much affected by sociocultural forces outside the individual. Perception Motives Attitudes Personality and Self-image Learning Psychological Influences Perception is the process through which people select, organise and interpret information to create meaning. Usually there is a range of perceptions across different individuals. For example, one person may see a Ferrari as a sign of achievement; another sees it as ostentatious. Customers will not normally purchase a product that they perceive as inferior. Marketers are aware of this and attempt to market their product in a positive light, driven by the perception the consumer that will have of their product. A motive is the reason that makes an individual do something. The main motives that influence consumer choice include comfort, health, safety, ambition, taste, pleasure, fear, amusement, cleanliness and the approval of others. Advertising attempts to motivate the customer to buy the product. An attitude is a persona’s overall feeling about an object or activity. Customer attitudes to a business and its products generally influence the success or failure of the businesses marketing strategy. Negative attitudes a business or its products often force the business to change its strategies. An individual’s personality is the collection of all behaviors and characteristics that make up a person. To some extent, personality will influence the types and brands of product a person buys. Coupled with personality is an individual’s self-image: how a person views himself or herself. We all have an image of who we are and we reinforce this image through our purchases. Customers have direct experience of many new products. When they do, they are also learning. Learning refers to changes in an individuals behavior cause by information and experiences. To market products successful, a business must assist customers to learn about them. Therefore, successful marketing strategies may assist customer learning that encourages brand loyalty. Sociocultural Influences Sociocultural influences are forces excreted by other people and groups that affect customer behavior. There are four main sociocultural factors. They are social class, culture and subculture, family and roles, and reference (peer) group. Social class Culture and sub-culture Sociocultural Influences A person’s social class (socioeconomic status) is determined by education and income. People from a higher socioeconomic class are more willing to buy products that are perceived to me more prestigious and represent their status as opposed to those from a socioeconomic class. Culture influences buying behavior because it infiltrates all that we do in our everyday life. E.g. in response to the greater desire for Family and roles Reference (peer) groups nutritious and healthy foods, many low-fat, sugar free and fiber enriched processed food products are now marketed. Family roles influence buying behavior. E.g. although women’s roles are changing, market research shows that most women still make buying decisions related to healthcare products, food and laundry supplies. A reference or peer group is a group of people whom a person closely identifies, adopting their attitudes, values and beliefs. A customers buying behavior may change to match the rest of the group’s beliefs and attitudes. Economic Influences They influence a business’s capacity to compete and a customer’s willingness and ability to spend. Boom – o A boom is a period of low unemployment and rising incomes. Businesses and customers are optimistic about the future. Businesses increase their production lines and attempt to increase their market share. The marketing potential during such a phase is large, with sales responding to all forms of promotion. Recession – o A recession sees unemployment reach high levels and incomes fall dramatically. Customers and businesses lack confidence in the economy and is this phase lasts for a long time, a mood of deep pessimism persists. Customer spending reaches very low levels. Government Influences Governments use a number of economic policy measures to influence the level of economic activity. Depending on the prevailing economic conditions, the government will put in place policies that expand or contract the level of economic activity. A number of laws, such as the Competition and Consumer Act 2010 (Cwlth), Sale of Goods Act 1923 (NSW) and the Fair Trading Act 1987 (NSW), have been passed that influence marketing decisions. Consumer laws: The Australian Consumer Law In 2011, a single national consumer law – the Australian Consumer Law (ACL) – was introduced, which replaced 17 existing national, state and territory consumer laws. Applied by the Competition and Consumer Act 2012 as a law of the Commonwealth Implemented by the Competition and Consumer Act 2010 Enforced by State and Territory consumer agencies as State and Territory laws Enforced by the ACCC as a law of the Commonwealt h Mirror protections in the ASIC Act enforced by ASIC ACL Applied by each State and Territory's application Act as a law of each State and Territory Competition and Consumer Act 2010 Formally the Trade Practices Ac 1974 The Act has two major purposes: o To protect consumers against undesirable practices, such as misrepresenting the contents of products, their place of production, and misleading and deceptive advertising. o To regulate certain trade practices that restricts competition. The government also wants to ensure a number of businesses are operating at any one time in the same market to encourage competition. The Act applies to virtually all businesses in Australia, including the commercial activities of government. The CCA (Competition Consumer Act) is enforced and administered by the ACCC (Australian Competition and Consumer Commission), each territory and state’s consumer agency, and ASIC (Australian Securities and Investments Commission) in respect of financial services. Breaches of the Act A breach of any of the consumer protection provisions of the Competition and Consumer Act can result in the ACCC – or the relevant consumer agency – taking criminal or civil proceedings against the business or individual concerned. Unconscionable conduct – is any practice by a business that is just no reasonable and often illegal. The CCA allows courts to impose penalties of up to $1.1 million for companies and $220,000 for individuals for unconscionable conduct and other breaches of the act. Moreover, the consumer can sue the business for compensation. The overall cost of breaching the CCA can be quite substantial when the legal fees and damage to the business’s reputation has been calculated. The ACCC has the right to administer on-the-spot infringements to those businesses who make false claims about their products. They can administer fines without court action. The ACCC can additionally issue ‘public warning notices’ to warn consumers of suspected illegal activity by a business. Deceptive and misleading advertising Examples of deceptive and misleading advertising include: o Fine print – important conditions can me made easily hard to read through fine print. o Before and after enhancements – before images are worsened and after images are enhanced. o Tests and surveys – lying about survey statistic when no survey has indeed been taken. o Country of origin – accuracy in labeling, ‘made in Australia’ and ‘product of Australia’ are two entirely different things. o Packaging – misleading impression of the contents. o Special offer – implying a special offer is available for a limited time, when in fact the offer is continuously available. Bait and switch advertising – this involves advertising a few products at a discounted price. When these run out, consumers are then directed towards higher costing products. Dishonest advertising – is when an advertisement uses words that are deceptive or claims that a product has some specific quality when it does not. EXAMPLE: LG was accused of misleading consumers by rating their products with a higher star rating (6 star system on white goods) than the products actually deserved. They had been caught and accused by ACCC and had to pay up to $500,000 in compensation to affected consumers – they were accused of Greenwashing – not the first time either, they were accused in 2005 and 2006. Greenwashing – is the practice of making a misleading or deceptive claim about the environmental benefits of a product, business practice or technology in order to present a positive public image. Puffery is the exaggerated praise or flattery, especially when used for promotional purposes that no reasonable person would take as factual Price Discrimination Price discrimination is the setting of different prices for a product in separate markets. The difference in price can be possibly because: o The markets are geographically separated, for example city and country prices. o There is product differentiation within one market, for example different electricity prices for domestic and business users. The CCA prohibits price discrimination if the discrimination could substantially reduce competition. Additionally, a business cannot give favoured treatment to some customers and deny it to others. Implied Conditions Implied Conditions – are the unwritten or the unspoken terms of a contract. The most important implied condition is quality. In a landmark decision in 2010, Federal Court judge Christopher Jessup ruled that the arthritis drug VIOXX — manufactured by the US pharmaceutical corporation Merck — was ‘unfit for its purpose’ and ‘not of merchantable quality’ and had breached the existing Trade Practices Act. The drug was found to double the risk of heart attack. Previously under the Trade Practices Act, businesses have had to ensure their products are of ‘merchantable’ quality. This has been changed by the ACL to acceptable quality. A product is of acceptable quality if it is fit for the purpose for which it is being sold, acceptable in appearance and finish, free from defects, safe, and durable. It is a breach of the law to suggest that a product has a particular characteristic that it does not have. It is illegal. Warranties Warranty - a warranty is a promise by a business to repair or replace faulty products. A warranty can be used as an aggressive marketing tool if it includes superior options to those of a competitive product. False or misleading statements concerning the existence, exclusion or certain conditions of the warranty are prohibited under the Competition and Consumer Act. Returns and Exchanges A business by law is required to offer a refund: o If the products are faulty o Do not match the description or a sample o Fail to do the job they were supposed to do There is no obligation to offer a refund if the customer has simply changed their mind, has found the same product at a cheaper price in another store, or damage has occurred after the purchase was made. Ethical influences: Creation of needs – materialism Stereotypical images of males and females Use of sex to sell products Product placement Truth and Accuracy in Advertising The main unethical marketing practices include untruths due to concealed facts, exaggerated claims, vague statements and invasion of privacy. An advertised product may not make a consumer more successful, glamorous, sexy, happy, healthy or wealthy. However, the unethical practice of concealed facts — pieces of information purposefully omitted form an advertisement — can severely harm the trust customers have in a product or a business. Good taste in advertising What is considered to be in ‘good taste’ is highly subjective. Some consumers may regard an advertisement as offensive, while others might view it as inoffensive. For example, Italy’s largest clothing manufacturer, The Benetton Group, prides itself on creating advertisements and advertising campaigns that are unique, artistic, occasionally confronting and centered on passing a comment about a contemporary issue. There is usually common agreement as to what society considers acceptable and marketers must be aware of community sensitivities. However, as with many creative pursuits, and advertising is no exception, there are always some marketers wanting to push the boundaries. The Italian luxury goods manufacturer Dolce & Gabbana used a scene in one of its advertisements evoking a gang rape that reeked of violence against women. It was widely condemned by many marketers and consumers. Not only was it regarded as being in poor taste, it was severely criticised for the way it degraded women. The advertisement was eventually withdrawn after considerable worldwide public and government pressure. Products that may damage health In Australia, one in three TV advertisements during children’s program times is for food that is high in fats, sugars and salt. Some members of the community see these ads as unethical as they encourage children to want food that is not good for them. Coca-Cola, Cadbury and Mars, which are signatories to the Responsible Children’s Marketing Initiative, set their own nutritional standards that make it difficult for consumers to understand. Businesses are targeting children to encourage them in persuading parents into buying certain products through visual and audio advertising. Engaging in fair competition Customer exploitation – occurs when the rights of consumers are ignored. Due to the large amount of competitors in a business some businesses may be tempted to engage in unfair businesses practices as a means in getting ahead. Some common exploitive practices include advertisements that make false promises or are highly exaggerated, incomplete product descriptions; or manipulative, high pressure selling methods. When customers discover that advertisements are untrue or inaccurate, they may feel cheated and stop buying the product. They may also decide to complain to relevant government agencies, in which case the bad publicity this generates can do untold long-term damage to a businesses reputation. In order to engage in fair competition, a business should develop and adopt an ethical marketing policy. Ethical Marketing Policy Maintaining an ethical approach towards competitors can sometimes present many challenges to marketers. There is no ‘one easy solution’. However, marketers can plan for such challengers by designing an ethical marketing policy that acts as a standard against which to assess the businesses ethical performance. This can be created through asking questions such as: o Do we conduct our marketing activities in a way that is ethical and fair? o Are we being socially responsible in all that we do? o Do we respect and obey the government’s legislation and regulations? Sugging Sugging – selling under the guise of a survey, is a sales technique disguised as market research. Although this technique is not illegal, it does raise several ethical issues, including invasion of privacy and deception. Sugging also has long-term negative consequences for marketing research. The cooperation of consumers is becoming more difficult with response rates to surveys and questionnaires slowly declining. 1/3 of individuals now refuse to participate in telephone, online and personal surveys because of suspicion that the survey is really a case of sugging. Marketing process Situational analysis: SWOT SWOT Analysis – involves the identification and analysis of the internal strengths and weaknesses of the business, and the opportunities in, and threats from, the external environment. Product life cycle Product life cycle – the product life cycle consists of the stages a product passes through; introduction, growth, maturity and decline Introduction stage The business tries to increase consumer awareness and build a market share for the new product. Product brand and reliability are established Price is often notably lower than competitors prices in order to get a market foothold Promotion directed at early buyers and users occurs, and communications seek to educate potential customers about the merits of the new products Distribution is selective, which enables consumers to gradually form an acceptance of the product. Growth stage Brand acceptance and market share are actively pursued. Product quality is maintained Price per unit of production is maintained as the firm enjoys increased consumer demand and a growing market share Promotion now seeks a wider audience Distribution channels are increased as the product becomes more popular Maturity phase Sales plateau as the market becomes saturated. Product features and packaging try to differentiate the product from those of competitors Price may need to be adjusted downwards to hold off competitors and maintain market share Promotion continues to suggest the product is tried and true – it’s still the best Distribution incentives may need to be offered to encourage preference over rival products Decline stage Sales begin to decline as the business faces several options. Product maintained with some improvements or rejuvenation. Cut the losses by selling it to another business. Price is reduced to sell the remaining stock Promotion is discounted Distribution channels reduced and product offered to a loyal segments of the market only EXAMPLE: The Volkswagen ‘Beetle’ product life cycle 1933 - 2003 Why do some products decline? Changing public perception of what is fashionable at the time New products replacing old ones Effects on the environment in creating the product. E.g. Carbon emissions and greenhouse gases (for example car manufactures) Marketing Plan Situational analysis Market research Establish market objectives Identify target markets Develop marketing strategies Implementation, monitoring and controlling Market Research: Market Research is the process of systematically collecting, recording and analyzing information concerning a specific problem of marketing. Minimising the risk is the main purpose of market research. Without adequate, reliable and correct information, businesses expose themselves to market embarrassments, which could result in the product failing to sell. The three steps of the market research process Determining information needs The information collected must be relevant to the issue or problem being investigated. Information is useful if it: o Results in marketing strategies that meet the needs of the business’s target market o Assists the business to achieve its marketing objectives o May be used to increase sales and profits Collecting data from primary and secondary sources Marketing data refers to the information relevant to the defined marketing problem Primary data – are the facts and figures collected from original sources for the purpose of the specific research problem Secondary data – is information that has already been collected by some other person or organisation PRIMARY DATA: The survey method The observation method The experiment method SECONDARY DATA: Internal data – data already collected from inside the business External data – data collected from sources outside the business Data analysis and interpretation Statistical interpretation data – is the process of focusing on the data that represents average, typical or deviations from typical patterns. Establishing market objectives: Marketing objectives – are the realistic and measureable goals to be achieved through the marketing plan Increasing market share Market share – refers to the business’s share of the total industry sales for a particular product All marketing plans aim to achieve a specified market share. Businesses often develop an extensive product range, using many different brand names to gain an extra few percentage points of market share. The metropolitan free-to-air (FTA) commercial television broadcasters Nine Network, Seven Network and Ten Network, for example, are constantly trying to increase their market share of the viewing public as measured by the ‘rating’ of the program. Consequently, each network is battling for the largest share of the total viewing audience. Expanding the product mix Product mix is the total range of products offered by a business Businesses seek to expand their product mix, as this will increase profits in the long-term. To develop the ideal product range, businesses must understand customers’ needs. Each item in a product line should attempt to satisfy the needs of different target markets. Product mix – is the total range of products offered by a business Maximizing Customer Service Customer service – means responding to the needs and problems of the customer High levels of customer service will result in improved customer satisfaction and a positive reaction from customers towards the products they purchase. This establishes a sound customer base with the possibility of repeat purchases. Strategies that a business can use to maximize customer service include: o Asking customers what they want o Training employees and rewarding them for excellent customer service o Anticipating market trends by conducting research o Finding out what competitors are offering and then reviewing the product mix o Establishing and maintain long-term relationships with customers o Encouraging employees to focus their attention on the customer’s needs (customerorientated) and not just on making a sale (sales-orientated) Identifying target markets: Target market – is a group of present and potential customers to which a business intents to sell its product. Primary target market – is the market segment at which most of the marketing resources are directed. A secondary target market – is usually a smaller and less important market segment. Why identify and select a target market? A business identifies and selects a target market so it can direct its marketing strategies to that group of customers. A business identifies and selects a target market so it can direct its marketing strategies to that group of customers. This allows the business to better satisfy the wants and needs of the targeted group. This occurs because the business is able to: o Use its marketing resources more efficiently, which is likely to result in the marketing campaigns being more cost effective and time efficient o Promotion material is more relevant to the customers’ needs, and is more likely to be noticed o Better understand the consumer buying behavior of the target market o Collect data more effectively and make comparisons within the target market over time o Refine the marketing strategies used to influence customer choice. Mass marketing approach The mass marketing approach assumes that individual customers in the target market have similar needs. The business therefore develops a single marketing mix and directs it at the entire market for the product. This means there is one type of product with little or no variation, one promotional program aimed at everyone, one price, and one distribution system used to reach all customers. Market segmentation approach Few businesses can sell their products to the entire market — the market is just too big. Therefore, a business will divide the market into distinct segments. Market segmentation occurs when the total market is subdivided into groups of people who share one or more common characteristics. Once the market has been segmented, the business selects one of these segments to become the target market. Segmenting a market enables a business to design a marketing plan that meets the needs of a relatively uniform group. Niche marketing approach Niche market – narrowly selected target market segment Such businesses market to a narrow, specific customer base. Developing marketing strategies: Marketing strategies are actions undertaken to achieve the business’s marketing objectives through the marketing mix. Marketing Mix Product Price Promotion Place Products (goods/services) This element of the marketing mix involves much more than just deciding which product to make. The business also needs to determine such features as the product’s quality, packaging/labeling, design, brand name and guarantee. Customers will buy a product that not only satisfy their needs and wants but also provides intangible benefits such as a feeling of security, prestige, satisfaction or influence. Price Pricing can sometimes be difficult in determining for a certain product. The major pricing decision is whether to set a price above, below or about even with the competitors’ price. Of course, a business must consider other factors too, such as the costs of production and level of consumer demand. Promotion A promotion strategy details the methods to be used by a business to inform, persuade and remind customers about its products. The main forms of promotion include advertising, personal selling and relationship marketing, sales promotion, publicity and public relations. Technology has greatly impacted upon this aspect of the marketing mix through providing a new platform in which businesses are able to promote their product. Place This element of the marketing mix deals with the channels of distribution: the ways of getting the product to the customer. This process usually involves a number of intermediaries or ‘go betweens’, such as the wholesaler or retailer. For example, Gucci and Louis Vuitton fashion accessories are available in only a few selected locations. Alternatively, distribution may be as wide as is practically possible, which is the method used by Coca-Cola. Its distribution channels include retail stores, supermarkets, vending machines, restaurants, clubs, hotels, cafes and fast-food outlets. Implementing the marketing plan: A marketing plan is a meaningless piece of paper until the plan is implemented. Implementation is the process of putting the marketing strategies into operation. Implementation involves the daily, weekly and monthly decisions that have to be made to make sure the plan is effective. To implement the marketing plan effectively, a number of basic questions need to be answered: o Is the plan fully integrated with all other sections of the business? o How should the business be structured and organised? o Have effective lines of communication been established between the marketing department and all other departments? o Who are the best people for the various tasks needed to implement the plan? o Are the marketing personnel motivated and focused on achieving the marketing objectives? o Are all other employees familiar with the marketing objectives and marketing strategies? The implementation stage is quite difficult, especially as unforeseen situations may arise that put in jeopardy the success of the entire marketing plan. Monitoring and Controlling: Controlling involves the comparison of planned performance against actual performance and taking corrective action to make sure the objectives are attained. The first step in the controlling process requires the business to outline what is to be accomplished; that is, to establish a key performance indicator (KPI). A KPI is a forecast level of performance against which actual performance can be compared. The second step in the controlling process is to compare or evaluate actual performance against the KPI. Budgets, sales statistics and cost analyses can be used to evaluate results. Developing a financial forecast When evaluating various marketing strategies, a business must develop a financial forecast that details the costs and revenues for each strategy. By doing so, a business is in its best financial position to allocate its marketing resources. Once information has been gathered, it is possible to determine the most appropriate course of action using a cost-benefit analysis. Developing a financial forecast requires 2 steps: o Cost estimate – How much is the marketing plan expected to cost? Costs can be divided into four major components: market research; product development; promotion, including advertising and packaging; and distribution. o Revenue statement – How much revenue (sales) is the marketing plan expected to generate? Forecasting revenues will be based on two major components: how much customers are expected to buy and for what price, and what sales staff predict they will sell. Comparing actual and planned results Three key performance indicators used to measure the success of the marketing plan are: Sales analysis Market share analysis Marketing profitability analysis Sales analysis - Sales analysis is the comparing of actual sales with forecast sales to determine the effectiveness of the marketing strategy - The main strength of a sales analysis is that sales figures are relatively inexpensive to collect and process - Their main weakness however, is that data for sales revenue do not reveal the exact profit level; such information can be gleaned from further investigations of total expenditure Market share analysis - By undertaking a market share analysis, a business is able to evaluate its marketing strategies as compared with those of its competitors. - This evaluation can reveal whether changes in total sales, either increases or decreases, have resulted from the business’s marketing strategies, or have been due to some uncontrollable external factor. Marketing profitability analysis - Marketing profitability analysis is a method in which the business breaks down the total marketing costs into specific marketing activities. - By comparing the costs of specific marketing activities with the results achieved, a marketing manager can assess the effectiveness of each activity. This evaluation also helps in deciding how best to allocate marketing resources in the future. Revising the marketing strategy Once the results of sales, market share and profitability analysis have been calculated, this business is able to see if the market strategy needs revising. Changes in the marketing mix - Marketing mix – refers to the combination of the four elements of marketing, the four P’s – product, price, promotion and place – they make up the marketing strategy. - Changes that could be introduced include the following: o Production modifications – Businesses that continually upgrade their products will be able to maintain a competitive advantage. o Price modifications – Prices fluctuate for a variety of reasons, and therefore the price component of the marketing mix will need to be revised in responses to changes in the external business environment. o Promotion modifications – Promotion strategies will need to change over time corresponding to the life cycle of the product. o Place modifications – As a product’s popularity intensifies, the distribution channels will need to be expanded to cater for the growing market. Online markets may also be accessed. New product development - The product lifecycle tells us that products have an average lifespan between 5 and 10 years. - Therefore, if a business wants to achieve long-term growth, it must continually introduce new products. Product deletion - Product deletion is the elimination of some lines of products. - To maintain an effective marketing mix, a business will have to delete some of its products. - Outdated products may create an unfavorable image and this negativity may rub off on other products sold by the business. Marketing strategies Market segmentation: Market segmentation involves dividing the total market into segments. Once this market has been segmented, the manger then selects one of these markets to become the target market. The ultimate aim of market segmentation is to increase sales, market share and profits by better understanding and responding to the desires of different target customers. For example, Holden has of 2010 begun reaching out to a new market segment through releasing the Barina Spark, a car targeted at young female drivers. The company says this will be the start of a ‘significant change’. Segmenting consumer markets A segmentation variable is the characteristics of individuals or groups that are used by marketing managers to divide a total market into segments. The consumer market can be divided into four main variables: demographic, geographic, psychographic and behavioral. Demographic Age Gender Education Occupation Income Social class Religion Ethnicity Geographic Region Urban Suburban Rural City size Climate Landforms Psychographic Lifestyle Personality Motives Socioeconomic group Consumer opinions and interests Behavioral Purchase occasion Benefits sought Loyalty Usage rate Price sensitivity Demographic segmentation - Demographic segmentation is the process of dividing the total market according to particular features of a population. - Demographic segmentation is largely adopted and utilized by a majority of businesses due to the ease that these demographic variables can be measured. - Age and gender are the two most widely used demographic variables for segmentation purposes. - Coca-Cola for example, targets 15 – 35 year old males with the energy drink ‘Mother’. Geographic segmentation - Geographic segmentation is the process of dividing the total market according to geographic locations. - Businesses may divide the consumer market into regions because different regions have different needs. - - Consequently, the marketing mix may differ from one geographic region to another. The leading agribusiness company Landmark, for example, operates a national network offering rural supplies in around 400 rural locations. Although most of its marketing mix elements will be common across all locations, regional variances require modifications to suit particular rural activates. City size can also be an important segmentation variable. Psychographic segmentation - Psychographic segmentation is the process of dividing the total market according to personality characterizes, motives, opinions, socioeconomic group and lifestyles. - Unlike demographic variables, physiographic variables can sometimes be difficult to accurately measure, especially personality characteristics and lifestyle. Behavioral segmentation - Behavioral segmentation is the process of dividing the total market according to the customer’s relationship to the product. - Identifying what the customers’ want from the product – the benefits sought – is an important aspect of behavioral segmentation. - By determining the benefits desired, marketers can design products that directly satisfy these desires. - For example, in an attempt to satisfy customers’ desire for convenience foods that are also low in fat, Lean Cuisine has developed an extensive range of frozen means. Differentiation and positioning of product/service Product/service differentiation, in its sense, is the process of developing and promoting differences between the business’s products or services and those of its competitors. Product/service differentiation occurs when products that are the same or similar are made to appear different from and/or better than those of their competitors. By achieving this, the seller is able to gain a little more control in the marketplace, especially with price. Points of differentiation Points of differentiation could be as simple as changes to packaging and labeling, or more complex such as offering top-quality service and greater convenience. These factors all play an important role in persuading consumers to perceive the product or service as being superior to all similar products or services and, therefore influencing them to buy it. Examples include designer jeans (e.g. Guess) and washing detergent with brighter additives. Four important points of differentiation are customer service, environmental concerns, convenience, and social and ethical issues. Customer service - Customers expect a high level of customer service. Sales are very important in determining a customers purchasing ability. Customer service moreover includes the presentation of the premises, the atmosphere and the range of products that set a business apart and capture consumer’s interest. Environmental concerns - People are becoming more concerned with ‘quality of life’ issues, especially the physical environment. - Businesses that create pollution may risk losing customers; whereas businesses that adopt a ‘green’ philosophy and produce environmentally friendly products may see their sales increase. Convenience - Because today’s consumers are so busy, they will often select products that are convenient to use. - For example, this is observed through the manufacturing of frozen meals. Social and ethical issues - Ethical consumerism – involves buying products that are not harmful to the environment, animals or society. - Fair trade movement – is an alternative method of international trade that promotes environmentalism, fair wages, alleviation of global poverty and a fair price for growers. - A growing number of consumers are becoming more ethically minded and will actively purchase brands and products that they believe do not exploit workers, producers or the environment. - In response to the dislike of genetically modified (GM) foods by some consumers, various producers are labeling their products as GM free. Product/service positioning Product/service positioning refers to the technique in which marketers try to create an image or identity for a product compared with the image of competing products. Product/service positioning is something that is something that is done in the minds of the target market: it is how potential buyers perceive the product. For example, some brand names such as Rolex, Ferrari and No Frills, can immediately evoke an image of the products quality. In highly competitive markets, sales may be difficult to secure. For this reason, a business will attempt to create an image that differentiates its products/service from others. The business will decide what kind of image they want their product to have, and then coordinate the marketing mix to ensure this. Product – goods and/or services Products are goods or services that can be offered in an exchange for the purpose of satisfying a need or a want. Tangible and intangible products – total product concept Total product concept refers to the tangible and intangible benefits a product possesses. When customers purchase products, they buy both the tangible and intangible benefits. Product branding There are many benefits of branding, branding helps… Consumers Evaluate the quality of products, especially when a customer lacks the expertise to judge a products feature. Gain a psychological reward that comes from purchasing a brand that symbolizes status and prestige. Reduce their level of perceived risk of purchase. A respected and trusted brand will provide reassurance that the consumer is making the right choice. Businesses Gain repeat sales because consumers recognize the business’s products. Introduce new products into the market because consumers are already familiar with the businesses existing brands. Encourage consumer loyalty. This has the added benefit to the business of being able to charge a higher price for the product. Branding strategies Manufacturer’s brand/national brands are those owned by a manufacturer. o E.g. Sunbeam appliances, Kraft foods and Billabong clothing. A private or house brand is one that is owned by a retailer or wholesaler. o E.g. Myer sells products from its own label including Miss Shop and Blaq. Generic brands are products with no brands at all. o E.g. No Frills (Franklins), Select (Woolies) and Just Organic (Aldi). Packaging Packaging involves the development of a container and the graphic design for a product. Well-designed packaging will give a positive impression of the product and encourage firsttime customers. Packaging: o Preserves the product o Protects the product from damage o Attracts consumers attention o Divides the product into convenient units o Assists with the display of the product Packaging also acts as a form of communication – customers see certain colours and draw conclusions about the product even before they read the label. The shape of packaging and also become a part of he product – e.g. coke Recently, The Coca-Cola Company commenced legal proceedings against Pepsico Inc. and its Australian subsidiary Pepsico holdings Australia claiming that Pepsi had been selling Pepsi and Pepsi Max in a similarly shaped contour bottle. The Coca-Cola Company argued that only it has the right to use such as particular shape. It argues that it has been using this shape since 1915 in the US. Labeling Labeling is the presentation of information on a product or its package. Marketers can use labels to promote other products or to encourage proper use of products and therefore greater customer satisfaction. Price and pricing methods Price refers to the amount of money a customer is prepared to offer in exchange for a product. There can be great difficulty in setting a price – a price set to high can result in lost sales unless superior benefits are offered. A price set to low may give customers the impression that the product is ‘cheap and nasty’. In any market, businesses will attempt to gain some control over the price by differentiating their products. Once this happens, the business has more leverage over the price. o E.g. Designer labels such as Levi’s. Country Road and Billabong are the result of product differentiation strategies. These labels can set higher prices for their garments than clothing sold under the Target or Kmart brand labels. Pricing methods Pricing decisions are influenced by a variety of internal and external factors. There are three main pricing methods: cost-based, market-based and competition-based. Cost-based (mark-up) pricing Cost-based (mark-up) pricing is a pricing method derived from the cost of producing or purchasing a product and then adding a mark-up. This is the simplest method. The business determines the total cost of producing (or purchasing) one unit of the product. The business then adds an amount to cover additional costs (overheads such as interest payments, insurance and transport) and to also provide an adequate profit margin. That amount is referred to as the mark-up and is usually expressed as a percentage. Cost + (cost × Mark-up percentage) = price Market-based pricing Market-based pricing is a method of setting prices according to the interaction between levels of supply and demand – whatever the market is prepared to pay. When demand for a product is greater that its supply, there will be a shortage in the market. This will force up the price of the good. Conversely, when the supply of a product is greater than its demand, a surplus will exist in the market. The price of the product will consequently fall. The prices of products therefore are constantly changing in relation to fluctuations in the levels of supply and demand. Competition-based pricing Competition-based pricing is where the prices covers costs (cost of raw materials and the cost of operating the business) and is comparable to the competition’s price. A price leader is a major business in an industry whose pricing decisions heavily influence the pricing decisions of its competitors. Competition-based pricing is often used when there is a high degree of competition from businesses producing similar products. Once a business has established a base price, it can then decide to chose a price either: o Below that of competitors – This policy of undercutting the competition is often used as a way of breaking into an established market. o Equal to that of competitors – Following the price established by a price leader is an easy option for a business because it avoids having to undertake market research to find out what a customer actually wants to pay. o Above that of competitors – This is a favored practice by businesses that wish consumers to perceive the product as superior, which appeals the status-conscious buyer. Pricing strategies Price skimming – price skimming occurs when a business charges the highest possible price for the product during the introduction stage of its life cycle. o Some consumers are willing to pay a higher price due to the prestige or status that ownership gives. o Price skimming, as Apple discovered, can sometimes not go as planned. Within 12 weeks of its introduction, Apple dropped the price of its 8GB iPhone by $200. This situation resulted in negative backlash from early buyers. Price penetration – price penetration occurs when a business charges the lowest price possible for a product or service so as to achieve large market share. o The objective is to sell a large number of products during the early stages of the life cycle and thus discourage competitors from entering the market or from taking market share from existing businesses. o The main disadvantage of this strategy is that it is more difficult to raise prices significantly than it is to lower them. Loss leader – a loss leader is a product sold at or below the cost price. o Although a business may make a loss on this product, it hopes that the extra customers will buy other products as well. o The business can recover the loss on the low-price item from the sale of other items or services that the consumer buys. o E.g. Aldi – the company has sliced $200 of one of the most premium whisky’s you can buy in Australian liquor stores. This gets people into Aldi who might not normally go in there and it highlights the cheap prices on Aldi liquor and might make people just pick up some of the cheap stuff to see what it’s like and realise they should be shopping there. Price points – price points (or price lining) selling products only at certain pre-determined prices. o Retailers, especially clothing stores and boutiques, mainly use this pricing strategy. o Using this pricing strategy makes it easier for the customer to find the type of product they need. It also makes it easier for the business to encourage the customer to ‘tradeup’ to a more expensive model. For what business would which pricing strategy be ideal? Price Skimming - Luxury jewelry stores - Large multinational corporations (Apple) Price Penetration Loss Leader - Supermarkets - Price Points - Retailers - Boutiques Price and quality interaction ‘You get what you pay for’ = quality-price relationship Prestige or premium pricing is a pricing strategy where a high price is charged to give the product an aura of quality and status. o This strategy is based on the tendency for customers to assume that expensive products are of superior quality and distinction. o Premium pricing is common for service industries, where the consumer cannot see the product in advance and relies on price for its quality. Promotion Promotion describes the methods used by a business to inform, persuade and remain a target market about its products. Elements of the promotion mix Promotion mix is the various promotion methods a business uses in its promotional campaign. Advertising Publicity and public relations Promotion mix Sales promotion Personal selling and relationship marketing Advertising Advertising is a paid, non-personal message communicated through mass medium. A successful advertising campaign can result in increased sales and profit for the business. The main advantage of advertising is that it provides businesses with the flexibility to reach an extremely large audience or to focus on a small, distinct target market segment. Advertising media Advertising media refers to the many forms of communication used to reach an audience. The six main advertising media includes: o Mass marketing – television, radio, newspapers and magazines o Direct marketing catalogues – catalogues mailed to individual households o Telemarketing – the use of a telephone to personally contact a customer o E-marketing – the use of the internet to deliver advertising messages o Social media advertising – online advertising using social media platforms such as Facebook and Twitter o Billboards – the use of large signs placed at strategic locations Personal Selling Personal selling involves the activities of a sale representative directed to a customer in an attempt to make a sale – the human aspect of promotion Although personal selling is expensive, businesses are willing to spend the money on it because it offers 3 unique advantages: o The message can be modified to suit the individual customers circumstances o The individualized assistance to a customer can create a long-term relationship resulting in repeat sales. o The sales consultant can provide after-sales customer service in relation to product features, installation, warranties and servicing, Relationship marketing Relationship marketing is the development of long-term, cost-effective and strong relationships with individual customers. The ultimate aim to gain customer loyalty by meeting the needs of customers on an individual basis. Loyalty programs, such as the Woolworths Everyday Rewards scheme, help maintain a customer relationship. Sales promotion Sales promotion is the use of activities or materials as direct inducements to customers. A premium is a gift that a business offers the customer in return for using the product. Sales promotion aims to: o Entice new customers o Encourage trial purchase of a new product o Increase sales to existing customers and repeat purchases Examples of special promotions include – coupons, premiums, refunds, and samples. Publicity and PR (public relations) Publicity is any free news story about a business’s products PR are those activities aimed at creating and maintain favorable relations between a business and its customers. There are four main ways in which public relations activities can assist a business in achieving its objective of increased sales: o Promoting a positive image o Effectuve communication of messages o Issues monitoring o Crisis managements The communication process Without effective communication, promotion is wasted Marketing managers use a variety of channels to communicate a message, the two most common channels used for promotional communication include print and electronic media advertising. Noise – any interference or distraction that affects any or all stages in the communication process. Opinion leaders An opinion leader is a person who influences others. Marketing managers use opinion leaders as information outlets for new products or to endorse an existing one. Examples include actors, athletes and models. Word of mouth Word of mouth communication occurs when people influence each other during conversations. A receiver places more trust in someone they know as opposed to a business advertising its products. Place/distribution Place/distribution are activates that make the products available to customers when and where they want to purchase them. Distribution channels Channels of distribution = routes taken to get the product from factory to customer This process usually involves a number of intermediaries such as the wholesaler, broker, agent or retailers. Traditional distribution channels The four most common channels of distribution are: o Producer to customer – simplest channel, involves no intermediaries. o Producer to retailer to consumer – often used for bulky or perishable products such as furniture and fruit. o Producer to wholesaler to retailer to customer – most common method used for distribution of consumer goods. o Producer to agent to wholesaler to retailer to customer – An agent distributes products to wholesalers but never owns the product. Innovative distribution methods Non-store retailing is retailed activity conducted away from the traditional store. E.g. o Door-to-door selling o Mail orders o Vending machines o Telemarketing o Internet marketing Channel choice Market coverage – refers to the number of outlets a firm chooses for its product. Intensive distribution – occurs when a business wishes to saturate the market Selective distribution – involves only a moderate proportion of all possible outlets. Exclusive distribution – the use of only one retail outlet for a product in a large geographic area. Physical distribution issues Physical distribution – is all those activities concerned with the efficient movement of the products from the producer to the customer. Warehousing, transport and Inventory People, processes and physical evidence The three extra Ps of the extended marketing mix. Although the three Ps role in the success of the marketing process may not be as obvious as the original four Ps, they play an unassuming yet important role in ensuring the success of the product. People People = the people element refers to the quality of interaction between the customer and those within the business who will deliver the service. Customers base their perceptions and make judgments about a business based on how the employees treat them. Consequently, all businesses should develop a culture of customer focus and put it into practice. Total marketing philosophy = Scandinavian Airway Service (SAS) Processes Processes refer to the flow of activities that a business will follow in its delivery service. Physical evidence Physical evidence refers to the environment in which the service will be delivered. It also includes materials needed to carry out the service such as signage, brochures, calling cards, letterheads, business logo and website. E-marketing E-marketing (electronic marketing) is the practice of using the internet to perform marketing activities. The big risk for Australian businesses is that consumers will totally bypass local businesses and shop from global businesses online. E-marketing technologies Webpages, podcasts, SMS, Blogs, WEB2.0 Social Media Advertising (SMA) SMA is a form of online advertising using social media platforms such as Facebook, YouTube and Twitter to deliver targeted commercial messages to potential customers. Dell computers were one of the first businesses to have a Twitter account. Advantages of SMA are: o Inexpensive o Easy to use/monitor o An effective method to gain exposure Disadvantages of SMA are: o A marketer does not have control what online customers write about the business’s product. o It is difficult for a marketer to accurately measure the reach (number of people exposed to the message) and frequency of SMA. However, SMA raises concerns including issues of privacy, accuracy, honesty and consumer trust. Global Marketing Transnational Corporation (TNC) is any business that has production facilities in two or more countries and that operates on a worldwide scale. Coca-Cola has a marketing plan that operates across many nations, cultures, and distribution channels and targets diverse markets. Global branding Global branding is the worldwide use of a name, term, symbol or logo to identify the seller’s products. Businesses are increasingly using global branding because: o It is cost effective – one advertisement can be used in a number of locations. o It provides a uniform worldwide image. o The successful brand name can be linked to new products being introduced into the market. Global branding equates to global recognition, irrespective of the language barrier. Standardisation A standardized approach is a global marketing strategy that assumes the way the product is used and the needs it satisfies are the same all over the world. Examples of standardised products include electrical equipment, mobile phones, soft drinks, music etc. This strategy has obvious cost savings for businesses. Production runs can be longer, thereby achieving economies of scale; research and development costs are reduced; spare parts and after-sales service are simplified; promotion strategies can be standardised; and any evaluation and modification of the plan is a much simpler task. Customisation A customised or local approach is a global marketing strategy that assumes the way the product is used and the needs it satisfies are different between countries. Adopting this philosophy requires the marketing plan to be customised according to the economic, political and sociocultural characteristics of the target country. PepsiCo makes local soft drinks like Shani, a blackberry- and current-flavoured soda, which is popular in the Middle East during Ramadan, the Muslim holy month. McDonalds serves beer in France and Germany, sake in Japan and noodles in the Philippines. Global Pricing Global pricing is how businesses coordinate their pricing policy across different countries. Customised pricing Customised pricing occurs whenever consumers in different countries are charged different prices for the same product. Many global businesses practice the cost-plus method to cover the added costs of exportation. A tariff is a tax on an imported product. Market-customised pricing Market-customised pricing sets prices according to local market conditions. To avoid competition from a domestic business, the global business may need to adopt a market-customised pricing strategy that allows marketers to vary the price depending on the level of demand and competition within the overseas market. Standard worldwide price Standardised pricing is the practice of charging customers the same price for a product anywhere in the world. It will only succeed if the foreign marketing costs remain low enough not to affect overall costs. There are two major risks with this strategy: o A domestic business may undercut the standardised price o Changes in the exchange rate may negatively impact on the exported price. Competitive positioning Competitive positioning relates to how a business will differentiate its products. Ultimately, to develop and maintain a competitive position in an increasingly challenging environment, businesses must gain a deep understanding of their dynamic environments in which they operate, and form their strategies according to evolving conditions. Syllabus Explain why goods, and/or services are central to both marketing and operations 1. ROLE OF MARKETING Business Details 2. INFLUENCES ON MARKETING Explain how globalization has affected marketing management Examine why ethical behavior and government regulation are important in marketing Wicked Campers (ethical behavior) Steggles (government regulation) Analyse a marketing plan for a business Wicked Campers had written substantially offensive slogans and phrases over their vans that they rent to campers. Wicked Campers has failed to provide a formal response to the dozens of ASB (Advertising Standards Bureau) determinations against it in the last four years. If businesses don't behave ethically in marketing, the government is going to make laws to force them to do the right thing. Wicked Campers is making things bad for businesses that don't want the government intervening because they're not following what the ASB has ordered them to do. Steggles chickens sold as ''free to roam'' were being held in cramped sheds and given as much space as a sheet of A4 paper, the Federal Court has found. Two of Australia's largest poultry producers that supply Steggles branded chickens - Baiada Poultry and Bartter Enterprises - were found to have made false, misleading and deceptive claims on their packaging and advertisements. Government regulation is fundamentally important in marketing, so companies who perform these unethical acts can be penalised. 3. PROCESSES OF MARKETING Nivea Nivea’s marketing plan (for the re-launch of Nivea men), was largely effective. Nivea for men adopted a range of key performance indicators to assess the success of the Nivea for men re-launch in the UK. Overall sales - Internationally, Nivea for men skincare products grew by almost 20%. Brand image ratings – Nivea for men was the Best Skincare Range winner in the FHM Grooming Award 2008 for the fifth year running. Product innovation Market share Evaluate marketing strategies for a good or service 4. MARKETING STRATEGIES Coca-Cola Coca-Cola personalized its packaging, printing off coke bottle labels with 150 of Australia’s most popular names. It’s result proved to be extremely effective. Young adult consumption increased significantly during the campaign, up by 7%. Traffic on the Coke Facebook site increased by 870% and the Facebook page grew 39%. Blackberry Assess why a mix of promotional strategies is important in the marketing of goods and services BlackBerry started promoting its new phone by first doing some personal selling, followed by a public relations campaign. Then it had a big launch to gain some publicity and will follow up now with advertising, especially in social media. It is important to utilize such a mix of promotional strategies such as Blackberry has done, to create a higher level of awareness to consumers of the company and its products, dominating most forms of media. Additionally, this variety can result in targeting a variety of demographics (e.g. SM = youth/young adults)