Download B120: An Introduction to Business Studies

Session 4
The marketing mix
4.1: Product:
• The product should be what the customer wants and expects to get.
• Products can be described as a 'bundle of benefits'. This means that it is not usually the actual
product itself which is important to customers but what it will do for them.
• There are three levels of product benefits (see figure 1):
1- The core benefit: is the kind of main benefit and is NOT the tangible, physical product (see figure
2). You can't touch it. That's because the core product is the benefit of the product that makes it
valuable to you. So when you buy a car for example, the benefit is convenience i.e. the ease at which
you can go where you like, when you want to. Another core benefit is speed since you can travel
around relatively quickly. Marketers must first define what the core benefits the product will provide
the customer.
2- The actual product benefit: is the tangible, physical product. You can get some use out of it. Again
with the car example, it is the vehicle that you test drive, buy and then collect. Marketer must then
build the actual product around the core product. May have as many as five characteristics (quality
level, features, design, brand name and packaging).
3- The augmented product benefits: is the non-physical part of the product. It usually consists of lots
of added value, for which you may or may not pay a premium. So when you buy a car, part of the
augmented product would be the warranty, the customer service support offered by the car's
manufacture, and any after-sales service. Augmented Product - offer additional consumer benefits and
services (installation, after-sale service, warranty, delivery and credit, and customer training).
Core product
Actual product
Augmented product
Installation
Packaging
Brand name
Delivery
and credit
Features
After-sale
service
Core benefit or
service
Styling
Quality
Warranty
Figure 1: The three levels of product (Kolter et al., 2001, p. 460)
Education
Restaurant
(Tangible)
Good Dominant
(Intangible)
Service Dominant
Food
Figure 2: Tangible and intangible continuum for goods and services
The product life cycle (PLC):
• The course of a product’s sale and profit over it lifetime. It involves four distinct stages (see figure 3):
introduction, growth, maturity, and decline. The characteristic profile is an S-shaped growth curve.
- The introduction stage: after a new product has been developed and is first introduced to the
market. In this stage sales are small and the rate of market penetration is low because the
industry’s products are little known and customers are few.
- The growth stage: characterized by accelerating market penetration as product technology
becomes more standardized and prices fall.
- The maturity stage: increasing market saturation and slowing growth as new demand gives way
to replacement demand (direct: customers replacing old products with new products, or indirect:
new customers replacing old customers).
- The decline stage: product becomes challenged by new products that produce technologically
superior substitute products.
The life cycle concept is useful for describing what is happening to a product at a particular moment
but it is not much use for predicting the product's future.
Sales
Money
Profit
Introduction
Growth
Maturity
Decline
Time
Marketing issues
- High
advertising and
sales promotion
costs,
- High price
possible
- Distribution
problematic
- High advertising
costs still but as a
% of sales,
- Costs are failing,
Price falling,
- More distributors
- Segmentic specific
- Choose best distribution
- Brand image
- Modifying the Marketing
Mix: Improving sales by
changing one or more
marketing mix elements
Figure 3: Product life cycle
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- Less money spent on
advertising and sales
promotion
- Cut price
New product development:
• All businesses must do this or eventually die. …use the business’s resources to meet objectives in the
changing environment.
• To create successful new products, the business must:
- Understand its customers, markets and competitors;
- Develop products that deliver superior value to customers.
• Model of the new product development process (Crawford, 1991): in this model, a number of steps of
new product development are shown in the following sequence:
Table 1: Steps of new product development:
Steps
Features
1 New product planning
2 Idea generation
3
4
5
6
Idea screening and evaluation
Technical development
Market appraisal
Lunch
A business looks at its current products, how well they are performing, and where the marketing
environment poses threats to existing products and opportunities for new products.
Specific ideas for new products are generated and collected, perhaps through group discussion
techniques such as brainstorming.
The ideas generated in the previous step are examined for their feasibility and marketability.
The technical aspects of the product are investigated and prototype is developed.
Market research is carried out to assess whether the product would be successful in the market.
The product is produced and offered in the market.
Although some form of new product development is highly important to most businesses and many
put considerable resources and expertise into their new product development processes, new products
often fail in the market. Not all innovations which seem technically brilliant to the experts really fulfil a
need in the market. For instance, picture messaging in mobile phone technology got off to a slow start
because many consumers did not really see the need to send each other pictures via the phone. On the
other hand, heavy reliance on market research in the early product development stages may also lead to
less than successful innovation.
4.2: Pricing:
• Pricing is one of the most important and complex marketing decisions. Of all the aspects of the
marketing mix, price is the one, which creates sales revenue - all the others are costs. The price of an
item is clearly an important determinant of the value of sales made. In theory, price is really
determined by the discovery of what customers perceive is the value of the item on sale. Researching
consumers' opinions about pricing is important as it indicates how they value what they are looking
for as well as what they want to pay.
• Objectives in pricing: Achieve a target return on investment; create stabilization of price and margin;
reach a market share target; meet or prevent competition; profit maximization; and survival.
• Pricing must be carefully coordinated with the other marketing mix elements.
Approaches to pricing:
There are three main approaches to setting prices, which vary in the degree to which they are
customer oriented.
Table 2: Approaches of pricing:
Approach
1
2
Features
- Adding a standard markup (a fixed profit percentage) to cost, to cover unassigned costs and provide a profit.
Cost-based
pricing
(Cost- - The least customer-oriented pricing method.
- Popular pricing technique because it simplifies the pricing process, Price competition may be minimized, and it is
Plus Pricing)
perceived as more fair to both buyers and sellers.
Customer-based
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- By using solely a cost-based approach the seller my miss opportunities for additional profit or set a price too high to
realise adequate sales to even cover cost.
- The fundamental flaw of this approach to pricing is that it ignores demand and fails to account for competition.
- Uses customers' perceptions of value rather than seller’s costs to set price.
pricing
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Competitionbased pricing
- Is more in line with a marketing orientation, as it stats with the customer's willingness to pay.
- Net value = Perceived benefits to customer (gross value) minus all Perceived outlays (Money, Time, Mental/Physical
effort)
- Pricing influenced primarily by competitors’ prices.
- Involves comparing the prices of all competing products and then setting the price of one's own product.
- Determine your competitor’s pricing, after this, you must decide to: price below or in line with or above the competition.
- Method importance increases when: competing products are homogeneous or lack differentiation, and business is serving
markets in which price is a key consideration.
Cost-based pricing:
Product
Cost
Price
Value
Customers
Value
Price
Cost
Product
Customer-based pricing:
Customers
Figure 4: Approaches of Pricing
In practice, businesses will take into account all three elements of costs, customer perceptions and
competition when setting prices.
Pricing for strategic effect:
• Pricing also includes decisions on discounts and price differentiation, as well as relative prices for the
whole product range.
• 'Product line pricing': refers to the setting of prices within linked product groups. Sometimes sales of
one product are directly linked to sales of another product. It may therefore be possible to sell one
product cheaply in order to encourage more purchases of another product and thus achieve a higher
sales volume. Some products may be sold as a bundle (E.g. stereo system vs. components;
computers), thereby creating complimentarity. The price of one product in a line may influence the
buyer’s subjective evaluation of other products in the line.
• 'Psychological pricing': involves setting prices in such a way that they capture or encourage particular
psychological effects in consumers. For example, in the real estate market properties are often priced
at uneven dollars - $239,000 instead of $240,000. The psychology of that pricing is that buyers will
recognize the $239,000 price as being much better (even though it's only $1000 less) than $240,000.
Another example, in the luxury car segment. An increase in price resulted in an increase in sales
because buyers tied the price increase to a value.
• Retail prices are often expressed as odd prices: a little less than a round number, e.g. $19.99 or? 6.95.
Psychological pricing is a theory in marketing that these prices have a psychological impact that
drives demand greater than would be expected if consumers were perfectly rational. Psychological
pricing is one cause of price points.
• If the actual price is higher, consumers feel the product is overpriced. If it is too low, consumers
assume quality is inferior.
Ethical issues in pricing:
• Pricing is an area of the marketing mix where irresponsible and unethical actions are often found. In a
market economy prices are, in principle, negotiated depending on supply and demand but, because of
the power differences that often exist between producers and consumers, there is room for unethical
pricing practice.
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• Predatory pricing: is another unethical pricing tactic. Here, a business offers its products at artificially
low prices, below the cost of production, with the aim of winning a majority of customers and driving
competitors out of the market. Consumers only benefit temporarily from such a practice as the
business will later put up prices after the competition has been weakened or eliminated. Markup
Laws are a regulatory approach to prevent predatory pricing. Such laws require a certain markup
above cost in particular industries.
• Price discrimination: the use of different prices for different customers. It is illegal if a price
advantage is granted to one, but not another, where both compete and the products are similar.
Granting promotional allowances must be done on a proportionate basis to all customers.
4.3: Distribution (Place):
•
•
•
Place: Making goods and services available in the right quantities and at the right locations - when
customers want them.
Distribution Channels: A series of businesses or individuals participating in the flow of products
from producer to final user or consumer.
Marketing channel strategy is growing in importance. Why?
1- Search for sustainable competitive advantage.
2- Growing power of retailers in marketing channels.
3- The need to reduce distribution costs.
4- The increased role and power of technology.
5- The new stress on growth.
Members of the distribution channel:
1- The shortest distribution channel (also called direct distribution or producer to customer): are
those in which producers sell directly to final customers without any intermediaries. The internet now
plays an important role in connecting businesses directly with their customers (e.g. mail order) without
the need for further intermediaries.
2- Slightly longer: are those channels which include retailers as well as producers and final customers.
Distribution channels involving large retail businesses often take this shape.
3- Smaller retailers: are often not in a position to buy directly from manufacturers. In this case the
channel contains a further level, namely wholesalers.
4- Wholesalers: are businesses that buy products from producers and sell them on to retailers. They often
carry out a number of functions in the distribution channel, such as storage and transportation,
information gathering and dissemination, or certain promotional activities.
5- Retailers: are businesses that buy from producers or wholesalers and sell on to consumers (such as:
high street shops, out-of-town superstores, internet seller, door-to-door salespeople).
Technology has the power to greatly enhance the effectiveness and efficiency of marketing channels
and could potentially change the entire structure of distribution around the world.
4.4: Marketing communications (Promotion):
•
•
Marketing Communication or Promotion is the communication undertaken by a firm to persuade/inform
potential buyers to accept ideas, concepts, or things. The concept under which a business carefully integrates
and coordinates its many communications channels to deliver a clear, consistent, and compelling message
about the business and its products. Marketing communications is not a straight forward, one-way process
from marketers to potential customers.
Marketers often follow the so-called AIDA approach, which suggests that good marketing communication
should go through the sequence of stimulating 'Awareness', 'Interest', 'Desire' and 'Action' on the part of
consumers (get your customer’s Attention, keep them Interested, generate a Desire and encourage them to
take Action). AIDA framework guides message design.
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•
Promotional Mix: is the specific mix of advertising, personal selling, sales promotion, and public relations that
a firm uses to pursue its advertising and marketing objectives (see figure 5).
1- Advertising: any paid form of non-personal presentation and promotion of ideas, goods, or services by an
identified sponsor. Advertising tools include print (newspapers, magazines), TV, radio, outdoor, and
online.
2- Sales promotions: refers to the specific element of the promotional mix which tries to create a temporary
increase in sales by offering customers an incentive to buy the product. Types of sales promotions
include: 1) Money based, such as cash-back, immediate price reductions at point of sale, and coupons. 2)
Product based, such as X % extra free, buy one get one free, free samples, piggy-backing with another
product. 3) Gift, prize or merchandise based, such as gifts in return for proof of purchase, loyalty schemes,
and contests 'solve questions and you win something' or sweepstakes 'depend on luck'.
3- Personal selling: personal presentation by the business’s sales force for the purpose of making sales and
building customer relationships. Most effective tool for building buyers’ preferences, convictions, and
actions. Personal interaction allows for feedback and adjustments.
4- Pubic relations (PR): building good relations with the business’s various publics by obtaining favorable
publicity, building up a good “corporate image”, and handling or heading off unfavorable rumors, stories,
and events. It is unpaid advertising. PR tools include: press releases, sponsorships, and special events.
Direct marketing: direct communications with carefully targeted individual consumers-the use of
telephone, mail, fax, e-mail, the internet, and other tools to communicate directly with specific
consumers. Direct marketing such as: sending catalogues and telemarketing.
Messages
Transmitters
Receivers
Advertising
Consumers
Sales
promotion
Employees
Personal
selling
Pressure
groups
Public
relations
Other
publics
Information about
products and brands
Information about
the company
Figure 5: The promotional mix
Ethical issues in marketing communications:
• Marketing Communications can be easily misused or abused:
- Communication messages often include promises about the benefits that customers will
receive and the quality of service delivery.
- Promises made and then broken disappointment, and dissatisfaction can occur.
- Perceptions of wasted time and, or money may lead to anger.
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- Employees may feel frustrated.
• Ethical issues in promotion mix:
- Personal selling: insincere, use power to gain publicity and orchestrating news events.
- Sales promotion: misleading promotions, slotting allowances and misuse of mailing lists.
- Public relations: high-pressure tactics.
4.5: Marketing services:
• Services: Any act of performance that one party can offer another that is essentially intangible and
does not result in the ownership of anything; its production may or may not be tied to a physical
product.
• Characteristic of service:
- Intangibility: A service is not physical and you need to make some evidences.
- Inseparability: A service is normally produced, consumed and evaluated simultaneously.
- Variability: Services are heavily dependent on the person that provide them.
- Perishability: Services can not be stored.
• This makes it difficult for customers to assess service quality before buying; for instance, by handling
or testing the product. Customers find it hard to evaluate services: more dependent on marketing
communications for information and business’s reputation becomes a critical factor.
• The three additional ‘P’s of Service Marketing: The marketing mix should be extended by further
elements, to take better account of the particular nature of services marketing. These elements are the
'people' who deliver the service, the 'processes' by which the service is delivered and any other
'physical evidence' for service quality that the marketer may provide.
In summary, the unique 3 Ps of services marketing: People, Physical evidence and Process are within the
control of the firm and its contact employees. They influence the customer’s initial decision to purchase a
service, customer’s level of satisfaction and repurchase decisions.
The 7 Ps - price, product, place, promotion, physical presence, provision of service, and processes
comprise the modern marketing mix that is particularly relevant in service industry, but is also relevant to
any form of business where meeting the needs of customers is given priority.
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Session 5
Addressing societal and environmental concerns
in marketing
5.1: The societal marketing concept:
• The societal marketing concept holds that a business should work out what the needs, wants and
expectations of its target customers and markets are.
• It should then satisfy these needs, wants and expectations better and more effectively and efficiently
than competing businesses, in a way that maintains or improves the customer's and society's wellbeing.
• The societal marketing described as a “customer orientation backed by integrated marketing aimed at
generating customer satisfaction as the key to attaining long-run profitable volume.”
• Societal Marketing: A societal oriented marketer intends to design products that are both pleasing and
beneficial
• Kotler (1972), who was among the first to write about the idea of societal marketing, argue that
businesses should think of the product they offered and where developing in terms of two
dimensions:
1- The immediate satisfaction they provided to consumers;
2- The long-term consumer welfare they provided.
Figure 1 shows four different types of product, depending on whether the score is high or low on
these two dimensions.
Immediate satisfaction
Low
High
Long-run
consumer
welfare
High
Low
Salutary products
Desirable products
Deficient products
pleasing products
Figure 1: Classification of new product opportunities (Kolter, 1972, p. 56)
• Societal Classification of Products
In the above diagram the products are classified according to their degree of immediate
consumer satisfaction and long-run consumer benefit.
1- Desirable Products: gives both high immediate satisfaction and high long run benefits e.g. Fresh
fruit juices.
2- Salutary Products: have low appeal but may benefit consumers in the long run e.g. seat belts,
pension plan insurance.
3- Pleasing Product: gives high immediate consumer satisfaction but may hurt the consumer in the
long run e.g. cigarettes and junk food.
4- Deficient Product: gives neither immediate appeals nor long run benefits e.g. poor quality cheap
imitations.
Marketers must become aware of the ethical standards and acceptable behaviour in today’s society.
This awareness means that marketers must recognise the viewpoints of three key players: the company, the
industry, and society.
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Ethical conflicts in marketing:
A conflict may arise when there is a difference between the needs of the three groups: the company, the
industry, and society. Cigarette and tobacco marketing have been good for companies and good for the
tobacco industry.
The Marketing process is moving towards the confluence of the consumers short run wants with the
consumer’s long run welfare, through the societal marketing concept. This states that the marketing strategy
should deliver value to the customer in a way that maintains or improves the consumer’s and the society’s
welfare (figure 2).
Society
(Human Welfare)
Societal
Marketing
Concept
Consumers
(Want Satisfaction)
Business
(Profits)
Figure 2: The Societal Marketing Concept
Harmful and Low benefit Products: Producing harmful products like tobacco, cigarettes and Alcoholic drinks
are a concern just as promoting products that lack nutritional value like the fast foods (such as McDonalds).
The societal marketing approach considers not only the commercial exchanges carried out to satisfy the
needs of customers, but also the effects on all members of the public involved in some way in these
exchanges.
Kotler and Keller (2006, p. 22) define societal marketing as follows:
The societal marketing concept holds that the organization’s task is to determine the needs, wants, and
interests of target markets and to deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the consumer’s and the society’s well-being.
Therefore, marketers must endeavour to satisfy the needs and wants of their target markets in ways
that preserve and enhance the well-being of consumers and society as a whole. Recognising profit as a major
business motive, the societal marketing concept advocates fairness to consumers while maintaining good
practices in terms of consequences for society. The societal marketing concept introduces corporate social
responsibility into marketing practices. Corporate social responsibility (CSR) means that a corporation
should be held accountable for any of its actions that affect people, their community, and the environment
surrounding those people and community.
Another popular term related to societal marketing is cause-related marketing. This term has been
identified by Kotler (2000) as a form of societal marketing. Cause related marketing is defined as the
process by which a business creates a marketing strategy that is characterized by contributions to specific
causes through customer interaction, which also serves to generate revenue for the business itself. In
addition, it can refer to a strategic positioning and marketing tool which links the corporation or its brand to a
relevant social cause for their mutual benefit.
“Cause-related marketing” is defined as activity which a business with an image, product or service
to market builds a relationship or partnership with a “cause”, or a number of “causes”, for mutual benefit.
Cause-related marketing may afford an opportunity for businesses to enhance their corporate reputation, raise
brand awareness, increase customer loyalty, and build sales (Kotler, 2000). According to this thinking
customers are increasingly looking for demonstration of good corporate citizenship.
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5.2: 'Green' marketing:
Unfortunately, a majority of people believe that green marketing refers solely to the promotion or
advertising of products with environmental characteristics. Terms like Recyclable, Ozone Friendly, and
Environmentally Friendly are some of the things consumers most often associate with green marketing.
While these terms are green marketing claims, in general green marketing is a much broader concept, one
that can be applied to consumer goods, industrial goods and even services.
Thus, green marketing incorporates a broad range of activities, including product modification,
changes to the production process, packaging changes, as well as modifying advertising. Yet defining green
marketing is not a simple task. Indeed the terminology used in this area has varied, it includes: Green
Marketing, Environmental Marketing and Ecological Marketing. While green marketing came into
prominence in the late 1980s and early 1990s, it was first discussed much earlier. Green marketing is the
best known and most frequently applied designation in the management practice. This refers to the leading
role of environmental considerations compared to that of the principle of social equity as basic elements of
the sustainability concept.
There are a large number of well-known environmental problems which are largely or partly the
result of human economic activity. Throop et al. (1993) list the following problems at local, regional and
global level:
Table 1: Steps of new product development:
Environmental issues
1
2
3
Features
Inadequate solid waste disposal Modern society produces ever large quantities of industrial and household waste, whereas
suitable places for landfill sites and other forms of waste disposal become ever scarcer.
capacity
Industrial processes and consumer use of more and more machinery, including cars, leads to
Air pollution
air pollution.
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Declining fish
populations
Topsoil erosion
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Ozone depletion
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7
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and
crustacean Modern fishing fleets use high-tech methods to find and catch more and more fish, to a
point where major fisheries worldwide have collapsed.
This is a common problem associated with modern agriculture, particularly large-scale,
industrial-style agriculture - heavy machinery disturbs top soils which are then blown away
by wind or washed away by rain.
CFCs (chlorofluorocarbon), a chemical once common in aerosols and refrigerators, is the
main culprit of ozone depletion; the pushing out of such chemicals from consumer products
and industrial processes may be able to reverse this process.
This results from industry, agriculture, households, shipping and other sources.
Such as many artificial chemicals.
Population pressure, intensive agriculture and industrial development all encroach on the
habitats of plant and animal species and can lead to their extinction.
Marine and fresh water pollution
Toxic waste accumulation
Species extinction and reduction of
biodiversity
This is one example of valuable wildlife habitats being destroyed by development.
9 Wetlands destruction
Accelerated use of fossil fuels in industrial processes and consumption is thought to
10 Climate modification
contribute to global climate change.
Environmental marketing as a term for marketing with a concern for ecological issues has
established itself during the past few years as consumer behaviour has become more environmentally
conscious. It can be seen as a continuation of the adaptation of marketing thinking to the requirements of
each marketing era. A common feature of most definitions for “green”, “ecological”, “ecologically oriented”,
or “environmental” marketing is that marketing in the ecological era attempts to connect the classical
components of marketing and management of ecological issues.
Peattie (1995) defines green marketing as the holistic management process responsible for identifying,
anticipating and satisfying the requirements of customers and society, in a profitable and sustainable way.
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Sustainable consumption has also become the aim of environmental policy. Sustainable consumption aims
at fulfilling the needs of the current generation without neglecting those of future generations. Antonides and
Raaij (1998) define environmental attributes of consumer behaviour as following:
- To avoid harmful products to the natural environment (spray cans, batteries, etc.);
- To reject products which deplete natural resources (products with high energy consumption);
- To reject harmful products to one’s health (meat from animals submitted to hormone treatment);
- To return to original taste of food;
- To adhere to animal friendliness.
Peattie and Charter (1994) identify a number of driving forces which encourage marketers to aim for
more sustainable marketing practices, including:
1- Public opinion and changing societal values;
2- Green consumer demand and the opportunities of a growing market for environmentally friendly
goods and technologies;
3- Internal and competitive pressures;
4- Legislations;
5- Green investment funds;
6- Interest from media and pressure groups;
7- The cost to business from environmental disasters.
Thanks
Prepared by
Dr. Helal Afify
2/5/2009
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