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AGL – AUTONOMOUS GROUP LEARNING
CRE - CREATIVE RELAXATION EXERCISE
AGL – BASIC MARKETING FOR MANAGERS
Draft for correction before publication June 11, 2007
Dr. Bob Boland & Team
FCA, CPA, DBA, ITP (Harvard)
Source: HBS/KM/EDW et alia
Audio: freely available in www.crelearning.com
Help: [email protected]
Copyright: RGAB/1
1
DEDICATION
This is a fun programme, is dedicated to memory of the all hard
working accountants (and auditors), who have always been the
respected traditional honest leaders in the tough game of
business, but have been relegated to the relatively humble job of
scorekeepers.
In revenge the accountants keep the score, in such a complex
way, that nobody other than skilled accountants, can know what
the score really is ... was ... or will be ...
2
INDEX
Item
Page No
Diary
4
Workpack - Part 1
66
Workpack – Part 2
121
Guide for trainer
164
APPENDICES:
A - Glossary
B - Quiz
C – Further study
181
203
218
3
DIARY
FOR EACH COURSE MEMBER
NAME:
4
COURSE DIARY
COURSE DATE & LOCATION:
PARTICIPANT’ S NAME:
TITLE:
COMPANY:
BUSINESS ADDRESS:
PREVIOUS RELEVANT EXPERIENCE:
QUIZ RESULTS:
PART I
________
100
PART II
_____
40
_____
60
______
100
PERSONAL OBJECTIVES IN TAKING THE COURSE:
NOTE: COMPLETE ONE SHEET OF THE COURSE DIARY FOR EACH DAY INDICATING:
(1)
Key points learned
(2)
Reactions to AGL
(3)
Questions which are not satisfactorily answered
(4)
Results of any quizzes given
2
5
QUIZ ANSWER SHEET
Name:_________________________________________
Mark each correct answer with a clear X — e.g. (a) (b) (c) (d)
1.
(a) (b) (c) (d)
26.
(a) (b) (c) (d)
51.
(a) (b) (c) (d)
76.
(a) (b) (c) (d)
2.
(a) (b) (c) (d)
27.
(a) (b) (c) (d)
52.
(a) (b) (c) (d)
77.
(a) (b) (c) (d)
3.
(a) (b) (c) (d)
28.
(a) (b) (c) (d)
53.
(a) (b) (c) (d)
78.
(a) (b) (c) (d)
4.
(a) (b) (c) (d)
29.
(a) (b) (c) (d)
54
(a) (b) (c) (d)
79.
(a) (b) (c) (d)
5.
(a) (b) (c) (d)
30.
(a) (b) (c) (d)
55.
(a) (b) (c) (d)
80.
(a) (b) (c) (d)
6.
(a) (b) (c) (d)
31.
(a) (b) (c) (d)
56.
(a) (b) (c) (d)
81.
(a) (b) (c) (d)
7.
(a) (b) (c) (d)
32
(a) (b) (c) (d)
57.
(a) (b) (c) (d)
82.
(a) (b) (c) (d)
8.
(a) (b) (c) (d)
33.
(a) (b) (c) (d)
58.
(a) (b) (c) (d)
83.
(a) (b) (c) (d)
9.
(a) (b) (c) (d)
34.
(a) (b) (c) (d)
59.
(a) (b) (c) (d)
84.
(a) (b) (c) (d)
10.
(a) (b) (c) (d)
35.
(a) (b) (c) (d)
60.
(a) (b) (c) (d)
85.
(a) (b) (c) (d)
11.
(a) (b) (c) (d)
36.
(a) (b) (c) (d)
61.
(a) (b) (c) (d)
86.
(a) (b) (c) (d)
12.
(a) (b) (c) (d)
37.
(a) (b) (c) (d)
62.
(a) (b) (c) (d)
87.
(a) (b) (c) (d)
13.
(a) (b) (c) (d)
38.
(a) (b) (c) (d)
63.
(a) (b) (c) (d)
88.
(a) (b) (c) (d)
14.
(a) (b) (c) (d)
39.
(a) (b) (c) (d)
64.
(a) (b) (c) (d)
89.
(a) (b) (c) (d)
15.
(a) (b) (c) (d)
40.
(a) (b) (c) (d)
65.
(a) (b) (c) (d)
90.
(a) (b) (c) (d)
16.
(a) (b) (c) (d)
41.
(a) (b) (c) (d)
66.
(a) (b) (c) (d)
91.
(a) (b) (c) (d)
17.
(a) (b) (c) (d)
42
(a) (b) (c) (d)
67.
(a) (b) (c) (d)
92.
(a) (b) (c) (d)
18.
(a) (b) (c) (d)
43.
(a) (b) (c) (d)
68.
(a) (b) (c) (d)
93.
(a) (b) (c) (d)
19.
(a) (b) (c) (d)
44.
(a) (b) (c) (d)
69.
(a) (b) (c) (d)
94.
(a) (b) (c) (d)
20.
(a) (b) (c) (d)
45.
(a) (b) (c) (d)
70.
(a) (b) (c) (d)
95.
(a) (b) (c) (d)
21.
(a) (b) (c) (d)
46.
(a) (b) (c) (d)
71.
(a) (b) (c) (d)
96.
(a) (b) (c) (d)
22.
(a) (b) (c) (d)
47.
(a) (b) (c) (d)
72.
(a) (b) (c) (d)
97.
(a) (b) (c) (d)
23.
(a) (b) (c) (d)
48.
(a) (b) (c) (d)
73.
(a) (b) (c) (d)
98.
(a) (b) (c) (d)
24.
(a) (b) (c) (d)
49.
(a) (b) (c) (d)
74.
(a) (b) (c) (d)
99.
(a) (b) (c) (d)
25.
(a) (b) (c) (d)
50.
(a) (b) (c) (d)
75.
(a) (b) (c) (d)
100.
(a) (b) (c) (d)
3
6
4.10(a) Consumer and Industrial Marketing
4.10(b) Marketing Concept
4.10(c) Product Types and life in Industrial Markets
4
7
4.10(d) DEMAND
4.10(e) ELASTICITY PRICE & SALES
4.10(f) BUYER
5
8
410(g) MIX
4.11
MARKET GRID
6
9
EXHIBIT 1
Assignment 5.1
ACE TRUCK COMPANY
QUESTIONS
(a)
This case challenges you to relate Product Planning to the Marketing Mix over a period of
time. Read the case carefully.
(b)
Role Assignments:
A, C, E
B, D, F
Marketing Director
Financial Director
(c)
Work on each question in SG but keep notes individually.
1.
Evaluate the marketing mix before 1977.
2.
How did the marketing mix change after 1977?
3.
What criteria would firms use to purchase long haul diesel trucks?
4.
Has it been a mistake to cut prices?
5.
What criteria would be used to purchase pick-up trucks and campers?
6.
Would you suggest that the company go ahead with the new products?
7.
Set out plans of action for the company justifying any decisions for:
(a)
(b)
Existing products
New products
7
10
EXHIBIT 2
Assignment 5.1
ACE TRUCK COMPANY
Company Background
The Ace Truck Company has been a leading producer of long-haul diesel trucks of high price and
quality. It sold both through its own sales branches and through specialist truck distributors. In 1972
the company dominated the long-haul diesel truck manufacturing industry. Of total sales turnover, 40
% was done through the company’s own outlets.
Technical Superiority
Ace was well known for its technical superiority and know how. It followed a regular advertised policy
of quality and reliability. The company had not changed its basic design for ten years. They believed
that this was a reflection of their advanced technology. They stressed this point in their
advertisements, and advertised that an investment in Ace equipment would not be obsolesced by new
models and innovation.
1977 Sales Downturn
By 1977 Ace’s sales had begun to decline through all distribution channels and the company lost its
position of dominance. This was accompanied by a decline in profits.
Cost Cutting Programme
In reaction to the situation, the Ace management instituted a programme which they felt would
increase sales and profits and return them to their former position in the industry. A cost cutting
programme was introduced. A cut in price was heavily emphasized in all their advertising and trade
promotion. However, this led to a decrease in the quality of the trucks.
Sales Recovery and Decline
Sales recovered for a whole and then declined again. A general business downturn at the end of the
1970’s made matters worse. More cost cutting and price reductions were ordered, but this did not
improve the situation.
At the end of 1978 Mr. Jason Ralph, financial director of Ace Truck Company, called a meeting with
the marketing department to discuss the problem.
8
11
EXHIBIT 2 (contd.)
Assignment 5.1
The Meeting
Mr. Ralph expressed his fear that unless something was done soon, the company would be in grave
financial difficulty. He asked for suggestions. Mr. Smith, marketing director, said that his department
believed that they could make a success of pick-up trucks and campers. He believed that it was
necessary to diversify their product line by manufacturing a line which would appeal to small firms and
the general public. He felt that the new line should go under the name “Ace” and that it should be
distributed through the company’s own sales branches with adverts in general circulation magazines
and emphasis on a competitive price.
Mr. Ralph approved of the idea but thought that attention should also be given to re-establishing their
image for diesel trucks. Also he felt that the promotion for the new line should stress quality and
dependability. He felt that they had made a mistake by cutting costs in the first place!
9
12
6.9
LEARNING POINTS
(a)
Know the environment before making any decision.
(b)
Know the buyer - who makes buying decision, why is the decision made? why is the
product needed - information necessary for proper marketing.
(c)
Plan ahead - examine all alternatives and make a rational decision.
(d)
Need for a consistent marketing mix - Price, Product, Promotion, Place.
(e)
It is easy to downgrade an image but hard to upgrade.
(f)
More than one person is often involved in a buying decision.
(g)
Past expenditures are not relevant for future decisions.
(h)
The market is constantly changing - keep up with its needs; do not stagnate.
(i)
A new product decision usually involves a substantial financial commitment.
(j)
Need for a constant pricing policy.
(k)
Need for a constant product policy.
(l)
Need to build a constant image - no image confusion.
(m)
Cannot downgrade a product and upgrade it subsequently.
(n)
Analyse each marketing problem in terms of the 4 P’s. PRODUCT, PRICE, PLACE,
PROMOTION.
Note: Plan ahead; examine all alternatives; make a rational decision; have a marketing mix which is
consistent with the product and the purchaser.
10
13
6.9 a
RESEARCH YOUR MARKET
6.9 b
IMAGE STANDING
6.9 c
INDUSTRIAL BUYER
A40
11
14
6.9 d
MIX CONSISTENCY
12
15
8.11A BREAK EVEN ANALYSIS
(a) Break even analysis is useful for considering the relation of revenue and cost
(b) Total cost is segregated into fixed and variable cost
(c) The B. E. P. is that volume at which cost is covered by revenue received
(d) Will this sales volume be achieved?
8. 11B BREAK EVEN CHART SHOWING PROFIT & LOSS AREAS
13
16
8.15a
PRODUCT LIFE CYCLE
8.15b
MARKET SEGMENTATION
8.15c
PRODUCT DIFFERENTATION
14
17
8.15d
PRODUCT DIVERSIFICATION
8.15e
PRODUCT PLANNING
15
18
9 PRICING AND LIFE CYCLE
8.15
PRICE ALTERNATIVES
16
19
EXHIBIT 1
Assignment 9.1
FAYMICH COMPANY
QUESTIONS
(a)
This case challenges you to relate Pricing Policy to the Marketing Mix over a period of time.
Read the case carefully. Don1t be upset by the numbers. Pick out the figures from the table.
(b)
Role Assignments:
Groups A, C, E
Groups B, D, F
Sales Manager
Financial Controller
(c)
Work on each question in SG but keep notes individually
1.
What are the four objectives in setting the price of product 124? Are they consistent with each
other?
2.
From the table given in the case, identify the unit variable costs, unit selling price and total
contribution for volumes of 75.000 and 180.000 units.
3.
What alternative prices and contributions could be examined? Suppose the company held its
present volume (125.000) at a price of 2.00, what total contribution would be achieved? Is this
better than a volume of 180.000 at a price of 1,30?
4.
How reliable are sales managers estimates?
5.
What Is the effect of increased volume on working capital required?
6.
How Important is market share? Now? In the future? If the market declines? Why?
7.
Are all costs relevant to pricing decisions? Short and long term.
8.
How will competitors react to a cut in prices? How low could price competition go? As low as
variable cost?
9.
How is your decision affected by considerations of: market share contribution, financial
requirements and long term profitability? What specific criteria shall we use to set the price?
10.
Decide and justify your decisions.
17
20
EXHIBIT 2
Assignment 9.1
FAYMICH COMPANY
Losing Market Share
The Faymich Company was losing market share of chemical product 124 despite a reputation for
quality and service, In October, 1978, the Sales Manager, Controller and Chief Executive met to
decide on pricing policy for 1979.
Price Competition
Product 124 was produced in a special department for which no alternative use was available. It was
essential to the product range because it had been a product leader some years before, until price
competition reduced Faymich sales despite a growing market. Market share had been falling rapidly
(1975-55% to 1978 20%). Most of the competitors were small and not financially strong. They usually
followed Fayrnich price leadership but allowed a margin of safety for the difference in quality.
Pricing Policy
Faymich had held price in 1974 (2.00) but matched price decline in 1975 (1.50). However, in 1977 it
raised prices again (2. 00) for better profit margins, hoping that competitors would follow the lead.
Now, in December, 1978, management was worried because of the sharp decline in sales.
Sales Manager’s Forecasts
The Sales Manager, Mr. Peter Hyde, recommended an immediate price cut to 1. 50 and forecasted
possible market share and contributions at different unit price levels as follows:
Total
Volume
000
Market
Share
%
Unit
Variable
Cost
Unit
Fixed
Cost
Unit
Total
Cost
Unit
Sales
Price
Contribution
Unit
Total
000
Profit (Loss)
Unit
Total
000
75
125
125
130
180
200
250
11
16
16
19
26
29
36
.68
.66
.66
.66
61
.63
.70
1.30
1.13
1.13
1.94
.92
.88
.75
1.98
1.79
1.79
1.60
1.53
0.51
1.41
2.00
1.80
2.00
1.75
1.50
1.40
1.20
1.32
1.14
1.34
1.09
.89
.77
.50
.02
.01
.21
.15
(.03)
(.11)
(.25)
99
143
167
142
160
146
125
2
1
27
19
(5)
(22)
(63)
18
21
Financial Manager’s Concern
The financial controller expressed concern at a product unit price of 1,50 because:
(a)
The company was in a liquidity crisis and needed to economise on working capital
requirements.
(b)
The product would be sold at a loss.
(c)
In the long run it would never again be possible to raise prices to cover cost of
production
and felt that perhaps they should discontinue the line
19
22
10.13
LEARNING POINTS
(a)
Pricing depends on many objectives.
(b)
Market share, contribution, financial needs and long term profit may conflict.
(c)
Try various assumptions to test the sensitivity of the data.
(d)
Achieve contribution at high or low volumes subject to assumptions.
(e)
Cost is relevant to price - but not the only factor!
(f)
Sell above variable cost to make a contribution.
(g)
Fixed costs are irrelevant but have to be recovered overall in the long run.
(h)
Allocation of fixed costs is only an estimate of the “minimum contribution required”.
(i)
Product life cycle is relevant to the pricing decision.
(j)
Sales estimates may be suspect since Sales Manager is often biased towards
optimistic volumes.
(k)
Sales at a ‘loss’ may merely be a bookkeeping loss but contribution could still be
high.
(l)
Never eliminate a product producing a contribution unless you replace it with one
giving a better contribution.
(m)
Today’s price should not spoil the long term future price.
(n)
Forecast competitors’ reactions and test them where possible.
(o)
Our cost structure of variable and fixed costs may indicate our competitors’ ability to
cut prices to variable cost levels.
(p)
Costs are not “correct” - merely estimates based upon assumptions.
(q)
Look at the past to help forecast future effects of price but recognise that the
environment changes.
(r)
Seek all alternatives and set criteria before making a decision.
20
23
10.14 (a)
Price Objective Conflicts
10.14 (b)
Price - Profit – Contribution
10.14 (c)
BUT TOTAL
CONTRIBUTION TOWARDS FIXED COSTS AND PROFITS NOT PER UNIT -
21
24
A99
10.14
CONTRIBUTION FACTORS
22
25
ASSIGNMENT 11.0 - SUMMARY LECTURE FOR PART I (45 MINUTES)
11. 1
INDUSTRIAL MARKETING
Marketing is the business activity directed towards a common goal, to find and satisfy
consumer needs utilising company skills and resources.
Industrial goods produce or become part of other goods, or facilitate the operation of an
enterprise.
Industrial marketing is the marketing of industrial goods and services.
11.2
MARKETING MIX
Marketing involves the selection of: product, price, place, promotion.
11.3
MARKETING MANAGEMENT CONCEPT
It is consumer oriented; consumer needs are the determinants of firm’s survival and growth.
We seek to achieve a profitable level of sales.
Coordinate the direction of all marketing activities by formulating consistent interrelated
strategies which are goal directed.
11.4
PRODUCT TYPES
Distribution and promotion depend on product classification.
- Major equipment
- Minor or Accessory equipment
- Component parts
- Raw materials
- Operating supplies
11.5
DEMAND FOR INDUSTRIAL GOODS
Demand is derived from demand for consumer goods and services. Demand fluctuates
more widely because of inventory policy and long life of capital equipment. Initial elasticity
of demand for Industrial goods can run counter to normal, but in the long term, elasticity is
normal.
23
26
11.6
INDUSTRIAL BUYER
He is motivated by profit considerations and has rational buying motives.
The purchasing decision is often influenced by more than one person - so we must ‘sell’ all
concerned.
Quality, technical assistance and service are often more important than price.
Increasing saving to buyers may increase demand.
Assurance of continued supply is important to purchaser.
Reciprocity is common between buyer and seller.
11.7
MARKET TYPES
Vertical Market
-
Horizontal Market -
11.8
covers only one or a few industries but is deep in these industries.
all kinds of firms in many industries.
PRODUCT MANAGEMENT
It is the key to survival and growth of firm - an important competitive weapon.
We must adapt to the constantly changing environment.
It involves consideration of production, finance, labour and general management as well as
marketing.
11.9
PRODUCT LIFE CYCLE
Introductory phase, Growth, Maturity, Saturation and Decline
24
27
11.10
PRODUCT PLANNING AND DEVELPMENT
We need sound product policy planned several years in advance and consistent with firm’s
capabilities and the market potential.
A sound programme requires:
(a)
(b)
(c)
(d)
(e)
commitment to a creative environment
realization of risks
continual self-appraisal
reliance on quantitative decision-making tools
formulation of new product processes.
Commitment to a new product involves permanency and substantial investment.
11.11
PRODUCT DECISION
Market segmentation versus product differentiation
Product-line simplification
Product- line diversification
Planned obsolescence
11.12
MAJOR DETERMINANTS OF PRICE
Costs - The lower limit, not the most important factor
Market conditions - for buyers
- for sellers
- workable competition
- price 1eadership
Contribution Concept - The selling price must cover the variable costs.
- Contribution therefore increases when volume increases.
- Only in the long run need contribution cover variable and fixed costs.
Marketing Objectives - the need to relate price to marketing the company’s objectives.
Geographical
- F.O.B. pricing
- Postage stamp pricing
- Basing point pricing
- Zone pricing
Government and legal regulations - Price discrimination
- Retail price maintenance.
25
28
11.13
PRICING DIFFERENTIALS
Quantity Differentials
noncumulative - this overcomes the high cost of small orders cumulative - to maintain
continued patronage
Trade Discounts they cover the distributor’s operating expenses and profits
Cash Discounts immediate payment results in more efficient use of working capital
11.14
PRODUCT PRICING
(a)
With a new product Skimming - set a high price to maximize investment recovery rate
Penetration - low price to saturate the potential market and discourage competition.
(b)
As competition develops As product matures - most decisions arise from competitive pricing action
(c)
As the product declines we should not clean house as quickly as possible but look at each practical
alternative.
11.15
PRODUCT AND PRICE CHECKLIST
(a)
PRODUCT
Does the product have
-
consumer acceptance?
distribution breadth and depth?
effective merchandising?
satisfactory performance?
economical performance?
ease of installation?
adequate servicing?
ultimate replacement?
26
29
11.16
INSTRUCTIONS (30 minutes)
(a)
Reassemble in SG now.
(b)
Study this note and learning patterns very carefully.
(c)
Discuss outstanding questions with your SG.
(d)
Record significant points in your notebook.
(e)
Do the following work in your own time:
(i)
Complete your Course Diary for Part I including notes on each case and the key
points learned (for review later).
(ii) Read your copy of the summary lecture for part I in the Course Diary.
(iii) Do additional homework allocated by Course Leader.
(iv) Review the Glossary.
(v) Do the Quiz on Marketing Arithmetic “14” Problems.
(f)
Hand in the Daily Work Pack for Part I to the Organizer in SG.
THIS ENDS PART I OF OUR PROGRAMME.
THANK YOU FOR WORKING SO HARD! PART II BEGINS IMMEDIATELY “DOWNHILL ALL THE WAY!”
27
30
SUMMARY - PART I
NOTE: COMPLETE THIS SHEET INDICATING:
(a)
(b)
(c)
(d)
Key points learned.
Reactions to AGL.
Questions which are not satisfactorily answered.
Results of any quizzes given.
28
31
QUIZ - MARKETING ARITHMETIC “14” PROBLEMS
Some skills in basic marketing arithmetic may be developed from this short quiz. (Answers given at
the end.) The key words are “Mark-up” and “Margin”, which are defined in the Glossary.
1.
A manufacturer sells an item for 80. What would be the final price for the consumer if the
wholesaler takes a mark-up of 20% (on cost) and the retailer a further mark -up of 50%?
2.
The price structure of an industry gives a 40% margin (off selling) to retailers and 10% margin
to wholesalers. The retail price is 10. 00. The manufacturer’s cost is 2. 70.
(a)
(b)
(c)
(d)
(e)
(f)
3.
4.
5.
What is the wholesale price?
What is the manufacturer’s price?
Whet is the manufacturer’s gross margin?
What is the manufacturer’s gross margin %?
What is the retailer’s mark-up %?
What is the wholesaler’s mark-up %?
(a)
What percentage mark-ups (on cost) are equivalent to the following percentage
margins (on selling price): 25%, 40%, 50%, 70%?
(b)
What percentage margins (on selling price) are the following percentage mark-ups on
cost: 33. 1/3%, 20%, 40%, 50%?
A manufacturer of household appliances distributed its products through wholesalers and
retailers. The retail selling price was 300. 00, the manufacturing cost 100. 00. The retail
margin was 50% and wholesale margin 20%. (In practice, the manufacturer would price the
item as: list price 300, less 50%, 20%).
(a)
What was the cost to the retailer? wholesaler?
(b)
What percentage margin did the manufacturer take?
Compute the average “stockturn” rate from the following figures:
Cost of goods sold
Beginning stock at cost
Ending stock at cost
6.
112, 000
13,000
15,000
Given a stockturn rate of 6 and an average stock at selling price of 25, 000, find net sales.
29
32
QUIZ - MARKETING ARITHMETIC “14” PROBLEMS (continued)
7.
Ca1culate manufacturer’s a break-even point. Estimated expenses were as fo11ow:
General and administrative
Taxes
Sa1ares
Lease Payments
Advertising
60,000
7,000
60,000
3,500
9,500
140,000
Estimated unit variable cost was 2. 85 and manufacturer’s sales price was 4.85.
8.
A company estimates its fixed cost for the first year at 40,000, and its variable costs at 60% of
sales. Sales are expected to reach 300,000.
(a)
(b)
9.
What is the BEP?
What is the estimated profit?
If total fixed costs are: 200,000 and total variable costs are 300,000 at an output of 20,000
units, what are the external total fixed costs and total variable costs at en output of 30,000
units?
What are the average fixed costs per unit, average variable costs per unit and average total
Costa at these two levels?
10.
Compute the average stock (at cost) of a firm having a stockturn rate of 10 times, net sales of
150,000, and an average gross margin of 25%.
11.
What is the manufacturer’s break even point in number of units for a type of metal fitting
selling at retail for 1.25 with a retail margin of 40%, and a wholesale margin of 10%? The
manufacturer’s variable costs per unit are 4.315 and his fixed costs total 36, 000.
30
33
QUIZ – MARKETING ARITHMETIC “14” PROBLEMS (continued)
12.
13.
To sharpen your understanding of costing, classify the following items as fixed, variable, or
differential (changing with the decision)
(a)
salesman’s commission
(b)
lease payment on truck fleet
(c)
repair expenses
(d)
interest on bank borrowings
(e)
costs of introducing a new product
(f)
marketing research costs for the year
(g)
salary of director of pricing group
(h)
freight expenses on purchases
(i)
cost of a special market study
(j)
cost of computer billing system
(k)
cost of legal approval of advertising copy
(l)
packaging cost:
(m)
packaging design costs
(n)
sales taxes
(o)
direct material costs
(p)
cost of forms used in invoicing and billing
(q)
travel and promotional expenses incurred in selecting new distributors to handle
and firm’s product lines.
Construct an operating statement from the following data:
Gross sales
Returns and allowances
Inward transportation
Closing inventory at cost
Expenses % of net sales
Cash discounts taken
Purchases at billed cost
Opening inventory
75,860
3,860
504
9,040
25%
1,060
41,600
17,196
31
34
QUIZ - MARKETING ARITI.METIC “l4” PROBLEMS (continued)
14.
From the following data construct an operating statement and compute:
(a)
gross margin percentage
(b)
net profit percentage
(c)
stockturn
Purchases at billed cost
117
Ca1es returns
15
Expenses
66
Inward transportation charges
2
Opening stock
6
Gross sales
215
Closing stock at cost
22
Cash discounts taken
3
32
35
ANSWER TO MARKET1NG ARITHMETIC “14 PROBLEMS
1.
2.
3.
4.
5.
Manufacturer’s selling price
Mark-up + 20%
Mark-up + 50%
Retail price to consumer
80
16
96
48
144
(a)
Wholesale price
10.00 - 40% = 6.00
(b)
Manufacturer’s price
6.00 - 10% = 5.40
(c)
Manufacturer’s gross margin
5.40 - 2. 70 = 2.70
(d)
Manufacturer’s gross margin %
2.70 x 100% = 50%
5.40
(e)
Retailer’s mark-up %
4.00 x 100% = 66.2/3%
6.00
(f)
Wholesa1er’s mark-up %
0.60 x 100% = 11%
5.40
(a)
33%, 66. 2/3%, 100%, 233% (to the nearest 1%)
(b)
25%, 16. 2/3%, 20%, 33% (to the nearest 1%)
(a)
Cost to retailer
Cost to wholesaler
(b)
Manufacturer’s margin%
= 300.00 - 50% = 150.00
= 150.00 - 20% = 120.00
20 x 100% = 16.2/3%
120
Beginning stock
Ending stock
Average stock
Stockturn
13,500
15,000
28,000
14,000
112,000
14,000
8 times
=
=
33
36
ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued)
6.
6 x 25, 000
= 150,000
7.
Break-even point
= 140,000
2.0 (4. 35 - 2.85)
= 70,000
8.
Break-even point of sales
= 40,000 x 100
(100-60)
= 100,000
Estimated Profit and Loss Account
Sales
Costs:
300,000
Fixed
Variable
40,000
180,000
Profit
9.
10.
220,000
80,000
Output
TFC
TVC
20,000 units
200,000
300,000
30,000 units
200,000
450,000
TC
500,000
650,000
Average FC (per unit)
10
15
6.2/3Average VC
15
Average total cost
25
21.2/3
Cost of goods sold
= 150,000 x 75%
= 112,500
112,500
Average stock
= 10
Average stock
= 11,250
34
37
ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued)
11.
12.
Retail selling price
Retail margin (40%)
= 1.25
= 0.50
Wholesale selling price
Wholesale margin (10%)
= 0.75
= 0.075
Manufacturer’s selling price
Manufacturer’s variable cost
= 0.675
= 0.315
Unit contribution
= 0.36
36,000
0.36
= 100,000 units
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
variable
fixed
fixed (actually semi-fixed)
fixed
differential
fixed
fixed
variable
differential
fixed
fixed, if in-house legal staff is used. If law firm is used, billing may be on a retainer, i.e.
fixed, or on an hourly basis, i. e. variable.
variable
a non-recurring cost. fixed.
variable
variable
variable
differential
35
38
ANSWERS TO MARKETING ARTHIMETIC “14” PROBLEMS (continued)
13.
Gross sales
Returns and al1owance
Net sales
Opening stock (cost
Purchases
Less: Discounts
75,860
3,860
72,000
17,196
41,600
1,060
40,540
504
Add: Inward transportation
14.
Purchases - net cost delivered
41,044
Cost of goods handled
Closing stock (cost)
58,240
9,040
Cost of goods sold
49,200
Gross margin
Expenses (25% of sales)
Net profit
22,800
18,000
4,800
Gross sales
Returns
215
15
Net sales
Opening stock at cost
Purchases at billed cost
Cash discounts taken
Purchases at net cost
Inward transport charges
200
26
117
3
114
2
Purchases at net cost delivered
Total cost of goods handled
Closing stock at cost
116
142
22
Cost of goods sold
120
Gross margin
Expenses
Net profit
80
66
14
(a
Gross margin %
80
200
=
40%
(b)
Net profit %
14
200
=
7%
(c)
Stockturn
120
24
=
5 times
36
39
EXHIBIT 1
Assignment 1.1
SHORT QUIZ ON MARKETING MIX
For a company marketing a brand of toothpast, indicate how the Marketing Mix (Product, Price, Place
and Promotion) would probably change under the following conditions:
In the spaces provided, enter:
C to indicate CHANGE
N to indicate NO CHANGE
DK to indicate DON’T KNOW or CAN’T TELL
NOTE: Choose the “most probable” solution.
1.
Example: A competitor launches a new brand
which affects the company’s target market
2.
A competitor lowers his price by 20%
3.
A competitor 1aunches a new advertising
campaign
4.
Economy undergoes a recession
5.
Company’s sales volume increases significantly
each year despite limited production capacity
6.
Two medium sized competitors merge their
companies and replace you as the market leader.
7.
Small cost error discovered in overhead allocation
8.
Total sales force resigns
9.
Major retail customer switches to competitor
10.
New technical magazine is introduced.
Product
Price
Place
Promotion
C
C
N
DK
37
40
QUIZ ANSWER SHEET
NAME:……………………………………………………………
Mark each correct answer with a clear X – e.g. (a) (b) (c) (d)
1.
(a) (b) (c) (d)
26.
(a) (b) (c) (d)
51.
(a) (b) (c) (d)
76.
(a) (b) (c) (d)
2.
(a) (b) (c) (d)
27.
(a) (b) (c) (d)
52.
(a) (b) (c) (d)
77.
(a) (b) (c) (d)
3.
(a) (b) (c) (d)
28.
(a) (b) (c) (d)
53.
(a) (b) (c) (d)
78.
(a) (b) (c) (d)
4.
(a) (b) (c) (d)
29.
(a) (b) (c) (d)
54
(a) (b) (c) (d)
79.
(a) (b) (c) (d)
5.
(a) (b) (c) (d)
30.
(a) (b) (c) (d)
55.
(a) (b) (c) (d)
80.
(a) (b) (c) (d)
6.
(a) (b) (c) (d)
31.
(a) (b) (c) (d)
56.
(a) (b) (c) (d)
81.
(a) (b) (c) (d)
7.
(a) (b) (c) (d)
32
(a) (b) (c) (d)
57.
(a) (b) (c) (d)
82.
(a) (b) (c) (d)
8.
(a) (b) (c) (d)
33.
(a) (b) (c) (d)
58.
(a) (b) (c) (d)
83.
(a) (b) (c) (d)
9.
(a) (b) (c) (d)
34.
(a) (b) (c) (d)
59.
(a) (b) (c) (d)
84.
(a) (b) (c) (d)
10.
(a) (b) (c) (d)
35.
(a) (b) (c) (d)
60.
(a) (b) (c) (d)
85.
(a) (b) (c) (d)
11.
(a) (b) (c) (d)
36.
(a) (b) (c) (d)
61.
(a) (b) (c) (d)
86.
(a) (b) (c) (d)
12.
(a) (b) (c) (d)
37.
(a) (b) (c) (d)
62.
(a) (b) (c) (d)
87.
(a) (b) (c) (d)
13.
(a) (b) (c) (d)
38.
(a) (b) (c) (d)
63.
(a) (b) (c) (d)
88.
(a) (b) (c) (d)
14.
(a) (b) (c) (d)
39.
(a) (b) (c) (d)
64.
(a) (b) (c) (d)
89.
(a) (b) (c) (d)
15.
(a) (b) (c) (d)
40.
(a) (b) (c) (d)
65.
(a) (b) (c) (d)
90.
(a) (b) (c) (d)
16.
(a) (b) (c) (d)
41.
(a) (b) (c) (d)
66.
(a) (b) (c) (d)
91.
(a) (b) (c) (d)
17.
(a) (b) (c) (d)
42
(a) (b) (c) (d)
67.
(a) (b) (c) (d)
92.
(a) (b) (c) (d)
18.
(a) (b) (c) (d)
43.
(a) (b) (c) (d)
68.
(a) (b) (c) (d)
93.
(a) (b) (c) (d)
19.
(a) (b) (c) (d)
44.
(a) (b) (c) (d)
69.
(a) (b) (c) (d)
94.
(a) (b) (c) (d)
20.
(a) (b) (c) (d)
45.
(a) (b) (c) (d)
70.
(a) (b) (c) (d)
95.
(a) (b) (c) (d)
21.
(a) (b) (c) (d)
46.
(a) (b) (c) (d)
71.
(a) (b) (c) (d)
96.
(a) (b) (c) (d)
22.
(a) (b) (c) (d)
47.
(a) (b) (c) (d)
72.
(a) (b) (c) (d)
97.
(a) (b) (c) (d)
23.
(a) (b) (c) (d)
48.
(a) (b) (c) (d)
73.
(a) (b) (c) (d)
98.
(a) (b) (c) (d)
24.
(a) (b) (c) (d)
49.
(a) (b) (c) (d)
74.
(a) (b) (c) (d)
99.
(a) (b) (c) (d)
25.
(a) (b) (c) (d)
50.
(a) (b) (c) (d)
75.
(a) (b) (c) (d)
100.
(a) (b) (c) (d)
38
41
EXHIBIT 3
Assignment 1. 1
EXPLANATION OF ANSWERS TO “QUIZ ON MARKETING MIX”
NOTES:
(a)
The questions are of course simple - indeed oversimplified - to provide a basis for
provocative discussion.
(b)
We present below some justification for the “correct answers”. Depending upon the
particular market situation and the sophistication of the marketing argument, in
some cases, alternative solutions could be acceptable.
(c)
If your SG all agree you may count alternative solutions as “correct”.
1.
Improve your brand and be prepared to change the price to meet the threat of the
competitor’s new brand. Distribution channels (place) remain the same since we are
operating in the same product field. Promotion should change if Product and Price changes.
2.
Change price in order to meet competitor’s lower price. Channels remain the same, but
promotion will change.
3.
Probably launch a new advertising campaign to counter the competitor’s new campaign.
4.
Probably change the product, price and promotion (but not the ‘place’) to retain as much as
possible of our existing contribution from this product and market.
5.
Probably change product and price to maximize contribution from the product - we have
limited production capacity and would therefore try to limit our sales but still get maximum
contribution.
6.
To regain market share it is necessary to change product, price and promotion. Place remains
unchanged.
7.
Absorb this small error and do not change any part of the Marketing Mix.
8.
Change our distribution (place) and much of our promotional methods to counter the loss of
our complete sales force.
9.
What action we take on any of the 4 P’s depends on how important the customer is to us and
why he has switched.
10.
As marketers of a consumer product we do not normally use technical magazines for our
product promotion and would thus not change any part of the Marketing Mix.
39
42
3.14 [a] CHANNELS
3.14 [b] COVERAGE
3.14
PROMOTIONAL MIX
40
43
EXHIBIT 1
Assignment 4. 1
MOTORING AMUSEMEN’IS COMPANY
QUESTIONS
(a)
(b)
This case challenges you to relate distribution and promotion to the Marketing Mix.
Read the case carefully (Exhibit 2) (5 minutes)
Work on each question in SG but keep notes individually.
1.
Does the car game fulfil a consumer need? Does it have unique benefits? Are there obvious
substitutes? (10 minutes)
2.
Do you agree with Mr Smith’s identifications of the target market? (5 minutes)
3.
Do you agree that Mr Smith’s car game has tremendous potential? What are the buying
criteria?
4.
What distribution channel do you advise? Support your recommendations. (5 minutes)
5.
Do you agree with Mr Smith’s reasoning on push and pull strategies? Could he avoid
promotional expense? (5 minutes)
6.
What advertising media and timing do you recommend for the full marketing strategy. (10
minutes)
41
44
EXHIBIT 2
Assignment 4.1
MOTORING AMUSEMENTS COMPANY
INTRODUCTION
Mr. Smith, part owner and senior executive with a newly established company had designed a
game which could be played by people travelling in motorcars. The game was quite simple to play; in
fact, it was ideal for children.
Mr. Smith believed there was a tremendous potential for this game if he could overcome the
distribution and promotion problems, without incurring large costs.
CRITERIA FOR SUCCESS
When it was first decided to put a car game on the market, management established three main
guidelines for this game. These were: it should be a simple game, it should be cheap, and should be
easily available to the motoring public. Solutions to the distribution and promotion problem must
recognise these guidelines and respect the constraints they impose.
TARGET MARKET
Tourists and people with children making a journey of about 100 miles or more were identified as the
prime target market.
PRICE
It was thought the game would have a great chance of success if it could be sold to the consumer at
less than 30 cents. The estimated costs at present were:
20 cents manufacture
4 cents wholesaler
10 cents retailer
34 cents retail price
If wholesalers could be eliminated the price could be reduced to less than 30 cents. However, it was
believed that without wholesalers, the game could not get the depth of distribution thought necessary
for success. Also, manufacturing cost was very sensitive to sales volume. If volume could be
increased by 100% manufacturing cost would fall to 12 cents.
DISTRIBUTION
Ideally the product should be stocked and displayed by as many roadside outlets as possible. It was
planned to get the product into the majority of petrol stations, roadside restaurants and motels, within
three months from launch date. This was recognised as a difficult and expensive task. It would be
necessary to use many wholesalers, since petrol stations, restaurants and motels were not catered for
by the same wholesalers. Finding these wholesalers and managing their activities would take a
considerable amount of Mr. Smith’s time. He was reluctant to devote the majority of his time to this
venture. - He began to consider large department and chain stores as potential outlets. He
42
45
was ware that they did not present the depth of distribution available through the other channels. On
the other hand, they did have toy and game departments, and they presented a relatively easy–to–
contact distribution network for him as a manufacturer, and for his target market.
PROMOTION
If petrol stations and roadside outlets were used, Mr. Smith intended using a push strategy based on
in–store promotion. There would be display units, posters and window decals in each outlet. This
material would be given free to the retail outlets on an introductory, self liquidating offer. Although the
product would not make profit on the first sell-in, it would not incur an expense requiring long term
capital.
If department and chain stores were used to distribute, it was felt that it would be necessary to rely on
a pull strategy. This would be expensive. In fact, projected profits for the first year would be spent on
the launch campaign. Also a much slower sales take–off could be expected using a pull strategy. This
worried the company because of the lack of capital and also because the game could be imitated
quite easily. Thus a fortune could be invested selling the concept of a car game to the public, and a
competitor might reap the profits.
You are appointed by Mr. Smith to advise him.
Note: A “decal” is a window sticker advertisement.
43
STOP DO NOT TURN THE PAGE
46
5.9
LEARNING POINTS
1.
To succeed a product must fulfil unsatisfied consumer needs.
2.
A product must be presented to the target market in terms of consumer benefits. The
consumer must be made aware of these benefits.
3.
The relevance of distribution and promotion strategies can be assessed only in
relation to the overall marketing objectives.
4.
Don’t assume that you know the consumer. Test market your hypothesis and
minimise risk.
5.
Predict consumer needs and plan follow-up products.
6.
Recognise that the purchaser may not be the consumer and cater for purchaser and
consumer needs.
7.
A successful launch is only one aspect of the marketing of a product. Plan product
strategy into the future.
44
47
5.10
LEARNING PATTERNS
(a)
BUYER NOT ALWAYS THE CONSUMER
5.10
(b) PRICE NOT THE ONLY FACTOR
5.10
(c) NIX TO MEET CONSUMER NEEDS
45
48
EXHIBIT 1
Assignment 6.1
BILL BROWN – QUESTIONS
As Bill Brown, Consumer Marketing Consultant, deal with the following problems of your clients.
Answer each question individually:
1.
Johnson Corporation
The market for single tub washing machines is declining. In searching for new products to
replace lost business, Johnson Corporation decided that the quickest and most economic way
to add new products to their product range, was to acquire any other profitable businesses
with established product lines.
Is this a good policy to assure continued growth for the firm?
2.
Elecmix Company
A small manufacturer of electric mixers was faced with the probable entry into the market of
several large competitors. The industry had always been very competitive; inefficient plants
were constantly going out of business. However, competition was “equitable”. Elecmix
Company always had emphasised its “ingenuity quality and service” against competitors’
advertising and prestige.
How should Elecmix meet the potential competition?
3.
Stain Pruf Corporation
Stain Pruf Corporation controls the exclusive rights to a revolutionary new stain remover. It
wishes to market it to housewives and is planning an extensive advertising campaign.
What media should be used?
4.
Amalgamated Factories
Amalgamated Factories is a newly–formed corporation processing a wide variety of herbs and
spices. They have to decide whether to distribute directly or indirectly. As a new industry, their
financial resources are limited.
should they distribute directly? Why?
5.
All-Star Fasteners
All-Star Fasteners manufactures a complete line of dress fasteners. In an attempt to increase
sales volume, the marketing manager plans a 10% reduction in price.
What do you expect the initial results will be? Why?
46
49
EXHIBIT 1 (continued)
Assignment 6.1
6.
Industrial Supply Corporation
The Industrial Supply Corporation, distributors of a general line of household cleansers, has been
plagued in the last few years by frequent, but small orders from retailers. Profit margins have been
reduced because of the small orders’ cost of processing.
Moreover, most customers are slow payers, debtors have thus risen, while cash has not. The
company has a policy of no discounts.
What do you recommend?
47
50
EXHIBIT 2
Assignment 6.1
BILL BROWN – ANSWERS
1.
Johnson Corporation
No. Acquisition may provide new products to bolster the firm’s declining sales but eventually
sales of these products will decline also. This is only putting off the inevitable. For continued
growth, we must continually search for new product ideas which match our capabilities and
the resources of the firm. Market and environment are constantly changing and the firm must
keep up with them. There is no point in acquiring widely different businesses from the existing
base activity.
2.
Elecmix Company
Review production facilities to see that they are as efficient as possible. Also strive to
maintain the corporate image of ingenuity, quality and service, and perhaps intensify
advertising, stressing quality – both for the present and in the future. It is important that
product be kept technologically current. Distribution channels should be reviewed to be sure
that they are serving both customer and manufacturer in the best possible way. The pricing
policy should be reviewed.
3.
Stain Pruf Corporation
The campaign should be based on advertisements in women’s and general household
periodicals to generate awareness and interest in the product. This could be tied up by a
selective in-store demonstration campaign that would establish product confidence.
4.
Amalgamated Factories
No! They should distribute indirectly. The product is standardised and will be used by many
consumers in many different areas in very small order quantities. Probably little in the way of
special knowledge and service is needed. There is also not much need for direct consumer
contact. It is better to distribute through wholesalers who handle household food supplies.
Also, direct distribution of the product would require a large sales force and a large financial
commitment beyond the resources of the firm.
48
51
EXHIBIT 2 (continued)
Assignment 6.1
5.
All-Star Fasteners
Provided the quality of the product is competitive, demand will increase if the reduction is
accompanied by promotion. Price cuts on their own will have little effect. The market is
quality, colour, size and price conscious.
6.
Industrial Supply Corporation
Institute a programme of noncumulative quantity discounts. This will encourage customers to
plan their purchases carefully to take advantage of these discounts. When the programme is
begun, inform customers of the potential savings from larger and less frequent purchases.
Savings in order processing should more than pay for discounts.
Allowing discounts for prompt cash payments may encourage customers to pay their bills
promptly rather than delay them till the last moment.
49
52
8.7 (a) MARKETlNG PLANNING
8.7 (b) ASSESSING MARKETING OPPORTUINITY B45
8.7 (c) PLANNING
50
53
8.7 (d) CONTROL
51
54
EXHIBIT 1
Assignment 9.1
THE EYEGLASS COMPANY
QUESTIONS
(a)
This case challenges you to relate the marketing strategy to the overall corporate
objectives. Read the case carefully. (10 minutes)
(b)
Work on each question in SG but keep notes individually.
1.
Identify the new target market, the buying criteria and the company’s key corporate
objectives. (3 minutes)
2.
What was the company’s marketing strategy before 1979? Identify the four P’s. (5
minutes)
3.
What is the proposed strategy after 1979? Is it consistent with the company’s skills,
resources, strengths and weaknesses? (5 minutes)
4.
Critically evaluate the company’s expansion plan. Assess its potential and highlight
any major weaknesses.(10 minutes)
5.
Advise the company on what they should do. Present your recommendation in four
sections, each dealing with one of the four P’s. Relate these to the corporate
objectives. (12 minutes)
52
55
EXHIBIT 2
Assignment 9.1
THE EYEGLASS COMPANY
INTRODUCTION
In 1979 the Eyeglass Company has decided to expand its activity into new markets. Plans have been
formulated to expand from the high priced prestige section of the spectacle frames market into the
larger less individualist medium priced market section. Within the company there are many misgivings
concerning this change. Critics of the plan point out that it will mean the development of a completely
new marketing plan, new channels of distribution, new product design, new price structures and that
all these changes will affect the company image and maybe the success of the current product line.
The critics feel that the risks involved in expansion are intolerably high. However, they are in full
agreement with their colleagues that if the Eyeglass Company is to survive in a fast growing
competitive market they must expand sales and improve their declining return on investment.
CORPORATE OBJECTIVES
Management had agreed the following corporate objectives:
(a)
Improve profitability. They intend to halt the current trend of declining profits during the next
twelve months and have set themselves a goal of double current annual profits per year in
three years.
(b)
Increase sales volume. Sales volume has been static during the last few years but the market
has grown steadily during this period. To achieve profit goals management estimated that
they need a 25% increase in sales volume. This would bring the manufacturing capacity up to
approximately 90%. It is considered unwise to attempt greater production without
considerable investment in new plant.
(c)
Provide better working conditions for employees. The company had experienced labour
unrest because of the lack of improvement in working conditions. Management were keenly
aware of the fact that, they had not kept pace with market improvements and had agreed that
it was their duty to do so. This decision was not based solely on consideration of improved
productivity but was provoked by a respect for staff and the recognition that many of them
were long term employees.
(d)
Maintain and strengthen the company’s identity in the spectacle frames market. The Eyeglass
Company had been in the spectacles frames market for 80 years. Until recently the company
was family owned and managed. Although this was no longer so, the spirit of the family and
their deep respect for social responsibility continued to influence management.
IMAGE
The company had a very favourable image among consumers, and within the trade in the
spectacle market, this was viewed by management as one of the major competitive strengths
the company enjoyed and they wished to build on it.
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EXHIBIT 2(Continued)
Assignment 9.1
DISTRIBUTION
The company currently sold exclusively to opticians who use the spectacle frames for conventional
glasses and sunglasses. Expansion into the middle priced high volume market would involve
manufacturing sunglasses and selling them direct to department stores, chemists and stationery
stores. This fact was discussed with some current customers and the thought that the Eyeglass
Company was considering the possibility of supplying direct competitors with sunglasses created
great annoyance and indignation. Opticians pointed out that they had been emphasising the quality of
Eyeglass Company frames as a competitive selling strategy during the last number of years when
trying to sell against chemists and department stores.
CONSUMER BRAND AWARENESS
Because of the relatively small market share enjoyed by the company, only a small proportion of
potential consumers were aware of the product. Those that were had a very high regard for the quality
and individuality of the product.
PURCHASING CRITERIA FOR SUNGLASSES
Consumers were very discriminating in the medium priced sunglasses market. Styling, shade, fit and
price were all significant factors. The market was highly competitive thus it would be difficult to obtain
retail support if a new product did not compare favourably with competition. Brand image was
important to retailers and consumers. This fact was evident in the wide price range experience in this
market segment.
PROMOTION
Most of the leading brands used a pull/push strategy. Direct consumer advertising was supplemented
by instore display units and attractive posters.
EXPANSION PLAN
The company was considering entering the top section of the medium price market segment. Thus
they would provide a high quality, relatively expensive product. Distribution would be limited to
chemists and high quality department stores using the current sales force who would also call on
opticians.
A dual advertising campaign would be launched to consumers and traders. The association with the
Eyeglass Company would be emphasised as a major appeal.
PROFITABILITY
The unit profit on sunglasses would be 50% higher than that currently earned on frames. Provided
there was not a significant fall off in business through opticians, the company would reach their profit
and volume goals at around 10% of the new market.
PRODUCTION
Lens for sunglasses would be bought in, the company did not have the skills or resources necessary
to produce them at their plant.
STOP! DO NOT TURN THE PAGE
2–37
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ASSIGNMENT 10.0 - LECTURE THE EYEGLASS COMPANY
(30 MINUTES)
10.1
STORY OF THE CASE
A company wished to expand into new markets. The expansion requires new product design,
new distribution channels, and new marketing strategy. Management is concerned about the
likely effects this new venture will have on the company’s established products and on the
corporate image.
10.2
PRODUCT
The Eyeglass Company is a manufacturer of high quality spectacle frames. They want to
manufacture high quality sunglasses and enter the sunglasses market.
10.3
TARGET MARKET
Until 1979 the company catered for upper income people who bought expensive spectacles
and sunglasses through opticians. The new target market would be upper income people who
buy expensive sunglasses through chemists and prestige department stores.
10.4
BUYING CRITERIA - CONSUMERS Style, shade, fit and price.
10.5
PROMOTION
Pull/push strategy using print advertising and instore displays.
10.6
CORPORATE OBJECTIVES
Improve profitability through increased sales by entering the sunglasses market. Maintain a
high quality product in keeping with the corporate image.
10.7
COMPANY MARKETING STRATEGY BEFORE 1979
Price
Product
Place
Promotion
–
–
–
–
high consistent with quality and product image.
high quality, specialised in the spectacle market, differentiated.
clear market segmentation
company salesman, very little paid advertising. Depended on a push
strategy and close personal contact with customers.
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10.8
PROPOSED STRATEGY AFTER 1979
The company intends to operate in two market segments. They will cater for the upper income groups
in both segments and will concentrate on quality and prestige image.
(a)
Skills – The company is established in the spectacle frame market; it is technologically sound
to enter the sunglasses market. However they will be dependent on an outside supplier for
lenses. Also they do not possess skills in assessing the quality of their product. If the quality
of the bought – in lenses is not consistent with the quality of the company’s frames the market
image in both market segments could be lost.
(b)
Resources – The company has had falling profits during the last few years. They are not in a
position to diversify out of the spectacle market. Expanding into the sunglasses market is a
good idea. It utilises spare plant capacity and minimises new capital investment.
(c)
Strengths – The company has a favourable image among consumers and traders.
(d)
Weaknesses – The current customers may become very upset and change their supplier.
10.9
COMPANY EXPANSION PLAN
(a)
The decision to enter the sunglasses market is product orientated. No attempt has
been made to research consumers reactions to the proposed sunglasses. Also an
evaluation of competition in this market was overlooked. There may not be a market
gap in the top end of the proposed market. It is possible that current brands in this
market are fighting for survival.
(b)
The inherent assumption in the expansion plan is naïve!! Will consumers who have
bought and have been satisfied with spectacles obtained through opticians on a
marketing push strategy, also be enticed by a pull/push strategy through chemists
and department stores to buy the new product? Opticians have greeter influence on
their clients’ purchases than sales staff in a chemist or department store. The
recommendation of an optician is rated as professional advice the suggestions of
sales staff is rated as ‘hard sell’.
The sunglasses venture may succeed but this will be a matter of good luck not
professional consumer orientated market planning.
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10.10
RECOMMENDATION
Consumer reactions should be researched. If these are favourable a market gap analysis
should be conducted to establish the market potential for the product. On the assumption that
the market does exist, the company is advised to expand. However a strong promotional
campaign should be launched to consolidate the optician market first. Opticians can be
assured that the market for sunglasses with ground lenses and the market for casual
sunglasses does not overlap significantly. Also it should be emphasised that the Eyeglass
Company will be maintaining a high standard that will be favourable to the current product
image. During the sunglasses launch period, a special offer should be presented to opticians
to distract them from changing suppliers during a moment of annoyance.
10.11
MARKETING MIX
Price
-
Should place the product in the prestige section of the market. This is
consistent with the objective of a small market share and comfortable
profit.
Product
-
Must be consumer orientated. Fit, shade and style must be indicative of
product quality and individuality.
Place
-
As suggested, high class department stores and chemists. Exclusive
selling rights should be granted to select stores to protect the product
image and help capture the patronage of these stores. This strategy will
also minimise distribution costs.
Promotion
-
The emphasis should be on high quality instore displays and posters.
Advertising in exclusive magazines should be used seasonally only and
at the time of launch. Merchandising salesmen should be used to
ensure that the product is displayed to advantage at retail outlets. The
relatively small promotional budget will not dilute profits. It will
concentrate on exposing the product to the consumer in an environment
that will enhance its quality.
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10. 12 LEARNING POINTS
-
Establish corporate objectives to guide marketing strategy.
-
Concentrate on consumer needs, not product features when searching for new products.
-
Don’t assume that market gaps exist - research them.
-
Have courage, there is always opposition to change - find solutions to these problems.
-
Make certain that the Marketing Mix is consistent with the corporate objective.
-
New product developments are long term involvements; don’t rush forward without
consolidating your position.
-
Match company skills, resources, strengths and weaknesses with company plans.
-
Marketing is an integrated function involving all aspects of he company’s activity.
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10.13a DIVERSIFICATION REDUCES RELIANCE
10.13b PLAN MUST HAVE OBJECTIVE
10.13c PROMOTION MUST BE CONTINUOUS
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62
10.13d PLAN MUST BE MEASURABLE
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63
ASSIGNMENT 12.0 - SUMMARY LECTURE
12.1
12.2
OBJECTIVE OF THE PROGRAMME
(a)
To understand the language and concepts of industrial marketing.
(b)
To appreciate the importance of the Marketing Mix.
(c)
To develop skills in setting marketing objectives, using marketing techniques.
(d)
To communicate effectively with marketing specialists.
(e)
To motivate further study.
MARKETING EVALUATION - A CHECKLIST IN TERMS OF THE MARKETING MIX
(a)
PRODUCT
Does your product have
-
consumer acceptance?
satisfactory performance?
economical production?
ease of installation?
adequate servicing?
(b)
PRICE
Find out:
-
where is the product in the life cycle?
do we skim or penetrate?
do we want to be price leaders or followers?
what is the return desired on funds?
what discount funds should we follow?
are there any Government or legal regulations which governs the price?
what is the cost structure? Fixed, variable costs?
what competitive reaction may be expected?
what alternative prices are available?
what contribution may be achieved?
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64
2.
MARKETING EVALUATION (continued)
(a)
PLACE (DISTRIBUTION)
Decide on:
- What market coverage is required
- effectiveness and efficiency of your channels
- whether your outlets are relevant to consumer purchasing demands
- what amount of ‘push’ you need by marketing directly to the cost of so doing
- your channel consistency with other aspects of your ‘mix’
(d)
PROMOTION
Decide:
- how best to inform consumers about your product’s attributes
- how much money to spend
- whether to use personal selling, advertising, or sales promotion
- whether your salesmen are an efficient part of your promotion
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65
4.
FINAL CONCLUSION
(a)
Marketing is finding out what the needs of your target market are and satisfying them.
(b)
To get organised for marketing you must be consumer orientated.
(c)
Make all your existing facilities attuned to one basic concept - to satisfy the consumer
and his needs to the best of your ability.
(d)
The overall marketing man must be the general manager - there can be no marketing
orientation unless he subscribes to it.
(e)
He becomes a marketing man by realising that any company can only on long term
exist if it satisfies the needs of its target
markets better than its competitors.
(f)
You have the right marketing mix when you are satisfying the needs of your target
market better than your competitors and are making your planned profit.
(g)
Marketing men have to be optimistic and creative but you control them by making
them personally responsible for the achievement of their goals.
(h)
Mathematical models in marketing are becoming very important because they are
very useful tools to help you in planning the marketing mix better.
(i)
There is no substitute for marketing ‘flair’ but all other members of the management
team should be increasingly marketing oriented in order to ensure not only the shortterm but also the long-term survival of the firm.
FINAL NOTES
THIS ENDS OUR PROGRAMME, WE HOPE IT HAS INSPIRED YOU TO DEVELOP YOUR SKILLS
BY PRACTICAL APPLICATION. WE THANK YOU FOR YOUR INTEREST AND HARD WORK.
KEEP YOUR GLOSSARY AS A DAILY REFERENCE FOR INDUSTRIAL MARKETING LANGUAGE
AND CONTINUE YOUR STUDIES!!
WE HOPE YOU ENJOYED THE AGL EXPERIENCE.
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SUMMARY - PART II
NOTE: COMPLETE THIS SHEET INDICATING:
(1)
Key points learned
(2)
Reactions to AGL
(3)
Questions which are not satisfactorily answered
(4)
Results of any quizzes given
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67
FEEDBACK SUMMARY
(Detach and give to the Organiser)
1.
NAME:
TITLE:
COMPANY:
BUSINESS ADDRESS:
2.
PREVIOUS RELEVANT BACKGROUND
3.
QUIZ SCORES:
PART I
_____
100
PART II
______
40
_______
60
______
100
4.
DID THE PROGRAMME COMPLETELY SATISFY YOUR PERSONAL OBJECTIVES? IF
NOT, WHY?
5.
WHAT SUGGESTIONS COULD YOU MAKE FOR IMPROVING THE PROGRAMME?
6
WHAT OTHER AGL PROGRAMMES COULD BE DEVISED WHICH WOULD BE USEFUL
TO YOU OR YOUR COMPANY?
7.
WHAT IS YOUR OVERALL EVALUATION OF THE COURSE IN TERMS OF :
Excellent
1
Good
2
Fair
3
Poor
4
Terrible
5
Content
Presentation
Administration
Usefulness
NOTE: Mark the appropriate item with an “X”
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68
WORK PACK - PART I
ABBREVIATIONS
AGL
-
AUTONOMOUS GROUP LEARNING
IND
-
INDIVIDUAL
SG
-
SMALL GROUP
CSG
-
COMBINED SMALL GROUP
MG
-
MAIN GROUP
PR
-
PROGRAMMED READINGS
L
-
LECTURE
D
-
DISCUSSION
CR
-
CHAPTER
STOP! DO NOT TURN THE PAGE UNTIL SPECIFICALLY
INSTRUCTED.
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69
ASSIGNMENT 1.0 - INTRODUCTION (30 minutes)
1.1
1.2
SPECIFIC OBJECTIVES OF THIS PROGRAMME
(a)
Understand the language and concepts of Marketing.
(b)
Appreciate the important of the marketing mix.
(c)
Develop skills in setting marketing objectives and using marketing techniques.
(d)
Communicate effective communication with marketing specialists.
(e)
Motivate further study in the future.
AUTONOMOUS GROUP LEARNING (AGL)
The AGL method is designed to achieve rapid individual learning using special materials and
the stimulus of group activity without a formal instructor. The groups use the materials to find
the answers to all problems and questions.
1.3
GROUP ARRANGEMENTS
The work will be done:
1.4
(a)
IND - INDIVIDUALLY, or
(b)
SG - SMALL GROUP (in small groups of three or four members which will change
daily), or
(c)
CSG - COMBINED SMALL GROUP (two small groups together), or
(d)
MG - MAIN GROUP (for short taped lectures on key learning points with visual aids).
SG - SMALL GROUPS
Initial group names provided by the Organizer. Note the name of your SG and names of the
other members.
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70
1.5
LEARNING MATERIALS
(a)
Retained by members:
-
(b)
Used but not retained by members:
-
NOTE:
1.6
Textbook
Course Diary
Daily Work Packs, Parts I and II including: introduction, cases.
Use your notebook. Do not mark the Daily Work Pack which must be handed back
at the end of each day. You receive all the materials in your SG. Don’t look ahead in
the Work Pack until you are specifically asked to do so!
METHOD
Try to complete fully every task in the time allowed.
A pattern of learning methods will be used including:
(a)
(b)
(c)
(d)
(e)
(f)
Programmed readings
Case analysis
Lectures
Quizzes
Learning patterns
Homework activities
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71
1.7 a
OBJECTIVES
1.7 b
GROUP ARRANGEMENTS
1.7 c
METHOD
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72
1.8
Instructions (15 minutes)
(a)
Assemble in SG’s to introduce yourself, indicate your past experience in marketing.
And what you hope to contribute to and gain from the course.
(b)
Complete page 1 of the Course Diary.
(c)
Reassemble in MG when the bell rings.
Note:
Check that you have a full set of learning materials NOW.(See 1.5)
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73
EXIHIBIT 1
Assignment 3.1
QUESTIONS ON BASICS OF MARKETING
1.
Ultimate consumers are mainly affected by the functioning of the industrial market through:
(a)
(b)
(c)
(d)
2.
The difficulties encountered in measuring the size of an industrial market are:
(a)
(b)
(c)
(d)
3.
(d)
Demand for industrial goods is highly responsive to changes in customers’ stocks.
Initially industrial demand drops when prices drop.
Changes in a declining industrial market have sense of urgency about them and are
abrupt.
All of these.
Marketers have not followed the geographic decentralization of their customers because:
(a)
(b)
(c)
(d)
5.
Practical difficulties in data collection and lack of agreement on the definitions of
industrial marketing.
It costs too much money.
There are no real difficulties.
Too many people are already measuring it.
During depressed times industrial demand falls faster and further than consumer demand
because:
(a)
(b)
(c)
4.
What products are available.
How suitable these products are in relation to the needs of the users.
What the prices will be for these products.
All of these.
There is no reason for the marketer to be conveniently located.
They may have close relationships with many customers who in turn supply them with
goods and services.
They would have to build too many smaller plants.
All of these.
Emotional motives become important in the industrial purchasing process when:
(a)
(b)
(c)
(d)
Products and vendors are fairly competitive in price and quality.
Bad products are delivered.
Promises are not kept.
The vendor is not known and thus vendor analysis cannot be applied.
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ASSIGNMENT 4.0 - LECTURE
BASICS OF MARKETING (20 MINUTES)
4.1
MARKETING
Marketing means the directing of all company activities towards one common goal.
The goal is to discover the satisfy the present and potential needs of a target consumer.
Groups of target consumers make up the target market
4.2
CONSUMER AND INDUSTRIAL MARKETING
Consumer Marketing is the marketing of goods (or services) to the ultimate consumer.......
the public.
Industrial Marketing is the marketing of goods (or services) to industrial consumers, who
in turn may manufacture goods for the public.
4.3
MARKETING MIX
Marketing involves selection of the proper marketing MIX:
Product
what kind
Price
how much
Place
where and how to distribute
Promotion
how to get buyers
.......... and personal sellings
- THE FOUR P’s+P -
4.4.
MARKETING MANAGEMENT CONCEPT
(a)
Consumer Orientation - survival and growth of the firm depend upon how well
consumer needs are satisfied.
(b)
Profit Orientation - we seek to achieve a profitable sales volume.
(c)
Strategy - our plans to achieve our goals.
(d)
Marketing Strategy Development - coordinate direction of all marketing activities by
formulating consistent interrelated strategies directed towards goals.
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75
4.5
PRODUCT TYPES AND INDUSTRIAL MARKETS
The choice of distribution channels depends on whether we have:
(a)
(b)
(c)
(d)
(e)
4.6
Major Equipment:
-
sales usually require close technical cooperation1 more negotiation, planning
and possible financing assistance due to high cost.
-
The product life is very long.
Minor or Accessory Equipment:
-
is used in an auxilliary capacity; charged to current expense; demand is
usually wide-spread and requires a broader market. Buyer/manufacturer
relationships are less direct and immediate.
-
The product life is fairly long.
Component Parts:
-
the original equipment and replacement parts market may retain identity in the
finished product.
-
the product life is medium.
Raw Materials:
-
unprocessed goods, often marketed through agents.
-
product life is fairly short.
Operating Supplies:
-
Maintenance, Repair and Operations (MRO); these do not become part of the
finished product, and are usually marketed by middlemen
-
the product life is the shortest of all
DERIVED DEMAND
Demand for Industrial goods is derived from demand for consumer goods and services.
Demand fluctuates more widely than consumer demand due to very high sensitivity to
changes in customer stocks.
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76
4.7
ELASTICITY OF DEMAND
(a)
Elasticity is responsiveness of demand to changes in price.
(b)
Normal elasticity - sales increase as price declines. The more important the item, the
higher the response (degree of elasticity).
(c)
The initial elasticity of demand for industrial goods runs counter to normal:
- price increase brings growth in demand
- purchasers see price change as the beginning of further movement in that
direction.
4.8
4.9
THE BUYER
(a)
Is motivated by profit considerations and has largely rational buying motives, often
influenced by more than one person. Must “sell” each person.
(b)
Employs value analysis: he reviews product specifications in relation to needs in
order to get economic, reliable performance.
(c)
Buys not just goods but also benefits. He evaluates the sellers by “vendor” analysis.
(d)
Considers quality, technical assistance and service often more important than price.
(e)
Considers assurance of supply important.
(f)
Considers reciprocity - “you buy from me then I buy from you”.
MARKET TYPES
(a)
Vertical Market:
-
(b)
covers only one or a few industries but is deep in all firms.
has a small number of prospective customers.
each customer is a large part of the market.
a change in buying patterns of a customer can cause wide variations in sales.
no need for a large sales force - just for a “good one”.
Horizontal Market:
- many kinds of firms in many industries.
- depends on an extensive distribution system.
- marketing oranization must be designed to fit the market.
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77
4.10.
MARKET GRID.
(a)
Used to select target market.
(b)
Portrays as a box. , cross hatched like a grid.
(c)
Done on the basis of relevant market characteristics on the vertical and horizontal
axis.
(d)
Each square represents a smaller more homogeneous market.
(e)
Each market box (target) in the grid requires a special marketing mix.
(f)
Choose the best market target and, apply the correct marketing mix.
78
4.10(a)
Consumer and Industrial Marketing
4.10 (b) Marketing Concept
4.10 (c) Product Types and life in Industrial Markets
Nature of Equipment
SEE COPY IN COURSE DIARY
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79
4.10 (d)
DEMAND
4.10 (e)
E.L.A.S.T.I.C.I.T.Y PRICE & SALES
4.10 (f)
BUYER
SEE COPY IN COURSE DIARY
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80
4.10 (g)
MIX
4.10 (h)
MARKET GRID
SEE COPY IN COURSE DIARY
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81
EXHIBIT 1
Assignment 5.1
ACE TRUCK COMPANY
QUESTIONS
(a)
This case challenges you to relate Product Planning to the Marketing Mix over a period of
time. Read the case carefully.
(b)
Role Assignments:
A, C, E
B, D, F
Marketing Director
Financial Director
(c)
Work on each question in SG but keep notes individually.
1.
Evaluate the marketing mix before 1977.
2.
How did the marketing mix change after 1977?
3.
What criteria would firms use to purchase long haul diesel trucks?
4.
Has it been a mistake to cut prices?
5.
What criteria would be used to purchase pick-up trucks and campers?
6.
Would you suggest that the company go ahead with the new products?
7.
Set out plans of action for the company justifying any decisions for:
(a)
(b)
Existing products
New products
SEE COPY IN COURSE DIARY
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82
EXHIBIT 2
Assignment 5.1
ACE TRUCK COMPANY
Company Background
The Ace Truck Company has been a leading producer of long-haul diesel trucks of high price and
quality. It sold both through its own sales branches and through specialist truck distributors. In 1972
the company dominated the long-haul diesel truck manufacturing industry. Of total sales turnover, 40
% was done through the company’s own outlets.
Technical Superiority
Ace was well known for its technical superiority and know how. It followed a regular advertised policy
of quality and reliability. The company had not changed its basic design for ten years. They believed
that this was a reflection of their advanced technology. They stressed this point in their
advertisements, and advertised that an investment in Ace equipment would not be obsolesced by new
models and innovation.
1977 Sales Downturn
By 1977 Ace’s sales had begun to decline through all distribution channels and the company lost its
position of dominance. This was accompanied by a decline in profits.
Cost Cutting Programme
In reaction to the situation, the Ace management instituted a programme which they felt would
increase sales and profits and return them to their former position in the industry. A cost cutting
programme was introduced. A cut in price was heavily emphasized in all their advertising and trade
promotion. However, this led to a decrease in the quality of the trucks.
Sales Recovery and Decline
Sales recovered for a whole and then declined again. A general business downturn at the end of the
1970’s made matters worse. More cost cutting and price reductions were ordered, but this did not
improve the situation.
At the end of 1978 Mr. Jason Ralph, financial director of Ace Truck Company, called a meeting with
the marketing department to discuss the problem.
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83
EXHIBIT 2 (contd.)
Assignment 5.1
The Meeting
Mr. Ralph expressed his fear that unless something was done soon, the company would be in grave
financial difficulty. He asked for suggestions. Mr. Smith, marketing director, said that his department
believed that they could make a success of pick-up trucks and campers. He believed that it was
necessary to diversify their product line by manufacturing a line which would appeal to small firms and
the general public. He felt that the new line should go under the name “Ace” and that it should be
distributed through the company’s own sales branches with adverts in general circulation magazines
and emphasis on a competitive price.
Mr. Ralph approved of the idea but thought that attention should also be given to re-establishing their
image for diesel trucks. Also he felt that the promotion for the new line should stress quality and
dependability. He felt that they had made a mistake by cutting costs in the first place!
SEE COPY IN COURSE DIARY
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ASSIGNMENT 6.0 - LECTURE ON ACE TRUCK CO.
6.1
STORY OF THE CASE
Company was a leader in long-haul diesel truck manufacturing. It sold through its own sales
branches and through independent dealers. Dependability, quality and infrequent product
changes were emphasized. Sales and profits declined and a cost cutting programme was
introduced. Advertising emphasis was changed. Sales and profits continued to decline. The
company was now considering how to improve sales of the trucks and whether to diversify.
MARKETING MIX BEFORE 1977
6.2
Product:
Long-haul diesel trucks of high quality infrequent changes mn design;
reliability and service.
Price:
High price consistent with quality.
Place:
Sold through branches and specialist dealers.
Promotion:
Emphasized quality, dependability and technical
superiority; adverts stressed lack of changes in product; adverts were placed
primarily in periodicals for the trucking industry.
NOTE:
Overall a balanced marketing mix which had satisfied the market’s needs.
MARKETING MIX AFTER 1977
Product:
Decrease in quality - less sophistication.
Price:
Price cutting.
Place:
Distribution channels same.
Promotion:
Lower price of diesels emphasized no attempt to retain image of quality.
NOTE:
Overall a marketing mix not compatible with the needs of the target market,
in which they had built their reputation and strength. Ace is now competing
with a marketing mix which is apparently more applicable to other target
markets.
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6.3
6.4
CRITERIA FOR PURCHASING LONG HAUL DIESEL TRUCKS
(a)
Objective rational purchase made by large truck companies.
(b)
Criteria - quality, dependability, reliance, availability service and up to date
TECHNOLOGY!
(c)
Price of secondary importance because of comparatively large losses in revenue
from breakdowns as compared to price.
MISTAKE TO CUT PRICE?
Yes; product has been degraded by de-emphasizing quality and dependability and by
reducing quality.
Price is not of prime importance, especially in the existing target market
6.5
CRITERIA FOR PURCHASING PICKUPS AND CAMPERS
Primary purchasers of pick-ups are small businesses and farmers; purchasers of campers
would primarily be families.
Criteria include:
Price - probably the main consideration in the purchase.
Quality and Dependability - also important, but the small purchaser is less able to judge
these.
6.6
THE NEW PRODUCTS
Go or no go? Yes.
The new products will make the company more flexible and less vulnerable; the new
product can be distributed through already established outlets.
They have the technical skills and know-how.
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6.7
PLAN OF ACTION - EXISTING PRODUCTS
(a)
General - Attempt to recapture the long-haul truck market. Research the market
to determine the buyers needs. Be consumer orientated.
(b)
Marketing Mix Product:
Upgrade its quality to regain reputation for quality. Emphasize that
the product has been brought up to date.
Place:
Streamline distribution Cut back company owned distributors,
increase independents. Offer incentives.
Price:
Difficult to increase price before image is re-established.
Promotion: Emphasize the quality and dependability: launch a promotion
campaign to reach all those responsible for purchasing decisions
Use varied media (direct mail, trade and general periodicals).
Note: Create demand from consumer through media. Create desire to sell product from
distributors through incentives and advertising allowances.
6.8
PLAN OF ACTION - NEW PRODUCT
(a)
Generally Does the market exist?
Research market to determine buyers needs.
Who is the competition?
Is the market appropriate for the company’s resources and skills?
Can the company use the “Ace” name to promote the product?
(b)
Marketing Mix Product:
Quality dependability and reliability.
Price:
Emphasize a competitive price
Place:
Use both own outlets which are well established and different
distribution channels suitable to the new target market’s needs,
since pick up arid camper buyers may be differently located from
long-haul buyers.
Promotion: Choose media carefully and well distributed to general public.
Provide incentives to distributors. Ride on the Ace image! Be
consistent with the overall company. Image of quality.
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6.9
LEARNING POINTS
(a)
Know the environment before making any decision.
(b)
Know the buyer - who makes buying decision; why is the decision made? why is
the product needed - information necessary for proper marketing.
(c)
Plan ahead - examine all alternatives and make a rational decision.
(d)
Need for a consistent marketing mix - Price, Product, Promotion, Place.
(e)
It is easy to downgrade an image but hard to upgrade.
(f)
More than one person is often involved in a buying decision.
(g)
Past expenditures are not relevant for future decisions.
(h)
The market is constantly changing - keep up with its needs; do not stagnate.
(i)
A new product decision usually involves a substantial financial commitment.
(j)
Need for a constant pricing policy.
(k)
Need for a constant product policy.
(l)
Need to build a constant image - no image confusion.
(m)
Cannot downgrade a product and upgrade it subsequently.
(n)
Analyse each marketing problem in terms of the 4 P’s. PRODUCT, PRICE,
PLACE, PROMOTION.
Note: Plan ahead; examine all alternatives; make a rational decision; have a marketing mix which is
consistent with the product and the purchaser.
SEE COPY IN COURSE DIARY
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69 (a)
RESEARCH YOUR MARKET A40
6.9 (b) IMAGE STANDING
6.9 (c) INDUSTRIAL BUYER
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6.9
(d) MIX CONSISTENCY
SEE COPY IN COURSE DIARY
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EXHIBIT 1
Assignment 7.1 (b)
QUESTIONS ON PRODUCT AND PRICE
1.
2.
3.
4.
Product X has a selling price of 200, variable cost of 120, allocated fixed cost of 100;
therefore
(a)
it makes a loss and must be eliminated immediately;
(b)
it contributes 80 and should be retained indefinitely;
(c)
it only contributes 100 towards variable costs and should be eliminated;
(d)
it has a positive contribution but makes a loss in the accounts records.
To decide whether to retain a product we should
(a)
evaluate the product in terms of sales, profits, marketing considerations, production
considerations, and competition;
(b)
listen to what our sales staff are saying;
(c)
consider the loss of prestige sustained by dropping the product;
(d)
consider the life cycle of competitive products.
To price effectively in a market with a limited number of buyers, we must
(a)
know the buyer’s demand function, cost structure and be flexible in pricing policy;
(b)
know what our competitors are going to do, in terms of price and product;
(c)
be willing to change our prices continually;
(d)
wait till all our main competitors have fixed their prices and then determine ours.
What position can a seller take, as regards pricing, in respect to competition?
(a)
match them by quoting the Identical price;
(b)
price slightly below the competition;
(c)
price slightly above the competition;
(d)
any of the previous three.
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QUESTIONS ON PRODUCT AND PRICES cont’d
5.
EXHIBIT 1 (cont’d.)
Assignment 7.1 (b)
We should not immediately eliminate a product which shows an irreversible downward sales
trend because
(a)
profit possibilities of running out the product are ignored;
(b)
it disrupts ties with the hard core of loyal customers who would otherwise keep on
buying the product;
(c)
if we drop products repeatedly the firm’s image suffers;
(d)
all of these points.
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ASSIGNMENT 8.0 - LECTURE - PRODUCT & PRICE
(30 MINUTES)
8.1
PRODUCT MANAGEMENT AND POLICY
(a)
It is the key to the firm’s growth and survival.
(b)
It involves production, finance, labour, general management, as well as marketing.
(c)
Product planning:
(d)
-
is an important competitive weapon
-
must be adapted constantly to the changing environment
-
seizes market opportunities in the face of competitive action
-
is used for the development of new products
-
has a great influence on sales volume and profit
Policy must be:
-
consistent with the market and the firm’s potential
-
continually appraised and quantified
-
bold, quantitative and rist-taking
-
planned several years in advance
-
always providing for new product development
EXHIBIT 2
Assignment 7.1 (d)
1. (d)
2. (a)
3. (a)
4. (d)
5. (d)
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8.2
PRODUCT LIFE CYCLE
Products move through a cycle in relation to the institutional and marketing environment.
(a)
(b)
(c)
(d)
Introductory Phase:
-
sales volume is not sufficient to cover engineering and marketing
development cost
-
there are often no, or very few, competitors
-
more often have to promote the product concept to our target market.
Growth:
-
sales increase considerably and the product is first profitable
-
the major problem is to match the demand
-
competitors start moving into the market
-
we have to promote the brand name more and more and promote the product
concept, on its own, much less.
Maturity:
-
sales rise slowly in the face of mounting competition
-
more intensive marketing cause profits to decline. This can be offset by
finding: new market segments for the product, and new uses by the same
markets.
-
product differences between competitors become less obvious.
Saturation and Decline:
-
the emphasis is on optimizing returns for each succeeding dollar at cost
-
there is now a need to control cost
-
eventual abandonment takes plan
-
we have to distribute the product into every possible outlet
-
the product differences between competitors are negligible.
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8.3
NEW PRODUCTS
We need continuing flow of new products to perpetuate profits.
(a)
Failure of new products is due to:
- insufficient knowledge of the target market
- inadequate planning of the product’s introduction
- insensitivity to the product’s limitations.
(b)
Evolution involves:
-
8.4
solicitation of ideas
preliminary appraisal and selection of these ideas
expansion of the ideas into product specifications
development of a feasible product
market testing and ‘test marketing’
full-scale production and marketing
MARKET SEGMENTATION AND PRODUCT DIFFERENTIATION
(a)
Market segmentation - where products and efforts are directed towards
individual market segments
- they achieve market depth
- it reduces confusion from alternate products.
(b)
Product differentiation - where emphasis is on the difference between our
product and competing products; it is often used at the maturity stage of the lifecycle to extend the profitable life of a product.
- it is accompanied by selling and promotional effort
- it results in non-price competitive conditions.
8.5
PRODUCT SIMPLIFICATION, DIVERSIFICATION AND OBSOLESCENCE
(a)
Simplification - where we eliminate our weak products after a critical appraisal
of: sales, profits, markets, production and competition.
(b)
Diversification - we develop a strategy to:
-
(c)
increase growth in sales and profits
exploit new markets
stabilise sales and profits
take risks
gain competitive advantage from the product’s reputation
exploit our financial resources
Planned Obsolescence - during the product’s life we determine when its
usefulness has terminated; product durability and changing technology lead to
obsolescence.
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8.6
PRICING POLICY
Generally depends upon:
- what the market will pay - this is the KEY POINT!!
- leadership and competition
- the life cycle - the position of the product and the length of the cycle
- patent protection
- cost and contribution
- other influences
8.7
PRICING POLICY - LEADERSHIP AND COMPETITION
(a)
During workable competition, the most common situation is:
- product differentiation
- many buyers and sellers are operating
- attempts to maintain a relationship between selling price and the cost
(b)
Price leadership exists when:
- there are few sellers
- the market share is safe from price competition
- followers need not make pricing decisions
NOTE:
Number, size and importance of products, the competition and the
buyers……..are key influences:
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8.8
PRICING POLICY - LIFE CYCLE - POSITION AND LENGTH
(a)
Position in the Life Cycle.
(i)
Introduction
We can use skimming or penetration pricing.
Skimming: this is a high price position
-
it is used to maximise the recovery rate of a new product’s
development and the high costs of research and development
-
it is used to maximise return before competitors counteract.
Penetration: this is a low price position
(ii)
(iii)
-
it is used to saturate the potential market and discourage
competition
-
it is used when there is an absence of patent barriers
-
it is used when production economies of scale are experienced.
Growth
-
if we previously were skimming, then we must now reduce our
price
-
if we previously were penetrating, then we will have to
consolidate our firm market position with the lowest price level.
Maturity:
-
(iv)
Saturation and Decline:
-
(b)
pricing must be at a minimum to be competitive
non-price with promotions begin at this stage
profitability starts to decline
both sales and profit decline
elimination of the product may result in customer alienation
possible new product analysis is called for
Length of Product Life Cycle.
-
we ask a higher price in the introduction stage than in maturity or
decline
-
the price is lower when cycle shortens and rapid obsolescence
occurs, so that we can move stocks.
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8.9
PRICING POLICY - OTHER INFLUENCES
(a)
Market: When the customer is willing to pay what the product is worth to satisfy
his needs - then cost becomes irrelevant.
(b)
Patent Protection: A higher price can be asked because the product -
(c)
8.10
is safe from competition
has a longer product life
Government Controls: Price is controlled where price discrimination, anti -trust
action, retail price maintenance, fair trade, etc. exist.
PRICING POLICY - COSTS
(a)
(b)
Costs:
-
cost is the lower limit of price, never the most important factor
-
we must define which costs are relevant to the pricing decision
these costs depend on accurate data collection
Fixed Costs:
-
(c)
Variable Costs:
-
(d)
these costs vary directly with sales output.
Committed Costs:
-
(e)
do not vary with volume, they are merely allocated by accountants.
these costs relevant to decision
Example of a product: cost and profit
PRODUCT A
Selling price
2.00
Less: Variable cost
0.68
Fixed cost
1.30
1.98
Profit
0.02
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8.11
PRICING POLICY – CONTRIBUTION
(a)
For effective pricing, we seek contribution, not profit (which is confused by fixed cost
allocation).
PRODUCT A
2.00
0.68
1.32
1.30
Sel1ing price
Less: Variable cost
Contribution
Less: Fixed cost (allocated)
Profit
(b)
0.02
Contribution depends upon volume, selling price and variable cost and thus Volume
Unit
Selling
Price
Unit
Variable
Cost
Unit
Contribution
Total
Contribution
100,000
2.00
0.67
1.33
133,000
150,000
1.50
0.67
0.83
124,000
(c)
A higher contribution may be achieved at various volumes.
(d)
Short run contribution is computed:
Selling price less short run variable costs.
(e)
Long run contribution is computed:
Sel1ing price less long run variable cost.
(f)
Long run variable cost may be similar to short run total cost.
NOTE: Only in the long run must contribution cover fixed costs.
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8.11A
8. 11B
BREAK EVEN ANALYSIS
(a)
Break even analysis is useful for considering the relation of revenue and cost
(b)
Total cost is segregated into fixed and variable cost
(c)
The B. E. P. is that volume at which cost is covered by revenue received
(d)
Will this sales volume be achieved?
BREAK EVEN CHART SHOWING PROFIT & LOSS AREAS
SEE COPY IN COURSE DIARY
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8.12
PRICING POLICY – GEOGRAPHICAL
Geographical differences in price must be part of the pricing system when transportation
charges have a significant effect on price.
8.13
(a)
F.O.B. pricing - the buyer pays the actual freight cost; used when competitors are
widely scattered, and the seller is prevented from expanding the market
except through price reduction.
(b)
Delivered pricing - the price includes transportation.
(c)
Postage stamp pricing - uniform delivered price to all buyers; this provides
access to all geographical markets.
(d)
Basing point - the buyer pays charges from the nearest shipping point plus the
price at the shipping point.
(e)
Zone or Grid pricing - each geographic zone has a different delivered price based
on average freight costs.
PRICING POLICY – PRICING DIFFERENTIALS
Quantity Differentials
(a)
(b)
Noncumulative
-
these are based on the size of the individual order
-
it overcomes the problem of small orders which are costly
Cumulative
-
these are based on the total amount purchased over a period
-
it assures continued patronage
-
it does not penalize a large purchaser for an occasional small
shipment.
It is not useful for major equipment.
Trade Discount
-
this is a discount from the list price to the distributor to cover operating expenses
and profit. It is a means of controlling resale price.
Cash Discount
-
these encourage immediate payment
they avoid credit costs
provide for more efficient use of working capital
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8.14
PRICING POLICY – MARKETING OBJECTIVES
Objectives determine the marketing mix, which includes the role of price. Relates price to
the product and the objectives. Non-price aspects, however, may dominate.
Pricing objectives include:
-
market share
return en assets employed
price stabilization
mett, follow or prevent competition
short-term objectives, consistent with long-term goals
short-term contribution and long-term profit
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8.15(a)
PRODUCT LIFE CYCLE
8.15 (b) MARKET SEGMENTATION
8.15 (c) PRODUCT DIFFERENTATION
SEE COPY IN COURSE DIARY
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103
8.15 (d) PRODUCT DIVERSIFICATION
8.15 (e) PRODUCTPLANNING
815 (f)
PRICE DETERMINAN’S
SEE COPY IN COURSE DIARY
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104
8.15 (g) PRICING AND LIFE CYCLE
8.15 (h) PRICE ALTERNATIVES
SEE COPY IN COURSE DIARY
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EXHIBIT 1
Assignment 9.1
FAYMICH COMPANY
QUESTIONS
(a)
This case challenges you to relate Pricing Policy to the Marketing Mix over a period of time.
Read the case carefully. Don1t be upset by the numbers. Pick out the figures from the table.
(b)
Role Assignments:
Groups A, C, E
Groups B, D, F
Sales Manager
Financial Controller
(c)
Work on each question in SG but keep notes individually
1.
What are the four objectives in setting the price of product 124? Are they consistent with each
other?
2.
From the table given in the case, identify the unit variable costs, unit selling price and total
contribution for volumes of 75.000 and 180.000 units.
3.
What alternative prices and contributions could be examined? Suppose the company held its
present volume (125.000) at a price of 2.00, what total contribution would be achieved? Is this
better than a volume of 180.000 at a price of 1,30?
4.
How reliable are sales managers estimates?
5.
What Is the effect of increased volume on working capital required?
6.
How Important is market share? Now? In the future? If the market declines? Why?
7.
Are all costs relevant to pricing decisions? Short and long term.
8.
How will competitors react to a cut in prices? How low could price competition go? As low as
variable cost?
9.
How is your decision affected by considerations of: market share contribution, financial
requirements and long term profitability? What specific criteria shall we use to set the price?
10.
Decide and justify your decisions.
SEE COPY IN COURSE DIARY
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EXHIBIT 2
Assignment 9.1
FAYMICH COMPANY
Losing Market Share
The Faymich Company was losing market share of chemical product 124 despite a reputation for
quality and service, In October, 1978, the Sales Manager, Controller and Chief Executive met to
decide on pricing policy for 1979.
Price Competition
Product 124 was produced in a special department for which no alternative use was available. It was
essential to the product range because it had been a product leader some years before, until price
competition reduced Faymich sales despite a growing market. Market share had been falling rapidly
(1975-55% to 1978 20%). Most of the competitors were small and not financially strong. They usually
followed Fayrnich price leadership but allowed a margin of safety for the difference in quality.
Pricing Policy
Faymich had held price in 1974 (2.00) but matched price decline in 1975 (1.50). However, in 1977 it
raised prices again (2. 00) for better profit margins, hoping that competitors would follow the lead.
Now, in December, 1978, management was worried because of the sharp decline in sales.
Seles Manager’s Forecasts
The Sales Manager, Mr. Peter Hyde, recommended an immediate price cut to 1. 50 and forecasted
possible market share and contributions at different unit price levels as follows:
Total
Volume
000
Market
Share
%
Unit
Variable
Cost
Unit
Fixed
Cost
Unit
Total
Cost
Unit
Sales
Price
Contribution
Unit
Total
000
Profit (Loss)
Unit
Total
000
75
125
125
130
180
11
16
16
19
26
.68
.66
.66
.66
61
1.30
1.13
1.13
1.94
.92
1.98
1.79
1.79
1.60
1.53
2.00
1.80
2.00
1.75
1.50
1.32
1.14
1.34
1.09
.89
99
143
167
142
160
.02
.01
.21
.15
(.03)
2
1
27
19
(5)
200
250
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36
.63
.70
.88
.75
0.51
1.41
1.40
1.20
.77
.50
146
125
(.11)
(.25)
(22)
(63)
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Financial Manager’s Concern
The financial controller expressed concern at a product unit price of 1,50 because:
(a)
The company was in a liquidity crisis and needed to economise on working capital
requirements.
(b)
The product would be sold at a loss.
(c)
In the long run it would never again be possible to raise prices to cover cost of
production
and felt that perhaps they should discontinue the line
SEE COPY IN COURSE DIARY
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ASSIGNMENT 10.0 - LECTURE ON FAYMICH COMPANY
(30 minutes)
10.1
STORY OF THE CASE
Product is losing market share and may have to be sold below total cost to meet
competition; product is necessary to complete the range. Should company reduce
prices this year to gain market share, to provide contribution and yet economise on
finance for expansion?
OBJECTIVES IN SETTING PRICE
Objectives include:
(a)
(b)
(c)
(d)
Note:
10.2
market share
contribution
financial limitations
long term profitability
Is the product dying? Is it worth expanding? Is it necessary for strategic reasons?
Does it fit the long term marketing policy of the company? Should the company seek
expansion in such lines or in a promising field?
ARIABLE AND FIXED COSTS, CONTRIBUTION AND PROFIT
Table gives a breakdown of product fixed and variable costs. Contribution and net
profit depend not only on price but on cost and volumes!!
10.3
Volume
Unit Variable
Cost
Unit Selling
Price
Total
Contribution
75.000
.68
2.00
99.000
180.000
.61
1.50
160.000
ALTERNATIVES
Many alternatives must be tried out to test the data and reveal possible solutions; all
depend upon assumptions.
Contribution at 125.000 volume with unit sales price at 2.00 is 107.000. Similarly
contribution of 180.000 volume at unit sales price of 1.30 is only 142.000
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10.4
SALES MANAGER1S ESTIMATES
Sales Manager is not unbiased; he wants to sell volumes and thus seeks amenable
prices; he may not be profit orientated.
He probably fears that a gap in the product line would invite competition and have an
effect on the entire range.
10.5
WORKING CAPITAL REQUIRED
As volume increases, the amount to finance receivables and inventory will increase.
Such investment in working capital leaves less cash available for other projects.
To reduce working capital, we try to achieve higher contribution at lower rather than
at higher volumes.
10.6
MARKET SHARE
This is important. It has been slipping for some years (55% to 20%) and despite the
increasing market size, it may drop tol1% if the Sales Manager is to be believed.
Do we seek market share in a loss product? Dying product? Product requiring so
much effort to sell?
In the long run, loss in market share will result in Faymich being forced out of the
market
10.7
COST AND SELLING PRICE
Under the company’s cost accounting system, the products have direct variable costs
and are allocated some less direct fixed costs. Thus if it is sold at 1.50 product shows
a book “loss” even though it makes a good contribution.
(b)
Should company continue to sell at a book “loss”? Are better products with
better contributions available?
(c)
In the short run only variable costs are relevant!
(d)
In the long run sales prices must cover not only variable but all costs.
(e)
However, if the price is below cost now, can we ever raise it above cost?
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10.8
COMPETITORS’ REACTION
Competitors are resistant to our prices. They reduce price to gain volume and market
share. Their weak financial position will motivate them to maximize contribution.
Our variable costs are low - only .68, thus price competition could well continue to
prices of not merely 1,50 but as low as .75 which produces a contribution.
How will they react to our pricing? Hold up? Lower? Stable?
10.9
FACTORS RELEVANT TO DECISION
(a)
Alternative use of productive facilities is nil. The need to keep market share,
contribution, economise on finance and yet achieve long term profits are all
contradictory. Also the company has to consider the effect on the range of
withdrawing the line.
(b)
Criteria:
Reduce working capital
Increase contribution
Increase market share
Make profit
10.10
-
need a high price
need a high or low price
need a low price
need a high price
DECISION & JUSTIFICATION
High volume will gain market share but require more working capital. However, if we
mean to stay in the market in the long run we must at least hold our market share.
Contribution may be achieved at any volume if the price is right.
Long run profitability is only achieved if price exceeds the long run cost and the best
estimate of that is present total cost.
For long run market share and profit try to price above variable cost and even full cost
if possible. Only price below full cost for short run provided it will not prevent a better
long term price!
The company cannot risk creating a gap in their product range for fear of establishing
another firm’s reputation.
Therefore: Price at 1,75 achieve volume, contribution and profit and yet satisfy
reasonable financial needs!
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10.13
LEARNING POINTS
(a)
Pricing depends on many objectives.
(b)
Market share, contribution, financial needs and long term profit may conflict.
(c)
Try various assumptions to test the sensitivity of the data.
(d)
We can achieve contribution at high or low volumes subject to assumptions.
(e)
Cost is relevant to price, particularly variable cost.
(f)
We can sell above variable cost to make a contribution.
(g)
Fixed costs are irrelevant but have to be recovered overall in the long run.
(h)
Allocation of fixed costs is only an estimate of the minimum contribution
required.
(i)
Product life cycle is relevant to the pricing decision.
(j)
Sales estimates may be suspect since Sales Manager is often biased.
(k)
Sales at a ‘loss’ may merely be a bookkeeping loss but contribution could still
be high.
(l)
Never eliminate a product producing a contribution unless you replace it with
one giving a better contribution.
(m)
Today’s price should not spoil long term future price.
(n)
Forecast competitors’ reactions. If your competitors follow suit by cutting
price you may not achieve anything!!
(o)
Our cost structure of fixed and variable costs indicates our competitors’ ability
to cut prices to variable cost levels.
(p)
Costs are seldom correct but based upon assumptions.
(q)
Look at the past to help forecast future effects of price but recognise that the
environment changes.
(r)
Seek all alternatives and set criteria before making a decision.
SEE COPY IN COURSE DIARY
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10.14 (a)
Price Objective Conflicts
10.14 (b)
Price - Profit – Contribution
10.14 (c)
CONTRIBUTION TOWARDS FIXED COSTS AND PROFITS NOT PER UNIT – BUT
TOTAL
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10.14(1)
Contribution Factors
SEE COPY IN COURSE DIARY
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ASSIGNMENT 11.0 - SUMMARY LECTURE FOR PART I
(45 MINUTES)
11.1
INDUSTRIAL MARKETING
Marketing is the business activity directed towards a common goal, to find and satisfy
consumer needs utilising company skills and resources.
Industrial goods produce or become part of other goods, or facilitate the operation of an
enterprise.
Industrial marketing is the marketing of industrial goods and services.
11.2
MARKETING MIX
Marketing involves the selection of: product, price, place, promotion.
11.3
MARKETING MANAGEMENT CONCEPT
It is consumer oriented; consumer needs are the determinants of firm’ survival and
growth.
We seek to achieve a profitable level of sales.
Coordinate the direction of all marketing activities by formulating consistent interrelated
strategies which are goal directed.
11.4
PRODUCT TYPES
Distribution and promotion depend on product classification.
-
11.5
Major equipment
Minor or Accessory equipment
Component parts
Raw materials
Operating supplies
DEMAND FOR INDUSTRIAL GOODS
Demand is derived from demand for consumer goods and services. Demand fluctuates
more widely because of inventory policy and long life of capital equipment. Initial elasticity
of demand for industrial goods can run counter to normal, but in the long term, elasticity is
normal.
SEE COPY IN COURSE DIARY
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11.6
INDUSTRIAL BUYER
He is motivated by profit considerations and has rational buying motives.
The purchasing decision is often influenced by more than one person - so we must ‘sell’
all concerned.
Quality, technical assistance and service are often more important than price.
Increasing saving to buyers may increase demand.
Assurance of continued supply is important to purchaser.
Reciprocity is common between buyer and seller.
11.7
MARKET TYPES
Vertica1 Market - covers only one or a few industries but is deep in these industries.
Horizontal Market - all kinds of firms in many industries.
11.8
PRODUCT MANAGEMENT
It is the key to survival and growth of firm - an important competitive weapon.
We must adapt to the constantly changing environment.
It involves consideration of production, finance, labour and general management as well
as marketing.
11.9
PRODUCT LIFE CYCLE
Introductory phase, Growth, Maturity, Saturation and Decline
SEE COPY IN COURSE DIARY
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11.10
PRODUCT PLANNING AND DEVELOPMENT
We need sound product policy planned several years in advance and consistent with
firm’s capabilities and the market potential.
A sound programme requires:
(a)
(b)
(c)
(d)
(e)
commitment to a creative environment
realization of risks
continual self-appraisal
reliance on quantitative decision-making tools
formulation of new product processes.
Commitment to a new product involves permanency and substantial investment.
11.11
PRODUCT DECISION
Market segmentation versus product differentiation
Product-line simplification
Product- line diversification
Planned obsolescence
11.12
MAJOR DETERMINANTS OF PRICE
Costs - The lower limit, not the most important factor
Market conditions - for buyers
- for sellers
- workable competition
- price leadership
Contribution Concept - The selling price must cover the variable costs.
- Contribution therefore increases when volume increases.
- Only in the long run need contribution cover variable and fixed costs.
Marketing Objectives the need to relate price to marketing the company’s objectives.
Geographical - F.O.B. pricing
- Postage stamp pricing
- Basing point pricing
- Zone pricing
Government and legal regulations - Price discrimination
- Retail price maintenance
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11.13
PRICING DIFFERENTIALS
Quantity Differentials –
noncumulative - this overcomes the high cost of small orders cumulative - to maintain
continued patronage
Trade Discounts –
they cover the distributor’s operating expenses and profits
Cash Discounts –
immediate payment results in more efficient use of working capital
11.14
11.15
PRODUCT PRICING
(a)
With a new product Skimming - set a high price to maximize investment recovery rate
Penetration - low price to saturate the potential market and discourage competition.
(b)
As competition develops As product matures - most decisions arise from competitive pricing action
(c)
As the product declines we should not clean house as quickly as possible but look at each practical
alternative.
PRODUCT AND PRICE CHECILIST
(a)
PRODUCT
Does the product have
-
consumer acceptance?
distribution breadth and depth?
effective merchandising?
satisfactory performance?
economical performance?
se of installation?
adequate servicing?
ultimate replacement?
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118
11.15
PRODUCT AND PRICE CHECKLIST (continued)
(a)
PRICE
-
Where is it in the life cycle?
Do we skim or penetrate?
Should we be price leaders or followers?
What is our required return on funds?
What is our discount and quantity differential policy?
Do government and legal regulations control price?
What is our cost structure?
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11.16 (a)
INDUSTRIAL MARKIT1NG
11.16 (b)
MIX
11.16 (c)
PRODUCT LIFE CYCLE
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120
WORK PACK - PART II
121
EXHIBIT 1
Assignment 1.1
SHORT QUIZ ON MARKETING MIX
For a company marketing a brand of toothpast, indicate how the Marketing Mix (Product, Price, Place
and Promotion) would probably change under the following conditions:
In the spaces provided, enter:
C
to
N
to
DK to
indicate CHANGE
indicate NO CHANGE
indicate DON’T KNOW or CAN’T TELL
NOTE: Choose the “most probable” solution.
1.
Example: A competitor launches a new
brand which affects the company’s target
market
2.
A competitor lowers his price by 20%
3.
A competitor launches a new advertising
campaign
4.
Economy undergoes a recession
5.
Company’s sales volume increases
significantly each year despite limited
production capacity
6.
Two medium sized competitors merge
their companies and replace you as the
market leader.
7.
Small cost error discovered in overhead
allocation
8.
Total sales force resigns
9.
Major retail customer switches to
competitor
Product
Price
Place
Promotion
C
C
N
DK
USE THE COPY IN
YOUR COURSE
DIARY
10. New technical magazine is introduced.
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122
EXHIBIT 2
Assignment 1.1
ANSWERS TO SHORT QUIZ ON MARKETING MIX
1.
Example: A competitor launches a new brand which
affects the company’s target market
2.
A competitor lowers his price by 20%
3.
A competitor launches a new advertising campaign
4.
5.
6.
Company’s sales volume increases significantly each
year despite limited production capacity
Two medium sized competitors merge their companies
and replace you as the market leader.
Small cost error discovered in overhead allocation
8.
Total sales force resigns
10.
Price
Place
Promotion
C
C
N
C
N
C
N
C
N
N
N
C
C
C
N
C
C
C
N
C
C
C
N
C
N
N
N
N
N
N
C
C
DK
DK
DK
DK
N
N
N
N
Economy undergoes a recession
7.
9.
Product
Major retail customer switches to competitor
New technical magazine is Introduced
NOTE:
See Exhibit 3 for explanation of answers.
Score: __________ out of 40
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123
EXHIBIT 3
Assignment 1.1
EXPLANATION OF ANSWERS TO “QUIZ ON MARKETING MIX”
NOTES: (a)
The questions are of course simple - indeed over-simplified - to provide a basis for
provocative discussion.
(b)
We present below some justification for the “correct answers”. Depending upon the
particular market situation and the sophistication of the marketing argument, in some
cases, alternative solutions could be acceptable.
(c)
If your SG all agree you may count alternative solutions as “correct”.
1.
Improve your brand and be prepared to change the price to meet the threat of the
competitor’s new brand. Distribution channels (place) remain the same since we are
operating in the same product field. Promotion should change if Product and Price changes.
2.
Change price in order to meet competitor’s lower price. Channels remain the same, but
promotion will change.
3.
Probably launch a new advertising campaign to counter the competitor’s new campaign.
4.
Probably change the product, price and promotion (but not the ‘place’) to retain as much as
possible of our existing contribution from this product and market.
5.
Probably change product and price to maximize contribution from the product - we have
limited production capacity and would therefore try to limit our sales but still get maximum
contribution.
6.
To regain market share it is necessary to change product, price and promotion. Place remains
unchanged.
7.
Absorb this small error and do not change any part of the Marketing Mix.
8.
Change our distribution (place) and much of our promotional methods to counter the loss of
our complete sales force.
9.
What action we take on any of the 4 P’s depends on how important the customer is to us and
why he has switched.
10.
As marketers of a consumer product we do not normally use technical magazines for our
product promotion and would thus not change any part of the Marketing Mix.
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124
EXHIBIT 1
Assignment 2.1(c)
QUESTIONS ON PLACE AND PROMOTION
1.
Marketers who use mass media for conveying information:
(a)
(b)
(c)
(d)
2.
A marketer achieves greatest success in achieving his sales and marketing objectives when
he:
(a)
(b)
(c)
(d)
3.
Do all of the following.
Present information about a product.
Arouse interest and build desire.
Get consumers into a favourable frame of mind to try the product.
The basic way to expand the demand for any product is:
(a)
(b)
(c)
(d)
5.
Uses personal salesmanship, advertising and sales promotion in a combination.
Has an enthusiastic force.
Concentrates on the correct target markets.
Gets regular feedback from the market.
The objective of most advertising is to:
(a)
(b)
(c)
(d)
4.
Are usually reaching a large number of potential consumers at low per unit cost.
Hope that their message will penetrate the large amount of noise.
Have to ensure that they get immediate direct feedback.
Get well known amongst advertising agencies.
By all of the following three methods.
To get present consumers to use more.
To tell present consumers about new uses for the product.
To get new users or new markets.
The distribution channel used by a manufacturer depends on:
(a)
(b)
(c)
(d)
The nature of the product.
The manufacturer’s financial strength.
The unit value of the commodity.
All of these.
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ASSIGNMENT 3.0 - LECTURE - PLACE (DISTRIBUTION)
AND PROMOTION (30 MINUTES)
3.1
CHANNELS OF DISTRIBUTION
Channels are direct or indirect distribution lines used to transmit the goods to the consumer.
Management of marketing channels entails:
(a)
(b)
(c)
(d)
Selection
Assistance
Co-ordination
Control
NOTE:
Need continual review of channels if distribution is to be efficient and effective.
Watch long-term effects.
3.2
MARKET COVERAGE
In selecting distribution channels a key factor is market coverage required for our market
penetration goal.
(a)
Limited coverage -
(b)
Selective coverage -
(c)
limit number of outlets per trading area
sites depend on sales and service requirements of product and density of
customers
“exclusivity” - authorised outlets only
ideal for shopping goods
select only profitable outlets
easier for controlling the distribution
allows better quality of outlets
gives consumer better service
creates a brand image
used for speciality goods
Mass distribution -
used for basic food products
stabilizes sales
minimizes sales lost through inconvenience
reaches mass markets
used for convenience goods
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3.3
DIRECT CHANNELS
Where the company markets to the consumer with no middleman, agents, etc.
Advantages (a)
(b)
(c)
(d)
(e)
(f)
(g)
Control of sales, service, price, promotion, and presentation
Company trained salesmen have greater knowledge of the product, and customer’s
requirements
Maintains closer contact with market trends
Stimulates feedback of consumer reactions
Can reduce marketing cost
Permits more precise market planning
Results in more marketing “push”
Disadvantages (a)
(b)
(c)
3.4
Takes time and is costly to build direct distribution
Results in long term commitment of funds. This is important if the market is
concentrated or if we are selling directly to the geographic segment with the greatest
potential only.
If products have low unit cost, marketing costs become prohibitive.
INDIRECT CHANNELS
Companies market to the consumer through agents, middlemen, etc.
Advantages (a)
(b)
(c)
(d)
Avoids large long financial commitment
Middlemen often have greater knowledge and experience with local markets
Gives access to new markets
Valuable when selling direct is unprofitable or impracticable.
Disadvantages (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Middlemen may only be order takers
Salesmen generally lack flexibility
Sales staff generally devote insufficient time to our products
Often reluctant to find new outlets
Product knowledge of middlemen is often inferior
Not as much “push” given to our products
Middleman may be carrying competitors’ products too
Company loses contact with consumer needs
Image confusion can result if middlemen do not follow company guidelines
EXHIBIT 2
Assignment 2. 1(c)
ANSWERS
1. (d)
2. (a)
3. (a)
4. (a)
5. (d)
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127
3.5
OUTLET SELECTION
(a)
To match our outlets with our consumer needs, we must:
-
(b)
To achieve market share objectives we must:
-
(c)
“Sell” our products to middlemen
Make it attractive to them
Keep product promises
To set up formal agreements, we must define:
-
3.6
Select an appropriate number of outlets
Select large volume outlets
Assist outlets
Use a push/pull strategy
To convince middlemen to accept our line, we must
-
(d)
Know the consumer
Understand the buying motives
Know the purchasing routines of the target market
Select outlet compatible with the products desired image
Select outlets frequented by the target market
Trade allowances
The territory, responsibilities, and terms, etc.
Assistance arrangements
Termination arrangements
‘Exclusiveness’ if relevant
OUTLET ASSISTANCE
Types of assistance include:
(a)
(b)
(c)
(d)
(e)
(f)
credit, billing and pricing
advice about products and sales aids
stock back-up and warehousing
training for sales staff
management consultation
promotion in the form of:
-
local and national brand advertising
store advertising
point of sale material
special offers
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128
3.7
OVERALL DISTRIBUTION CONTROL REQUIRES
-
Constant reappraisal of consumer needs and purchasing patterns
Predicting market trends
Evaluating competitors
Setting of efficiency targets in terms of:
(a)
(b)
(c)
(d)
-
3.8
sales figures
distribution costs
market share
market objectives
Defining timely, effective and useful reports
Creating a feeling of partnership between the company and its product outlets
PROMOTION MIX
We can promote through:
3.9
Advertising
-
press, T.V., cinema, magazines, radio, signs, horading boards, banners.
Sales Aids
-
display units, dispensing units, product bins, shelf stickers, pamphlets,
price lists, catalogues.
Education
-
product demonstration, free samples, educational talks at schools,
societies etc. Sales staff training
STIMULATION OF SALES STAFF
Is achieved by promoting selling confidence by giving them:
-
3.10
Product knowledge
Consumer knowledge
Budgets - set by agreement
Recognition and reward for achievement
ADVERTISING AND SALES PROMOTION
Products are promoted by creating selective demand for your product:
-
informing selected target customers of product consumer benefits
stimulating consumer buying action
introducing products to new market segments
introducing special promotions
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129
3.11
ADVERTISING
The advertising media i.e. general magazines, newspapers, periodicals, radio, T.V. etc. to
present your sales message to consumers in the target markets should be chosen in terms of
its efficiency in:
-
3.12
Selected market segments
Selected consumer groups
Presenting campaign strategy
Meeting specific media objectives of reach, frequency and cost
Compatibility of media image and desired advertising image
ADVERTISING BUDGET
Its size and composition can be determined by:
(a)
(b)
(c)
(d)
3.13
Flat sum - an arbitrary amount. This method is unsatisfactory;
Percentage of sales past or present - it limits advertising to follow sales; advertising
should lead to sales.
Competitive parity - spend the same as competitors - not good market status is seldom
the same.
Objective and task method - this focuses attention on objectives
- it encourages planning
- it sets objectives
- it sets measurement standards for evaluating the effectiveness of our advertising
- it discourages waste
MARKETING MIX
(a)
PRODUCT
(b)
PRICE
(c)
PROMOTION involves
- advertising
- sales promotion
- budgeting
- training
(d)
PLACE (DISTRIBUTION) involves
-
market coverage
direct and indirect distribution
channel selection
assistance to outlets
overall control of distribution
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130
3.14 (a)
CHANNELS
314 (b)
COVERAGE
3.14 (c)
PROMOTIONAL MIX
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131
3.14 (d)
SELECTION OF OUTLETS
3.14 (e)
AIDS TO OUTLET CONTROL
3.14 (f)
MEDIA SELECTION AND BUDGET
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132
EXHIBIT 1
Assignment 4.1
MOTORING AMUSEMENT COMPANY
QUESTIONS
(a)
This case challenges you to relate distribution and promotion to the Marketing Mix.
Read the case carefully (Exhibit 2) (5 minutes)
(b)
Work on each question in SG but keep notes individually.
1.
Does the car game fulfil a consumer need? Does it have unique benefits? Are there obvious
substitutes? (10 minutes)
2.
Do you agree with Mr. Smith’s identifications of the target market? (5 minutes)
3.
Do you agree that Mr. Smith’s car game has tremendous potential? What are the buying
criteria?
4.
What distribution channel do you advise? Support your recommendations. (5 minutes)
5.
Do you agree with Mr. Smith’s reasoning on push and pull strategies? Could he avoid
promotional expense? (5 minutes)
6.
What advertising media and timing do you recommend for the full marketing strategy. (10
minutes)
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133
EXHIBIT 2
Assignment 4.1
MOTORING AMUSEMENTS COMPANY
INTRODUCTION
Mr. Smith, part owner and senior executive with a newly established company had designed a game
which could be played by people travelling in motorcars. The game was quite simple to play; in fact, it
was ideal for children.
Mr. Smith believed there was a tremendous potential for this game if he could overcome the
distribution and promotion problems, without incurring large costs.
CRITERIA FOR SUCCESS
When it was first decided to put a car game on the market, management established three main
guidelines for this game. These were: it should be a simple game, it should be cheap, and should be
easily available to the motoring public. Solutions to the distribution and promotion problems must
recognise these guidelines and respect the constraints they impose.
TARGET MARKET
Tourists and people with children making a journey of about 100 miles or more were identified as the
prime target market.
PRICE
It was thought the game would have a great chance of success if it could be sold to the consumer at
less than 30 cents. The estimated costs at present were:
20
4
10
34
cents manufacture
cents wholesaler
cents retailer
cents retail price
If wholesalers could be eliminated the price could be reduced to less than 30 cents. However, it was
believed that without wholesalers, the game could not get the depth of distribution thought necessary
for success. Also, manufacturing cost was very sensitive to sales volume. If volume could be
increased by 100% manufacturing cost would fall to 12 cents.
DISTRIBUTION
Ideally the product should be stocked and displayed by as many roadside outlets as possible. It was
planned to get the product into the majority of petrol stations, roadside restaurants and motels, within
three months from launch date. This was recognised as a difficult and expensive task. It would be
necessary to use many wholesalers, since petrol stations, restaurants and motels were not catered for
by the same wholesalers. Finding these wholesalers and managing their activities would take a
considerable amount of Mr. Smith’s time. He was reluctant to devote the majority of his time to this
venture. He began to consider large department and chain stores as potential outlets. He
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134
was aware that they did not present the depth of distribution available through the other channels. On
the other hand, they did have toy and game departments, and they presented a relatively easy-tocontact distribution network for him as a manufacturer, and for his target market.
PROMOTION
If petrol stations and roadside outlets were used, Mr. Smith intended using a push strategy based on
in-store promotion. There would be display units, posters and window decals in each outlet. This
material would be given free to the retail outlets on an introductory, self liquidating offer. Although the
product would not make profit on the first sell-in, it would not incur an expense requiring long term
capital.
If department and chain stores were used to distribute, it was felt that it would be necessary to rely on
a pull strategy. This would be expensive. In fact, projected profits for the first year would be spent on
the launch campaign. Also a much slower sales take-off could be expected using a pull strategy. This
worried the company because of the lack of capital and also because the game could be imitated
quite easily. Thus a fortune could be invested selling the concept of a car game to the public, and a
competitor might reap the profits.
You are appointed by Mr. Smith to advise him.
Note: A “decal” is a window sticker advertisement.
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STOP DO NOT TURN THE PAGE
135
ASSIGNMENT 5.0 - LECTURE - MOTORING AMUSEMENTS COMPANY
(30 MINUTES)
5.1
STORY OF THE CASE
A new concept in travel entertainment has been developed that presents considerable
distribution and promotion problems.
5.2
PRODUCT NEED
Product promises to fulfil the function of entertaining children during long motor car journeys.
However there are other means of fulfilling this need, radio, toys, etc.
5.3
TARGET MARKET
Parents of children aged 5 - 11 years who undertake long motor car journeys with their
children.
5.4
BUYING CRITERIA
Availability, price, child boredom.
Convenience of purchase is highly significant. This is a spontaneous purchase item with a low
priority except when child boredom becomes an acute inconvenience.
5.5
ROLE OF DISTRIBUTOR
This is a low cost, low volume item. It would not be profitable to set up a company owned
distributor network to handle distribution to roadside retail outlets. A mail order system direct
to outlet could be considered as an alternative.
The volume goals set by the company will help to decide on the appropriate distribution
network. Roadside outlets are ideally suited to large volume.
5.6
PROMOTION STRATEGY
Mr. Smith is correct in his reasoning on the promotions he has in mind.
5.7
ADVERTISING MEDIA
Family magazines, motoring and touring journals are appropriate media. However, they may
not give the required frequency of message in the initial stages to build up product
awareness. Daily newsprint would be required for this purpose. Radio is also quite
appropriate but T.V. and cinema are excluded.
T.V. because of cost and cinema because it is a young person’s media.
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136
5.8
RECOMMENDATION
The company should test market the game and distribution networks in a representative
market area before committing themselves to the cost of a major launch. The game idea may
not appeal to parents and may be much more costly to promote than expected. Also the
company should have a number of car games to stimulate repeat purchase. Otherwise they
may enjoy a successful launch and a disastrous failure over time.
Company objectives and marketing goals should be set as a guideline for distribution and
promotion activities.
The company should not attempt to go national on limited funds. However, it should be
recognised that a successful test market could attract adequate capital backing for this
project.
There should be plans for the medium and long term survival of the company. The possibility
of imitation is very real, this can be minimised by planning ahead and by providing for followup products before launching the current car game.
The price consideration should not be allowed to jeopardise the selection of the best
distribution channel. Price attractiveness will not compensate for the wrong network.
5.9
LEARNING POINTS
1.
To succeed a product must fulfill unsatisfied consumer needs.
2.
A product must be presented to the target market in terms of consumer benefits. The
consumer must be made aware of these benefits.
3.
The relevance of distribution and promotion strategies can be assessed only in
relation to the overall marketing objectives.
4.
Don’t assume that you know the consumer. Test market your hypothesis and
minimise risk.
5.
Predict consumer needs and plan follow-up products.
6.
Recognise that the purchaser may not be the consumer and cater for purchaser and
consumer needs.
7.
A successful launch is only one aspect of the marketing of a product. Plan product
strategy into the future.
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137
5.10 LEARNING PATTERNS
(a)
BUYER NOT ALWAYS THE CONSUMER
5.10 (b)
PRICE NOT THE ONLY FACTOR
5.10 (c)
MIX TO MEET CONSUMER NEEDS
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138
EXHIBIT 1
Assignment 6. 1
BILL BROWN - QUESTIONS
As Bill Brown, Industrial Marketing Consultant, deal with the following problems of your clients.
Answer each question individually:
1.
Johnson Corporation
The market for switching locomotives is declining. In searching for new products to replace
lost business, Johnson Corporation decided that the quickest and most economic way to add
new products to their product range, was to acquire any other profitable businesses with
established product lines.
Is this a good policy to assure continued growth for the firm?
2.
Arcweld Company
A small manufacturer of arc welders was faced with the probable entry into the market of
several large competitors. The industry had always been very competitive; inefficient plants
were constantly going out of business. However, competition was “equitable”. Arcweld
Company always had emphasised its “ingenuity, quality and service” against competitors’
advertising and prestige.
How should Arcweld meet the potential competition?
3.
Rust Pruf Corporation
Rust Pruf Corporation controls the exclusive rights to a revolutionary new rust proofing
process. It wishes to license its use to manufacturers and is planning an extensive advertising
campaign.
What media should be used?
4.
Amalgamated Factories
Amalgamated Factories is a newly-formed corporation manufacturing a wide variety of
grinding machines and supplies. They have to decide whether to distribute directly or
indirectly. As a new industry, their financial resources are limited.
Should they distribute directly or indirectly? Why?
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139
EXHIBIT 1 (cont’d.)
Assignment 6.1
5.
All-Star Fasteners
All-Star Fasteners manufactures a complete line of industrial fasteners. In an attempt to
increase sales volume, the marketing manager plans a 10% reduction in price.
What do you expect the initial results will be? Why?
6.
Industrial Supply Corporation
The Industrial Supply Corporation, distributors of a general line of industrial supplies has been
plagued in the last few years by frequent, but small orders. Profit margins have been reduced
because of the small orders’ cost of processing.
Moreover, most customers are slow payers, debtors have thus risen, while cash has not. The
company has a policy of no discounts.
What do you recommend?
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140
EXHIBIT 2
Assignment 6. 1
BILL BROWN - ANSWERS
1.
Johnson Corporation
No. Acquisition may provide new products to bolster the firm’s declining sales but eventually
sales of these products will decline also. This is only putting off the inevitable. For continued
growth, we must continually search for new product Ideas which match our capabilities and
the resources of the firm. Market and environment are constantly changing and the firm must
keep up with them. There is no point in acquiring widely different businesses from the existing
base activity.
2.
Arcweld Company
He should review his production facilities to see that they are as efficient as possible. Also he
should strive to maintain the corporate Image of ingenuity, quality and service, and perhaps
intensify advertising, stressing these qualities - both for the present and In the future. It is
important that his product be kept technologically current. Distribution channels should be
reviewed to be sure that they are serving both customer and manufacturer in the best
possible way. The pricing policy should be reviewed.
3.
Rust Pruf Corporation
The campaign should probably be started with advertisements in trade and general business
periodicals to generate awareness and interest in the product. This should then be followed
up by a direct mail campaign which by its nature is more selective.
4.
Amalgamated Factories
No They should distribute indirectly. The product is standardised and will be used by many
firms in many different industries. Probably little in the way of technical services is needed.
There is also not much need for direct customer contact. It is better to distribute through an
industrial distributor who handles MRO supplies. Also, direct distribution of the product would
require a large sales force and a large financial commitment beyond the resources of the firm.
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141
EXHIBIT 2 (cont’d.)
Assignment 6. 1
5.
All-Star Fasteners
Initial reaction might be a reduction of demand as purchasers will wait to see if the price
reduction is the beginning of a further downward trend. This is the initial counter elasticity of
industrial goods demand. However, demand will then return to the former level and probably
increase, depending on Its responsiveness to price changes.
6.
Industrial Supply Corporation
Institute a programme of noncumulative quantity discounts. This will encourage customers to
plan their purchases carefully to take advantage of these discounts. When the programme is
begun, inform customers of the potential savings from larger and less frequent purchases.
Savings in order processing should more than pay for discounts.
Allowing discounts for prompt cash payments may encourage customers to pay their bills
promptly rather than delay them till the last moment.
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142
EXHIBIT 1
Assignment 7. 1(c)
QUESTIONS ON INDUSTRIAL MARKETING MANAGEMENT
1.
Marketing strategies are concerned with:
(a)
(b)
(c)
(d)
2.
A marketing planner should:
(a)
(b)
(c)
(d)
3.
(c)
(d)
You cannot really measure marketing performances
You only measure by the marketer’s efforts and lose sight of possible changes in
the environment
The marketer may not have a thorough knowledge of statistics for comparing results
There may be many changes in your staff so that you do not have past
performances against which to measure.
Control is more important in marketing than in production or finance because:
(a)
(b)
(c)
(d)
5,
Keep close to top management and have a creative imagination
Be familiar with the various functional areas of the marketing organisation
Not be too closely tied-up with any one functional area and have a firm belief in the
philosophy of change
All of these
The limitations of using a marketer’s past performance as a standard are:
(a)
(b)
4.
Getting customers to buy our products
Maintaining market contact for our established products and securing markets for
our new products
Ensuring that our marketing department does its work well
Keeping our market share despite competition by devising advertising and
promotion programmes.
All of these
Marketing efforts rarely coincide with normal accounting periods
The market place is dynamic and marketing mistakes are irredeemable by nature
It is often difficult to equate marketing effort with accountants’ profit.
A marketer faces problems in establishing standards because:
(a)
(b)
(c)
(d)
The market place is constantly changing.
Standards are not affected appreciably by factors beyond the control of individuals.
His staff do not wish to work to standards
Marketing is a constant changing business and standards are therefore not
applicable.
23
143
ASSIGNMENT 8.0 - LECTURE
INDUSTRIAL MARKETING MANAGEMENT
8.1
82
MARKETING MANAGEMENT CONCEPT
(a)
Consumer orientation
Consumer needs determine the firm’s survival and growth
we determine the actual and. potential needs of our consumers, and focus
on satisfying them.
(b)
Profit orientation
we seek to achieve a profitable level of sales.
(c)
Marketing Strategy Development
we co-ordinate the direction of all marketing activities by formulating
consistent interrelated strategies which are goal directed.
we recognise intra- and inter-departmental implications and plan with other
functions of the firm.
it is dependent on innovative climate.
MARKETING STRATEGY AREAS
Product strategy
-
involves the product mix, and the amount of effort behind each product
Market strategy
we consider what markets should be cultivated and with what intensity
Selling strategy
we determine ‘what mixture of marketing tools should be used and in what
proportions to bring our products and markets together to gain desired
objectives.
EXHIBIT 2
Assignment 7. 1(c)
ANSWERS
1. (b)
2. (d)
3. (b)
4. (a)
5. (a)
24
144
8.3
ASSESSMENT OF MARKETING OPPORTUNITY
(a)
Broad understanding of the company In terms of
-
(b)
Market research to:
-
(c)
measure our markets
analyse our sales results
forecast our sales
gather information about our customers
study our competitors
To identify corporate objectives:
-
(d)
its strengths and weaknesses
its market position
its resources and capabilities
itself and its competitors
relate the company strengths and weaknesses to the external environment
develop objectives which are consistent and attainable.
analyse profit opportunities to determine the
market within which the company may achieve its objectives.
Continuous assessment assures that the company:
- is dynamic in marketing and production operations
- identifies challenges and problems
- is better prepared to meet the changing market opportunities
- stresses market opportunities as a key factor regulating the company’s
activity.
25
145
8.4
PLANNING MARKETING EFFORT
(a) Types of Plans
Long range, which are generally the company’s objective
Short range - which are more detailed
Individual projects
(b)
Steps in Planning
(i)
Statement of objectives, which are
-
(c)
explicit
challenging
recognising constraints
related to broader and more specific objectives at both higher and lower
levels.
(ii)
Set up alternative courses of action - BE CREATIVE:
(iii)
Evaluation of these alternatives
(iv)
Selection of a course of action
(v)
Implementation of the plan - in terms of the Marketing Mix.
Features of Sound Plan
Unity there should be no conflict with other plans
Continuity - the generation of one strategy from another
Flexibility - the ease of adjustment to changing personnel
Relevance - to the firm’s objectives
Measurability - of the results for control purposes
Compulsion obtain all participant’s support.
(d)
Planning Commitment
How far ahead should a plan commit the firm?
Depends on the nature of the firm, its market, and the type of plan.
Remember to consider:
-
the lead time for action
the amortization of capital
future market prospects
future availability of raw materials and components
26
146
8.5
PURPOSES OF MARKETING PLANNING.
This is necessary for efficient functioning and planning of the entire enterprise.
Marketing planning will
-
8.6
co-ordinate effort
aid in our finance planning
promote sounder decisions
distribute responsibility
facilitate control
CONTROL, EVALUATION AND ACTION
(a)
Stages of control
(i)
setting standards for performance measurement
(ii)
create tools for recording the performance and comparing them with the
standards set
(iii)
take action upon results
(iv)
control should be objective-oriented for directing the organisation
(b)
Standards of Marketing Performance
These must be closely related to the firm’s objectives.
(c)
Types of Standards
marketing plans
marketing budget
past performance
market potential
marketing cost analysis
Productivity
(d)
Evaluation takes place by
observation
statistical reports
(e)
Action
-
by using only significant facts
head off and determine the causes of failures
causes self-examination
guide planning
NOTE: The control must be constructive never punitive.
27
147
8.7 (a)
MARKETING PLANNING
8.7 (b)
ASSESING MARKETING OPPORTUNITY
8.7 (c)
PLANNING
SEE COPY IN COURSE DIARY
28
148
8.7 (d)
CONTROL
SEE COPY IN COURSE DIARY
29
149
EXHIBIT 1
Assignment 9.1
THE EYEGLASS COMPANY
QUESTIONS
(a)
This case challenges you to relate the marketing strategy to the overall corporate objectives.
Read the case carefully. (10 minutes)
(b)
Work on each question in SG but keep notes individually.
1.
Identify the new target market, the buying criteria and the company’s key corporate
objectives. (3 minutes)
2.
What was the company’s marketing strategy before 1979? Identify the four P’s. (5 minutes)
3.
What is the proposed strategy after 1979? Is it consistent with the company’s skills,
resources, strengths and weaknesses? (5 minutes)
4.
Critically evaluate the company’s expansion plan. Assess its potential and highlight any major
weaknesses. (10 minutes)
5.
Advise the company on what they should do. Present your recommendation in four sections,
each dealing with one of the four P’s. Relate these to the corporate objectives. (12 minutes)
SEE COPY IN COURSE DIAR
30
150
EXH1BIT 2
Assignment 9.1
THE EYEGLASS COMPANY
INTRODUCTION
In 1979 the Eyeglass Company has decided to expand its activity into new markets. Plans have been
formulated to expand from the high priced prestige section of the spectacle frames market into the
larger less individualist medium priced market section. Within the company there are many misgivings
concerning this change. Critics of the plan point out that it will mean the development of a completely
new marketing plan, new channels of distribution, new product design, new price structures and that
all these changes will affect the company image and maybe the success of the current product line.
The critics feel that the risks involved in expansion are intolerably high. However, they are in full
agreement with their colleagues that if the Eyeglass Company is to survive in a fast growing
competitive market they must expand sales and improve their declining return on investment.
CORPORATE OBJECTIVES
Management had agreed the following corporate objectives:
(a)
Improve profitability. They intend to halt the current trend of declining profits during the next
twelve months and have set themselves a goal of double current annual profits per year in
three years.
(b)
Increase sales volume. Sales volume has been static during the last few years but the market
has grown steadily during this period. To achieve profit goals management estimated that
they need a 25% increase in sales volume. This would bring the manufacturing capacity up to
approximately 90%. It is considered unwise to attempt greater production without
considerable investment in new plant.
(c)
Provide better working conditions for employees. The company had experienced labour
unrest because of the lack of improvement in working conditions. Management were keenly
aware of the fact that, they had not kept pace with market improvements and had agreed that
it was their duty to do so. This decision was not based solely on consideration of improved
productivity but was provoked by a respect for staff and the recognition that many of them
were long term employees.
(d)
Maintain and strengthen the company’s identity in the spectacle frames market. The Eyeglass
Company had been in the spectacles frames market for 80 years. Until recently the company
was family owned and managed. Although this was no longer so, the spirit of the family and
their deep respect for social responsibility continued to influence management.
IMAGE
The company had a very favourable image among consumers, and within the trade in the spectacle
market, this was viewed by management as one of the major competitive strengths the company
enjoyed and they wished to build on it.
31
STOP! DO NOT TURN THE PAGE
151
EXHIBIT 2 (contd.)
Assignment 9. 1
DISTRIBUTION
The company currently sold exclusively to opticians who use the spectacle frames for conventional
glasses and sunglasses. Expansion into the middle priced high volume market would involve
manufacturing sunglasses and selling them direct to department stores, chemists and stationery
stores. This fact was discussed with some current customers and the thought that the Eyeglass
Company was considering the possibility of supplying direct competitors with sunglasses created
great annoyance and indignation. Opticians pointed out that they had been emphasising the quality of
Eyeglass Company frames as a competitive selling strategy during the last number of years when
trying to sell against chemists and department stores.
CONSUMER BRAND AWARENESS
Because of the relatively small market share enjoyed by the company, only a small proportion of
potential consumers were aware of the product. Those that were had a very high regard for the quality
and individuality of the product.
PURCHASING CRITERIA FOR SUNGLASSES
Consumers were very discriminating in the medium priced sunglasses market. Styling, shade, fit and
price were all significant factors. The market was highly competitive thus it would be difficult to obtain
retail support if a new product did not compare favourably with competition. Brand image was
important to retailers and consumers. This fact was evident in the wide price range experience in this
market segment.
PROMOTION
Most of the leading brands used a pull/push strategy. Direct consumer advertising was supplemented
by instore display units and attractive posters.
EXPANSION PLAN
The company was considering entering the top section of the medium price market segment. Thus
they would provide a high quality, relatively expensive product. Distribution would be limited to
chemists and high quality department stores using the current sales force who would also call on
opticians.
A dual advertising campaign would be launched to consumers and traders. The association with the
Eyeglass Company would be emphasised as a major appeal.
PROFITABILITY
The unit profit on sunglasses would be 50% higher than that currently earned on frames. Provided
there was not a significant fall off in business through opticians, the company would reach their profit
and volume goals at around 10% of the new market.
PRODUCTION
Lens for sunglasses would be bought in the company, did not have the skills or resources necessary
to produce them at their plant.
SEE COPY IN COURSE DIARY
32
STOP! DO NOT TURN THE PAGE
152
ASSIGNMENT 10.0 - LECTURE - THE EYEGLASS COMPANY
(30 MINUTES)
10.1
STORY OF THE CASE
A company wished to expand into new markets. The expansion requires new product design,
new distribution channels, and a new marketing strategy. Management is concerned about
the likely effects this new venture will have on the company’s established products and on the
corporate image.
10.2
PRODUCT
The Eyeglass Company is a manufacturer of high quality spectacle frames. They want to
manufacture high quality sunglasses and enter the sunglasses market.
10.3
TARGET MARKET
Until 1979 the company catered for upper income people who bought expensive spectacles
and sunglasses through opticians. The new target market would be upper income people who
buy expensive sunglasses through chemists and prestige department stores.
10.4
BUYING CRITERIA - CONSUMERS
Style, shade, fit and price.
10.5
PROMOTION
Pull/push strategy using print advertising and instore displays.
10.6
CORPORATE OBJECTIVES
Improve profitability through increased sales by entering the sunglasses market. Maintain a
high quality product in keeping with the corporate image.
10.7
COMPANY MARKETING STRITEGY BEFORE 1979
Price
-
high consistent with quality and product image.
Product
-
high quality, specialised in the spectacle market, differentiated.
Place
-
clear market segmentation
Promotion
-
company salesman, very little paid advertising. Depended on a push
strategy and close personal contact with customers.
33
153
10.8
PROPOSED STRATEGY AFTER 1979
The company intends to operate in two market segments. They will cater for the upper
income groups in both segments and will concentrate on quality and prestige image.
10.9
(a)
Skills -The company is established in the spectacle frame market; it is technologically
sound to enter the sunglasses market. However they will be dependent on an outside
supplier for lenses. Also they do not possess skills in assessing the quality of their
product. If the quality of the bought-in lenses is not consistent with the quality of the
company’s frames the market image in both market segments could be lost.
(b)
Resources -The company has had falling profits during the last few years. They are not
in a position to diversify out of the spectacle market. Expanding into the sunglasses
market is a good idea. It utilises spare plant capacity and minimises new capital
investment.
(c)
Strengths -The company has a favourable image among consumers and traders.
(d)
Weaknesses -The current customers may become very upset and change their
supplier.
COMPANY EXPANSION PLAN
(a)
The decision to enter the sunglasses market is product orientated. No attempt has been
made to research consumers reactions to the proposed sunglasses. Also an evaluation
of competition in this market was overlooked. There may not be a market gap in the top
end of the proposed market. It is possible that current brands in this market are fighting
for survival.
(b)
The inherent assumption in the expansion plan is naive!! Will consumers who have
bought and have been satisfied with spectacles obtained through opticians on a
marketing push strategy, also be enticed by a pull/push strategy through chemists and
department stores to buy the new product? Opticians have greater influence on their
clients’ purchases than sales staff in a chemist or department store. The
recommendation of an optician is rated as professional advice, the suggestions of sales
staff is rated as ‘hard sell’.
(c)
The sunglasses venture may succeed but this will be a matter of good luck not
professional consumer orientated market planning.
34
154
10.10
RECOMMENDATION
Consumer reactions should be researched. If these are favourable a market gap analysis
should be conducted to establish the market potential for the product. On the assumption that
the market does exist, the company is advised to expand. However a strong promotional
campaign should be launched to consolidate the optician market first. Opticians can be
assured that the market for sunglasses with ground lenses and the market for casual
sunglasses does not overlap significantly. Also it should be emphasised that the Eyeglass
Company will be maintaining a high standard that will be favourable to the current product
image. During the sunglasses launch period, a special offer should be presented to opticians
to distract them from changing suppliers during a moment of annoyance.
10.11
MARKETING MIX
Price
-
Should place the product in the prestige section of the market. This is
consistent with the objective of a small market share and comfortable
profit.
Product
-
Must be consumer orientated. Fit, shade and style must be indicative
of product quality and individuality
Place
-
As suggested, high class department stores and chemists. Exclusive
selling rights should be granted to select stores to protect the product
image and help capture the patronage of these stores.
This strategy will also minimise distribution costs.
Promotion -The emphasis should be on high quality instore displays and posters. Advertising
in exclusive magazines should be used seasonally only and at the time of launch.
Merchandising salesmen should be used to ensure that the product is displayed to advantage
at retail outlets. The relatively small promotional budget will not dilute profits. It will
concentrate on exposing the product to the consumer in an environment that will enhance its
quality.
SEE COPY IN COURSE DIARY
35
155
10.12
LEARNING POINTS
-
Establish corporate objectives to guide marketing strategy.
-
Concentrate on consumer needs, not product features when searching for new products.
-
Don’t assume that market gaps exist - research them.
-
Have courage, there is always opposition to change - find solutions to these problems.
-
Make certain that the Marketing Mix is consistent with the corporate objective.
-
New product developments are long term involvements; don’t rush forward without
consolidating your position.
-
Match company skills, resources, strengths and weaknesses with company plans.
-
Marketing is an integrated function involving all aspects of the company’s activity.
SEE COPY IN COURSE DIARY
36
156
10.13 a
DIVERSIFICATION REDUCES RELIANCE
10.13 b
PLAN MUST HAVE OBJECTIVE.
10.13 c
PROMOTION MUST BE CONTINUOUS
SEE COPY IN COURSE DIARY
37
157
10.13 d
PLAN MUST BE MEASUREABLE
SEE COPY IN COURSE DIARY
38
158
ASSIGNMENT 12.0 - SUMMARY LECTURE
12.1
OBJECTIVES OF THE PROGRAMME
(a)
(b)
(c)
(d)
(e)
12.2
To understand the language and concepts of industrial marketing.
To appreciate the importance of the Marketing Mix.
To develop skills in setting marketing objectives, using marketing techniques.
To communicate effectively with marketing specialists,
To motivate further study.
MARKETING EVALUATION - A CHECKLIST IN TERMS OF THE MARKETING MIX
(a)
PRODUCT
Does your product have
-
(b)
consumer acceptance?
satisfactory performance?
economical production?
ease of installation?
adequate servicing?
PRICE
Find out:
-
where is the product In the life cycle?
do we skim or penetrate?
do we want to be price leaders or fol1owers?
what is the return desired on funds?
what discount funds should we follow?
are there any Government or legal regulations
which governs the price?
what is the cost structure? Fixed, variable costs?
what competitive reaction may be expected?
what alternative prices are available?
what contribution may be achieved?
SEE COPY IN COURSE DIARY
39
159
12.2
MARKETING EVALUATION (continued)
(c)
PLACE (DISTRIBUTION)
Decide on:
-
(d)
what market coverage is required
effectiveness and efficiency of your channels
whether your outlets are relevant to consumer purchasing demands
what amount of ‘push’ you need by marketing directly to the cost of so doing
your channel consistency with other aspects of your ‘mix’
PROMOTION
Decide:
-
how best to inform consumers about your product’s attributes
how much money to spend
whether to use personal selling, advertising, or sales promotion
whether your salesmen are an efficient part of your promotion
40
160
12.3 (a)
LEARN LANGUAGE MARKETING
12.3(b)
MIX
12.3 (c)
Develop Planning Skills
SEE COPY IN COURSE DIARY
41
161
12.3 (d)
12.3 (e)
Communicate with Specialists
More Study
SEE COPY IN COURSE DIARY
42
162
12.4
FINAL CONCLUSIONS
(a)
Marketing is finding out what the needs of your target market are and satisfying them.
(b)
To get organised for marketing you must be consumer orientated.
(c)
Make all your existing facilities attuned to one basic concept - to satisfy the consumer
and his needs to the best of your ability.
(d)
The overall marketing man must be the general manager - there can he no marketing
orientation unless he subscribes to it.
(e)
He becomes a marketing man by realising that any company can only on long term
exist if it satisfies the needs of its target markets better than its competitors.
(f)
You have the right marketing mix when you are satisfying the needs of your target
market better than your competitors and are making your planned profit.
(g)
Marketing men have to be optimistic and creative but you control them by making them
personally responsible for the achievement of their goals.
(h)
Mathematical models in marketing are becoming very important because they are very
useful tools to help you in planning the marketing mix better.
(i)
There is no substitute for marketing “f1air” but a11 other members of the management
team should be increasingly marketing oriented in order to ensure not only the shortterm but also the long-term survival of the firm.
FINAL NOTES
THIS ENDS OUR PROGRAMME, WE HOPE IT HAS INSPIRED YOU TO DEVELOP YOUR
SKILLS BY PRACTICAL APPLICATION. WE THANK YOU FOR YOUR INTEREST AND
HARD WORK. KEEP YOUR GLOSSARY AS A DAILY REFERENCE FOR INDUSTRIAL
MARKETING LANGUAGE AND CONTINUE YOUR STUDIES!!
WE HOPE YOU ENJOYED THE AGL EXPERIENCE.
43
163
GUIDE FOR TRAINER
Assignment
Sheet
Programme - Part I
1
Introduction
2
Quiz
3
P.L.
4
Lecture:
5
Case: Ace Truck
6
Lecture:
7
P.L.:
8
Lecture:
9
Case: Faymich
10
Lecture:
Faymich
11
Summary
Lecture
Basics of Marketing
Basics of Marketing
Ace Truck
Product and Price
Product and Price
164
1.8
INSTRUCTIONS (15 minutes)
(a)
Assemble in SG’s to introduce yourself, indicate your past experience in marketing
and what you hope to contribute to and gain from the course.
(b)
Complete page 1 of the Course Diary.
NOTE:
Check that you have a full set of learning materials NOW.
1
165
ASSIGNMENT 2.0 - QUIZ (45 MINUTES)
2.1
INSTRUCTIONS - INDIVIDUAL WORK
(a)
Assemble in SG.
(b)
Answer the quiz of 100 questions; mark your answers a, b, c or d with a clear X on
the special form provided in the Course Diary.
(c)
Work as quickly as possible but don’t guess - leave blanks.
(d)
Hand in your answer sheet to the Organiser who will mark it and give you a
quantitative measure of your marketing knowledge at the start of the course.
2
166
ASSIGNMENT 3.0 – PROGRAMMED
LEARNING - BASICS OF INDUSTRIAL MARKETING (60 mins.)
3.1
INSTRUCTIONS
(a)
Assemble in SG.
(b)
INDIVIDUAL WORK - Locate the Glossary for reference. Then quickly read chapter 1.
Do in writing chapter 2 of Industrial Marketing.
(c)
SG Work - Answer the questions in Exhibit 1. (15 minutes)
(d)
Discuss your answers to the questions in SG and then check with Exhibit 2 (below).
Recheck any doubtful points in the reading.
(e)
Record key points in your notebook.
EXHIBIT 2
1.
2.
3.
4.
5.
(d).
(a).
(d).
(d).
(a).
3
167
4.11
INSTRUCTIONS (15 minutes)
(a)
Reassemble in SG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each key point with your SG and record key points in your notebook. (5
minutes)
(d)
Carry on with the case study which follows.
4
168
ASSIGNMENT 5.0 - CASE ANALYSIS OF ACE TRUCK COMPANY (30 + 30 MINUTES
5.1
INSTRUCTIONS
(a)
SG Work (30 minutes)
- Quickly read the case, study if carefully.
- Analyse all the key problems.
- Answer each question systematically in SG.
- Formulate a plan of action.
- Need not all agree but you must decide!
(b)
CSG Work (30 minutes)
Groups combine as follows:
A
B
C
with
with
with
D
E
F
)
)
)
A, B and C will act as “Dealers”,
i.e. they make a short presentation.
- giving the answers to the questions
- lead CSG discussion
- record key points on ‘flipchart’
- lead CSG to a definite range of decisions
(c)
Reassemble in MG when the bell rings.
NOTE: Don’t look at answer page until end of the lecture on the case. No ‘cheating’ here
please! No checking’ either!
5
169
6.10
INSTRUCTIONS (15 minutes)
(a)
Reassemble in CSG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each key point with your SG and record key points in your notebook. (5
minutes)
(d)
Reassemble in MG when the bell rings.
6
170
ASSIGNMENT 7.0 - PROGRAMMED LEARNING
PRODUCT AND PRICE (60 minutes)
7.1
INSTRUCTIONS
(a)
Assemble in SG.
(b)
INDIVIDUAL WORK. Read quickly chapters 7 (25 minutes) and 8 (20 minutes) (but
not pp. 161-166, 197- 201). (If short of time, concentrate on summaries at end of
each chapter.) Do in writing chapter 3 of Industrial Marketing.
(c)
SG work - Answer the questions in Exhibit 1. (15 minutes)
(d)
Discuss your answers to the questions with your SG and then check with Exhibit 2
(below). Recheck any doubtful points in the reading.
(e)
Record significant points in your notebook.
(f)
Reassemble in MG when the bell rings.
EXHIBIT 2
Assignment 7.1(d)
1. (d)
2. (a)
3. (a)
4. (d)
5. (d)
ANSWERS
7
171
8.16
INSTRUCTIONS (15 minutes)
(a)
Reassemble in SG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each key point in SG and record key points in your notebook. (5 minutes)
(d)
When the bell rings, carry on with the case study which follows.
8
172
ASSIGNMENT 9.0 - CASE ANALYSIS - FAYMICH
COMPANY (45 + 45 minutes)
9. 1
INSTRUCTIONS
(a)
Individual and SG work (Exhibits 1 and 2) (45 minutes).
(b)
CSG work (45 minutes).
Groups will be combined as follows:
A
B
C
(c)
with
with
with
E
F
D
)
)
)
“Dealers” D, E and F
Reassemble in MG when the bell rings.
9
173
10.15
INSTRUCTIONS (15 minutes)
(a)
Reassemble in CSG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each key point with your SG and record key points in your notebook. (5
minutes)
10
174
11.17
INSTRUCTIONS (30 minutes)
(a)
Reassemble in SG now
(b)
Study this note and learning patterns very carefully
(c)
Discuss outstanding questions with your SG
(d)
Record significant points in your notebook
(e)
Do the following work in your own time:
(f)
(i)
Complete your Course Diary for Part I including notes on each case and the
key points learned (for review later)
(ii)
Read your copy of the summary lecture for Part I in the Course Diary
(iii)
Do the reading outlined by the Organizer
(iv)
Review the Glossary
Hand in the Daily Work Pack for Part I to the Organizer in SG
THIS ENDS PART I OF OUR PROGRAMME.
THANK YOU FOR WORKING SO HARD!
PART II BEGINS IMMEDIATELY ‘DOWNHILL ALL THE WAY”!
175
AGL 27
Assignment
Sheet
Programme – Part
1
Review and Quiz
2
P.L.:
3
Lecture:
4
Case: Motoring Amusement Co.
5
Lecture:
6
Bill Brown
7
P.L.:
8
Lecture:
9
Case: Eyeglass Co.
10
Lecture:
11
Quiz
12
Summary Lecture
Place, Distribution and Promotion
Place, Distribution and Promotion
Motoring Amusement Co.
Management Marketing
Management Marketing
Eyeglass Co.
176
ASSIGNMENT 1. 0 - REVIEW AND QUIZ (45 MINUTES)
1.1
INSTRUCTIONS
(a)
Assemble in your NEW SG.
(b)
Discuss the work completed in Part I, your summaries of key points and any
outstanding questions. (15 minutes)
(c)
Do in SG the “Short Quiz of 10 questions on the Marketing Mix” (Exhibit 1).
Don’t look at the solution.
(d)
Check your answers (Exhibit 2) and discuss questions arising. (15 minutes)
ASSIGNMENT 2.0 - PROGRAMMED LEARNING
PLACE AND PROMOTION (45 minutes)
2.1
3.15
INSTRUCTIONS
(a)
Assemble in SG.
(b)
IND WORK - Read Dodge chapters 10 (15 minutes) and 14 (omit pp. 338343) (10 minutes) and summary chapter 13 (5 minutes). Do Chapter 4 in
writing Consumer Marketing.
(c)
In SG answer the following questions in Exhibit 1. (15 minutes)
(d)
Discuss outstanding questions with your SG and record key points in your
notebook.
INSTRUCTIONS (15 minutes)
(a)
Reassemble in SG.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each key point with your SG and record key points in your notebook.
(5 minutes)
(d)
When the bell rings, carry on with case study which follows.
177
ASSIGNMENT 4. 0 - CASE ANALYSIS OF MOTORING
AMUSEMENT CO. (30 + 30 minutes)
4.1
5.11
INSTRUCTIONS
(a)
Assemble in SG now.
(b)
SG work. (Exhibits 1 and 2) (30 minutes)
(c)
CSG work. (30 minutes)
(d)
Reassemble in MG when the bell rings.
INSTRUCTIONS - CSG WORK (15 minutes)
(a)
Reassemble in CSG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each point with your CSG and record key points in your notebook. (5
minutes)
ASSIGNMENT 6. 0 - CASE OF BILL BROWN
(30 minutes)
6. 1
INSTRUCTIONS - INDIVIDUAL WORK (15 minutes)
(a) Assemble in SG.
(b) Answer all questions (Exhibit 1) , then discuss answers with your SG. Don’t look
at the answers yet.
6.2
INSTRUCTIONS - SG WORK (15 minutes)
(a)
When the bell rings, check your answers with the correct solution (Exhibit 2).
Record score in Course Diary.
(b)
Discuss outstanding questions with your SG and record key points in your
notebook.
NOTE: Use your notebook - do not mark the Daily Work Pack.
178
ASSIGNMENT 7. 0 - STUDY - MARKETING MANAGEMENT
7.1
INSTRUCTIONS - INDIVIDUAL AND SG WORK
(a)
Assemble in SG.
(b)
Individual work. Do Consumer Marketing Programmed Learning Book,
chapter 5. (20 minutes)
(c)
In SG answer the questions in Exhibit 1. (5 minutes)
(d)
Review glossary and list any words you still do not immediately understand.
(5 minutes)
(e)
Discuss outstanding questions with your SG and record key points in your
notebook.
EXHIBIT 2
Assignment 7.1 (c)
1.
(b)
2.
(d)
3.
(a)
4.
(a)
5.
(d)
ANSWERS
8.8
INSTRUCTIONS (15 minutes)
(a)
Reassemble in SG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss each point with your SG and record key points in your notebook. (5
minutes)
(d)
When the bell rings, carry on with case study which follows.
179
ASSIGNMENT 9. 0 - CASE - THE EYEGLASS CO.
(45 + 30 MINUTES)
9.1
INSTRUCTIONS
(a)
Assemble in SG.
(b)
SG Work (Exhibits 1 and 2). (45 minutes)
(c)
CSG Work. (30 minutes only)
(d)
Reassemble in MG when the bell rings.
10.11 INSTRUCTIONS - CSG WORK (15 minutes)
(a)
Reassemble in CSG now.
(b)
Study this note and learning patterns very carefully. (10 minutes)
(c)
Discuss key points with your SG and record key points in your notebook. (5
minutes)
ASSIGNMENT 11. 0 - QUIZ (45 MINUTES)
11.1
INSTRUCTIONS - INDIVIDUAL WORK
(a)
Assemble in SG.
(b)
Do the quiz of 100 questions; mark the special answer form provided.
(Individual work - no cheating!)
(c)
Check answers with the solution card provided by the Organizer and record
your score in your Daily Course Diary.
(d)
Reassemble in MG when the bell rings.
180
APPENDIX A _ GLOSSARY
(add new words as needed)
Accessory equipment
Equipment needed for operation of major equipment. Low price,
charged as current operating expense.
Advertising
Paid promotion of ideas, goods, or services. For industrial products
may be through trade magazines and papers, direct mailing, etc.
See promotion mix and marketing mix.
Agent
Firm which negotiates purchases or sales, but does not own the
goods in which it deals. Usually paid by commission or fee.
Assembling
Bringing supplies, or assortments of goods, or services together to
make sales or purchases easier.
Basing-Point Pricing
Delivered sales price consists of a quoted price at the basing point
plus transportation charges from the basing point, regardless of
shipping point.
Branch House
See sales-branch
Branch Office
See sales-branch without stock
Brand
A name, term, sign, symbol, or design, or combination of these,
which is intended to identify the products (or services) of a seller and
to differentiate them from those products or services marketed by
competitors.
Brand Manager
Responsible to marketing manager for a group of products - usually
mainly individual in promotion rather than using the full mix.
181
Break-Even Analysis
Analysis to determine at the point that total sales revenue equals
total cost. Based upon assumptions of: sales volume/ prices and
variable/fixed costs at such volumes. Indicates sensitivity of profit to:
sales volume/price/cost. One chart is usually not valid for all
volumes, since the variable/fixed costs will change. Useful tool for
understanding sales/costs relationships.
Broker
Agent without physical control of the goods, representing buyer or
seller in negotiating deals.
Budget
Plan or target in quantative/financial terms and in non-quantative
terms. Set a target or standard of required performance. May be a
total operating budget (sales, costs, and profit) or a more limited
departmental budget. May relate to cost, profit or investment
centres. Can be developed by inter-action, as a "creative" (rather
than a "defensive") motivator for managers. Directly related to the
organizational culture of the enterprise. Usually has both formal
"rational" effects and informal "psychological" effects on how
managers behave throughout the organization.
Buying Power
See purchasing power
Cash and Carry Wholesaler
Wholesaler dealing for cash, without delivery service.
Cash Discount
Discount for retail payment
Channel of Distribution
Structure - internal and external - to market commodity, product, or
service. Includes sales-representatives, agents, wholesalers, etc.
182
Commission House
Agent with physical control of sale of goods. Obeys instructions
issued by principal. Arranges delivery, extends credit, deducts fees,
and remits the balance to principal.
Commodity Exchange
Organization owned by members, providing market for specified
commodities. Similar to co-operative.
Competitive arenas
The business and geographic arenas, where the company will
compete in the future. Part of competitive strategy.
Competitive Strategy
How the company intends to achieve a sustainable competitive
advantage. One of the three constituents of corporate strategy.
There are three major competitive strategies: overall cost leadership,
differentiation, and focus. Competitive strategy involves how the
company intends to achieve a sustainable competitive advantage in
its chosen product markets, with a variety of strategic thrusts.
Component Parts
Products installed as part of the final product.
Consumer Goods
Goods for ultimate consumers (public) or households, and used
without commercial processing.
Consumer and Industrial Marketing
Consumer marketing is the marketing of goods and services to the
ultimate consumer - the public.
Industrial marketing is the marketing of good and services to
industrial consumers, who may in turn manufacture goods and
services for the public.
Industrial goods and services produce or become part of other
goods or facilitate the operation of the enterprise.
Consumer Marketing
183
Business of directing the flow of goods and services to the ultimate
consumer. Does not service or form part of any subsequent
product. See industrial marketing.
Consumer Research
See marketing research.
Contribution
Excess sales price over variable cost. Contributes to fixed overhead
and profit. Requires analysis of cost into fixed and variable.
Contribution maximized at various sales volumes dependent upon
sales and cost.
Distinguish contribution per unit from total
contribution.
Corporate mission
Tool for developing corporate strategy. Statement of what role the
company will seek to play in order to achieve its vision: what needs
does it wish to satisfy in which markets with what products/services
against which competitors and how will it measure its success.
Corporate strategy
Overall business strategy with three components: corporate mission,
product market strategy and competitive strategy, which interact all
the time. It is easier to build up a coherent, unified business strategy
from a synthesis of these three components, which provide the basis
for measuring its internal consistency.
The the strategy must be consistent with the company's "vision",
with its resources AND with it's special distinctive competencies or
sources of competitive advantage.
To develop corporate strategy: a VISION leads to a VIEW of what
the future holds, identifying COMPETITIVE arenas, and SOURCES
of competitive advantage. This leads to development of a corporate
MISSION, from which POSITIONING can enable a COMPETITIVE
strategy and a PRODUCT/MARKET strategy.
184
Cost
Cost of product. Vague term! See manufacture cost, total cost,
variable cost, fixed cost, opportunity cost, differential cost, true cost.
Cumulative Discount
Discount given on total purchases over a period of time.
Dealer
Buys and resells merchandise at either retail or wholesale level.
Delivered Priced
Price based on the point of destination - the opposite of f.o.b.
pricing.
Derived Demand
Demand for a product not generated directly but as a result of
demand for other goods and services of which the product is a basic
part. Demand for industrial goods is derived rather than a direct
demand.
Differential Costs
Added costs resulting from a change in business activity.Increased
costs. Costs that change as a result of some decision. Relevant
costs. Usually variable costs.
Direct Marketing Channel
Manufacturer marketing directly to consumer, not using agents or
wholesalers.
Direct Selling
Producing firm sells to the user, ultimate consumer, or retailer,
without intervening middlemen.
Discount
Allowance reducing sales price. Percentage of sales price. May be
cash discount, trade discount, or quantity discount.
Distribution
See industrial distributor.
Diversification
185
Marketing a varied line of products.
Reduces risk.
product-line may be more economic to duplicate.
Large
Drop Shipment
Direct shipment of goods from producer to buyer.
Elasticity
Variation in demand due to change in prices. Normal elasticity-low
price, high demand. Industrial goods have abnormal short-term
elasticity but normal long-term elasticity.
Equipment
Industrial goods which form part of the physical product. See major
equipment, installation, accessory equipment.
Exclusive-Outlet Selling
Sale of products or service confined to one retailer or wholesaler in
each area, on a contractual basis.
Fabricated Materials
Goods partly processed which require more work before becoming
part of the finished product.
Facilitating Agencies in Marketing
Agencies which perform some marketing functions. No title to
goods.
Negotiate purchases or sales: e.g. banks, railroads,
advertising agencies.
Factoring
Specialized financial function whereby producers, wholesalers, and
retailers sell their receivables to financial institutions, usually at a
high discount.
Fair Trade
Retail resale-price maintenance imposed by suppliers of branded
goods.
Fixed Cost
Cost affected by reasonable changes in the volume of sales or
production but changing only with very substantial changes in sales
or production volume. Cost that does not vary in total with the
volume of sales or production. In the long term, all costs are
variable, e.g. rent, office salaries, etc.
186
F.O.B. (Free On Board) Pricing
Pricing in which buyer pays freight costs.
Focus - strategic thrust
A competitive strategy involving: special product line, target to a
special market segment or limitation to a specific geographical area.
etc.
Functional Discount
See distributor discount
Grading
Predetermined standards of product quality.
Gross Profit
See margin.
Horizontal Market
Market of all kinds of firms in many different industries.
Incremental Costs
See differential costs.
Indirect Marketing Channel
Distribution system in which there are intermediaries between the
manufacturer and the consumer.
Industrial Distributor
Full service wholesaler selling primarily to the industrial market,
performing all, or most, of the marketing functions. Jobber.
Industrial Goods
Goods for use in producing other goods. Not goods sold to ultimate
consumers.
Includes equipment (installed and accessory);
component parts; maintenance, repair and operating supplies; raw
materials; fabricating materials.
Industrial Market Characteristics
Narrow industrial markets which involve only a particular trade or
industry are referred to as "vertical". By contrast, "horizontal"
industrial markets involve goods and services for a many different
kinds of companies and in many different industries.
187
Industrial Marketing
Business of directing the flow of goods and services from producer
to a user who in turn produces other goods and services, or
facilitates the operation of an enterprise. See consumer marketing.
Inside Salesmen
Salesmen working for industrial distributors and manufacturers in
sales-branches, not field salesmen.
Installation
Major equipment of significant size, closely allied with construction,
e.g. blast-furnace.
Interdependent Pricing
Pricing of products in conjunction with other products in the same
product-line.
Jobber
See industrial distributor.
Limited Market Coverage
Working only one or a limited number of outlets per trading area.
Low cost - strategic thrust
A competitive strategy involving: experience curve payoffs, no-frills
products, product special design, raw-material sourcing, low-cost
distribution, lowering labour costs, government subsidies, location
changes, production innovations, buying competitors, automation,
reducing overheads etc.
Mail -Order Wholesalers
Wholesalers who perform the selling service entirely by mail.
188
Major Equipment
Items of high unit-price which are capital assets.
Manufacture Cost
The total amount of money spent on direct labour, material, and
manufacturing overhead during the production of a product or
products.
Manufacturer's Agent
Agent who operates on extended contractual basis, often sells within
an exclusive territory, and possesses limited authority with regard to
prices and terms of sale. Authorized to sell a definite portion of his
principal's output.
Margin
Percentage of sales price. Difference between sales price and cost
of goods purchased; e.g. cost 100, sales price 125 - margin 20%.
See mark up.
Market
a) Total of forces or conditions within which buyers and sellers
make decisions that result in the transfer of goods and services.
b) Total demand of the potential buyers of a commodity or service.
See also vertical market, niche market and horizontal market.
Market Analysis
Sub-division of marketing research dealing with measurement of
market and determination of its characteristics. See marketing
research.
Market Coverage
Number of outlets per designated trading area.
Market Research
See marketing research.
Market Segmentation
Division of the market into smaller homogeneous segments by user
type.
189
Market Share
Sales potential. Company's sales as a percentage of the total
industry sales on either an actual or potential basis. Often used to
designate the part of total-industry sales a company hopes, or
expects, to get.
Market Testing
Testing product in part of target market to see performance under
actual market conditions. Part of new-product development. See
also market testing.
Marketing Budget
A statement of the planned financial sales and planned marketing
costs for a specified future period.
Marketing Channel
See channel of distribution.
Marketing - Cost Accounting
Allocation of marketing costs according to customers, marketing
units, products, territories, or marketing activities. Provides essential
quantitative data for marketing decisions.
Marketing - Cost Analysis
Evaluation of the relative profitability or costs of different marketing
operations in terms of customers, marketing units, commodities,
territories, or marketing activities.
Marketing Function
Major specialized activity in marketing.
Marketing Management
Satisfying customer needs by building profitable
relationships. The goal is to build customer loyalty.
customer
Planning, direction, and control of the entire marketing activity of a
firm or division of a firm. Includes formulation of marketing
objectives, policies, programs, and strategy. Commonly embraces
product development, organizing and staffing to carry out plans,
supervising marketing operations, and controlling marketing
performance.
190
Marketing Management Concept
The concept is to be consumer-oriented; consumer needs (or
perceived needs) are the determinants of the company survival,
growth and profitability.
Seek to achieve a profitable level of sales; to be profit oriented.
Coordinate the direction of all marketing activities by formulating
consistent inter-related strategies directed to one common goal of:
"profitably satisfying the needs of the target consumer".
Customers do not buy a product; they buy what the product can do
for them; they buy services!
Marketing
Means directing all company activities towards one common goal.
The goal is to discover and satisfy the present and potential needs
of a target customer, using company skills and resources. Use
company resources to satisfy a target market profitably. Create and
retain profitable customers. Finding out what the target markets'
needs (either conscious or subconscious) are, and satisfying them
to the best of the company's ability.
Marketing Mix
Marketing is concerned with the selection of a proper marketing mix:
Positioning - how should our target market perceive us?
Product - what kind of goods and services?
Price - how much and on what terms?
People - who should we target and how to segment the market?
Place - where and how to distribute our goods and services?
Promotion - how to get the buyers?
In 2005 the new marketing mix has 6 (not 4) "P's".
Marketing Planning
Setting objectives for marketing activity, and determining and
scheduling the steps necessary to achieve such objectives.
Marketing Research
191
Systematic gathering, recording, and analyzing of data about
marketing problems for goods and services. Internally or by outside
consultants.
Marketing Strategy
Strategy
concerned
with
maintaining
or
achieving
market-acceptance for established products and designing means
for securing markets for products. Designed to fulfil the customer's
needs.
Mark On
See mark up.
Mark Up
Margin expressed as percentage of cost of goods purchased; e.g.
cost 100, sales price 125 - mark up 25%. See margin.
Mass Distribution
Using maximum number of outlets per trading area.
Media
Means of communication, e.g. newspapers, television, etc.
advertising.
See
Merchandising
Choice of channels, the packaging of the product, its pricing, and its
presentation and sales promotion.
Merchant
Business that buys, takes title to, and resells merchandise.
Middleman
Business that specializes in operations directly involved in
purchases and/or sales between producer and consumer.
Middlemen are of two types: merchants and agents.
Missionary Salesman
Manufacturer's salesman who calls on customers of his distributors.
Develops goodwill.
Stimulates demand.
Promotes sale of
employer's goods. Trains salesmen. Takes orders for delivery by
distributors.
Monopoly
192
Market with only one seller.
Monopsony
Market with only one buyer.
Motivation Research
Techniques of behavioral scientists used by marketing researchers
to discover psychological factors influencing marketing behavior.
M.R.O.
Maintenance, repair, and operating supplier.
See operating
Multi-Purpose Equipment
Equipment utilized by different industries without modification
National Brands
Manufacturer's or producer's brand, usually enjoying wide territorial
distribution.
Net Profit
Sales less costs (including overhead expenses) equals net profit.
See gross profit.
New Marketing Mix
6 P's instead of 4 P's. See marketing mix.
Niche Market
A narrow segment of the overall market, with a common
characteristic
that will make the product or service especially attractive to them.
Non--Cumulative Discount
Discount based on quantity purchased at one given time.
193
O.E.M.
Original-equipment manufacturer, as opposed to replacement-part
manufacturer.
Oligopoly
Market with few sellers. Difficult to enter.
One to One marketing
Satisfying customer needs by building individual relationships with
customers using databases to get closer to the customer.
Operating supplies
Goods used up in production process or operations of any
enterprise. Sometimes known as M.R.O.
Opportunity cost
Cost or value of an alternative course of action.
Outlet
Unit selling product to consumer.
Penetration pricing
Low-price strategy designed to gain as much of the potential market
as possible within a short time after the introduction of a new
product.
Personal selling
Verbal selling to potential purchasers.
Place
Distribution channel. See marketing mix.
Planned obsolescence
Policy of determining, during development, how and when a
product's usefulness will be terminated.
Point-of-origin-pricing
See f.o.b. pricing.
194
Positioning
The picture that the target market has of the company. What is the
minds of the customers. The position that a company owns in the
marketplace is the net result of the interaction of all the experiences,
beliefs, feelings, knowledge and impressions that the market has
accumulated about the company.
Positioning is a strategic issue - it is the first element of any
marketing strategy aimed at a target market. Positioning is a
strategic statement about how the company/brand wants to be
"seen" on the marketplace. It is based on a "vision" of what the
company wants to be and how it wants to be perceived by its
stakeholders. It thus guides the development and execution of the
total marketing strategy
Postage-stamp pricing
Charging a uniform delivered price to all buyers, regardless of
location.
Price
See marketing mix. Price of product or service. See skimming and
penetration pricing, f.o.b. pricing, basing-point pricing, zone pricing,
postage-stamp pricing.
Price leader
One or two firms in an industry, or product field, who dominate. Price
usually followed by rest of firms in same field.
Pricing policy
Part of marketing mix. Decision on the price of product related to
objectives, market share, contribution, competitive action, product
life-cycle, patentability, etc.
Producers' co-operative marketing
Involves sale of goods or services of the producers who are
members. May perform only assembly or brokerage function. May
extend into processing and distribution of the members' production.
Product
195
End result of companies' manufacturing process. See marketing
mix.
Product differentiation - strategic thrust
Emphasizes differences between a product and competing products.
A competitive strategy involving: product quality, performance,
durability, conformance, features, name, reliability, serviceability, fit
and finish, service quality, reliability, responsiveness, competence,
credibility, empathy, courtesy, communication etc.
Product life cycles
The product life cycle as a strategic market driven tool with five
phases: introduction, growth, maturity, saturation and decline. Each
phase has special characteristics.
Product-line
Group of closely related products satisfying class of need, used
together, sold to the same customer groups, marketed through the
same outlets, or falling within given price ranges.
Product management
Planning, direction, and control of all phases of the life-cycle of
products, screening of such ideas, coordination of research and
physical development of products, packaging and branding,
introduction on the market, market development, modification,
discovery of new uses, repair and servicing, their deletion.
Product/market strategies
Tool for developing corporate strategy. Strategies to optimize
product sales in selected markets. Alternatives include: concentrate
on existing markets, new market development, new product
development, innovation based on existing resources, buying direct
competitors, joint ventures, vertical integration, buying synergistic
businesses etc.
Product mix
Group of products offered for sale by a firm.
Product planning
See merchandising.
Product policy
196
Part of marketing mix. Decision on product type, quality, life-cycle,
planned obsolescence, new-product development etc.
Product strategy
Strategy concerned with the creation of products to meet changing
needs of customers, or to attract new customers.
Promotion
See marketing mix.
Promotion mix
Combination of advertising, personal selling and sales-promotional
techniques used to gain acceptance of the product by the target
market. See marketing mix.
Publicity
Stimulation of demand for a product by news in published media or
favorable radio, television, or stage presentations.
Purchasing power
Buying power. Capacity to purchase of individual buyer, or group of
buyers, in an area or a market.
Quantity discounts
Discount based on quantity purchased - may be cumulative or
nonRaw materials
Unprocessed goods.
Reciprocal trading
Practice of buying from those suppliers who are also customers.
Resale-price maintenance
Control by a supplier of selling prices of branded goods at
subsequent distribution. Contractual agreement, under fair-trade
laws or other devices.
197
Resident buyer
Agent specializing in buying, on a fee or commission basis.
Retailer
Merchant or agent selling directly to the ultimate consumer.
Retailing
Selling directly to ultimate consumers.
Sales-agent
See selling agent.
Sales analysis
Sub-division of marketing research.
comparison of sales data.
Systematic study and
Sales-branch
Establishment maintained by manufacturer away from headquarters,
used to stock, sell, deliver, and service products.
Sales-branch without stock
Manufacturer's establishment away from headquarters used to sell
products or provide service without carrying stocks.
Sales budget
Part of marketing budget concerned with planned financial sales and
planned selling costs during budget period.
Depends upon
assumptions.
Sales-forecast
Estimate of sales, in money or physical units, for a future period
under proposed marketing plan. Depends upon assumptions.
Sales management
Planning, direction, and control of personal selling activities.
Sales manager
Executive who plans, directs, and controls salesmen.
Sales planning
198
Part of marketing planning concerned with sales-forecasting,
devising programs to achieve sales target, and making sales
budget.
Sales potential
See market share.
Sales promotion
Marketing activities that stimulate consumer purchasing and dealer
effectiveness, such as display, shows and exhibitions,
demonstrations, and various non-recurrent selling efforts not in the
ordinary routine: not personal selling, not advertising and publicity.
Sales quota
Projected volume of sales for use in the management sales efforts
for a specified period. Expressed in money or physical units.
Sales research
See marketing research and sales analysis.
Salvage goods
Material extracted from wreckage or destruction.
Selective market coverage
Restriction of outlets, usually to those which can serve the
manufacturer profitably.
Selective selling
Policy of selling to limited number of customers in the market.
Selling
Process of persuading prospective customers to buy goods or a
good service.
Selling agent
Agent who operates on a contractual basis, selling all of a specified
line of merchandise or the entire output of his principal, with full
authority on prices, terms, etc. of sale.
Service wholesaler
Wholesaler who renders all normal services expected in the
wholesale trade.
199
Services
Activities, benefits, or satisfactions offered for sale, or provided with
the sale of goods. Customers for a product are really buying the
"services" that the product provides.
Skimming pricing
High-price policy for introduction of a new product, to get largest
possible recovery of new-product investment.
Special-purpose equipment
Equipment designed to perform a single-duty operation.
Standardization
Specifications for manufactured goods on products of agriculture
and extractive industries.
Stock or inventory control
System to maintain stocks of goods at desired levels.
Storage
Holding goods between production and final sale.
Strategic Marketing
Strategic marketing is part of corporate strategy, which has three
interacting components: the corporate mission, the product/market
strategy, and the competitive strategy.
The corporate mission depends upon a "Vision" for the company
which concentrates energies on a common goal, and yet lets
opportunities emerge. Visions that awake extraordinary performance
have three things in common: a noble purpose, a sense of urgency,
and clear boundaries.
Product/market strategy defines markets, products and services,
and the means to develop them.
Competitive strategy deals with how the company intends to achieve
a sustainable competitive advantage in its chosen product/markets.
Sunk costs
Costs from decisions already made; they are irreversible.
relevant to pricing decisions.
Not
200
Test marketing
Sale in part of target market to test effectiveness of marketing mix in
achieving objectives. Follows market testing.
Total cost
The total amount of money spent on cost of manufacture, selling
expenses, and administrative overheads in the production of a
product or group of products. See manufacture cost.
Trade discount
Discount for sale to another business in the same trade or industry,
but not a cash discount.
Trade-mark
Brand name given legal protection.
Trading area
District determined by the boundaries in which it is economic to sell
and/or deliver goods or services from a specific point.
Traffic management
Planning and direction of transportation in marketing.
Truck wholesalers
Wholesalers who combine selling, delivery, and collection in one
operation.
True cost
A charge which is impossible to determine - cost must be defined for
a specific purpose.
Ultimate consumer
One who buys and/or uses goods or services for final use, not
industrial though. Usually the public.
Value analysis
System for determining most economical means of producing a
product to perform specific functions.
Variable costs
Costs which vary directly with the volume of production or sales. See
contribution. Relevant to pricing.
201
Vendor analysis
Rating of potential suppliers as to performance and capabilities.
Vertical market
Narrow market for a particular trade or industry. See niche market
for the consumer equivalent.
Vision
Tool for developing corporate strategy. An energizing picture, based
on a view of the future, of what top management wants the company
to become.
View
Tool for developing corporate strategy. View of what the future
holds; what are the anticipated regulatory, competitive, economic
and geopolitical environments in which the company must compete.
Wholesaler
Firm which buys and resells merchandise to retailers and other
merchants and/or industrial, institutional, and commercial users.
Does not sell to public.
Zone pricing
Pricing by specific zones, each with a different delivered price.
202
APPENDIX B - QUIZ
Choose the most correct answer and mark the answer sheet a, b, c, d, with an ‘X’. DO NOT MARK
THE QUIZ.
1.
The public is affected by the market mainly by:
(a)
(b)
(c)
(d)
2.
Products are classified as consumer or industrial according to their:
(a)
(b)
(c)
(d)
3.
need to have stocks on hand
cost of transportation affects cost of finished article
problems in moving bulk loads
necessity to have sound transportation programme
To make consumers aware of a fabricated plastic material used in men’s clothing,
manufacturers often use:
(a)
(b)
(c)
(d)
7.
not being limited to one industry
product life
price
repair services
Economical raw material transportation is important because of:
(a)
(b)
(c)
(d)
6.
promotion
price
distribution channels
sales and service needs
The market for multi-purpose as opposed to special purpose machinery differs mainly in:
(a)
(b)
(c)
(d)
5.
nature - type of product
technology
price
seller
The marketing mix emphasis for major equipment (like computers which are installed) differs
from the mix for smaller machines mainly in:
(a)
(b)
(c)
(d)
4.
the price of products
how well the products are engineered
the suitability of consumer products available
the nature of the industrial market itself
trade magazines
excessive guarantees
advertising directed at the consumers
trade fairs
Component parts increase the value of a final product only if they:
(a)
(b)
(c)
(d)
are absolutely necessary
are technically desirable
are a nice colour
provide consumer user benefits
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203
8.
Marketing of manufacturing supplies and hardware goods for the general public are similar
because of:
(a)
(b)
(c)
(d)
9.
Any difficulty in measuring the size of the consumer market for insurance arises from:
(a)
(b)
(c)
(d)
10.
vertical market
horizontal market
purely government market
foreign market
A horizontal market is normally a market for:
(a)
(b)
(c)
(d
15.
an honest one
an in-depth market in a few industries
a limited market
a horizontal market
A manufacturer of jet aircraft instruments normally has a:
(a)
(b)
(c)
(d)
14.
he then fears the future
it must mean that business is bad
his salesmen will lose initiative
they are his final market
A vertical market is:
(a)
(b)
(c)
(d)
13.
industrial demand is derived rather than direct
industrial prices fall more slowly than consumer prices
industrial markets are less perfect
industrial buyers are more rational
Cutbacks by consumer goods manufacturers affect the industrial equipment manufacturer
because:
(a
(b)
(c)
(d)
12.
doing incomplete market research
lack of government statistics
lack of agreement on its definition
obscure demand
During recession industrial demand falls faster than consumer demand because:
(a)
(b)
(c)
(d)
11.
price
wide-spread markets
similar salesmen
advertising
retreading machinery
leather-working machinery
meat hooks
industrial lighting
Industrial manufacturers of specialised equipment such as water valves do not normally follow
the geographic decentralisation of their customers because of:
(a)
(b)
(c)
(d)
economics and practicality
low transportation costs relative to selling price
the number of customers
material transportation costs
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204
16.
Industrial purchases are divided up among approved suppliers in order to:
(a)
(b)
(c)
(d)
17.
Emotional motives are important in consumer purchasing of whiskey when:
(a)
(b)
(c)
(d)
18.
exploration
screening
market research
sales training
Market strategy always involves:
(a)
(b)
(c)
(d)
22.
sexy advertising
aggressive selling
appropriate marketing mix
new product development
Under the marketing concept for soap products, the following are all part of new product
development, except:
(a)
(b)
(c)
(d)
21.
use only specialist salesmen
find the most suitable market for his product
limit sales and keep up price
‘divide and conquer’
Sales volume of men’s clothing is achieved under the marketing concept by:
(a)
(b)
(c)
(d)
20.
prices are equal
the seller knows the buyer personally
all rational considerations are equal
the amount of purchase is small
Market segmentation enables the consumer marketer to:
(a)
(b)
(c)
(d)
19.
ensure delivery
ensure long-term relations with all of them
improve quality
make buying easier
creation of new products
selection of Marketing Mix
selection of advertising mix
selection of market segment
To achieve lower costs we cannot increase product of children’s toys indefinitely because we
will:
(a)
(b)
(c)
(d)
run out of raw material
need excessive engineering staff
have lower profits
not have enough storage space
4
205
23.
If you pay too much attention to current industrial market problems, it often leads to:
(a)
(b)
(c)
(d)
24.
A serious problem that top management faces in initiating sound industrial marketing planning
is:
(a)
(b)
(c)
(d)
25.
(d)
co-ordinating all marketing efforts towards a common goal
recognising departmental limitations
personal selling technique
selection of the marketing mix
The marketing mix mainly is concerned with:
(a)
(b)
(c)
(d)
29.
customer needs determine the firm’s survival and growth
determine the actual and potential needs of customers and satisfy them
continuously reshape marketing efforts to meet opportunities and demands more
effectively
produce the best engineered products possible
Marketing strategy involves all of the following except:
(a)
(b)
(c)
(d)
28.
competent sales staff
proper price
effective promotion and distribution
marketing mix
Under the marketing management concept, consumer orientation means all of the following,
except:
(a)
(b)
(c)
27.
lack of communication about marketing objectives
product obsolescence
lack of enthusiasm
excessive competition
Marketing basically involves selection of a:
(a)
(b)
(c)
(a)
26.
foreign competition coming in
your missing out on potentially very worthwhile markets
complexity of market segments
your finances becoming weak
volume
profit
the four P’s
achieving top management objectives
Demand which is usually widespread and requires a broader market normally concerns:
(a)
(b)
(c)
(d)
convenience goods
heroin and similar products
basic essentials
shopping goods
5
206
30.
The demand for consumer goods is:
(a)
(b)
(c)
(d)
31.
“In a consumer market, products not fulfilling the market’s needs have little chance of
success. “This statement is:
(a)
(b)
(c)
(a)
32.
correct or incorrect
fixed or variable
actual or standard
true or false
Under price leadership, the advantage of being a follower is mainly:
(a)
(b)
(c)
(d)
36.
cost plus pricing
independent pricing
marketing pricing
inter-dependent pricing
When many products are manufactured, product costs are best classified for pricing purposes
as:
(a)
(b)
(c)
(d)
35.
always the key factor
generally the key factor
never the sole factor
seldom the key factor
In a line of radios with different grades, we normally adopt:
(a)
(b)
(c)
(d)
34.
always true
sometimes true
half true
false
In the marketing strategy for a consumer product, “price” is:
(a)
(b)
(c)
(d)
33.
direct from housewives
direct from engineers
derived from manufacturers
derived from consumer needs
economy of administrative costs
undercutting
assured market share by knowing how to price
assured profit
In a market with a limited number of buyers, pricing policy is very dependent on:
(a)
(b)
(c)
(d)
the demand for his buyer’s products
the buyer’s cost structure
flexible pricing
stable pricing
6
207
37.
A pricing policy designed to have the same price to customers in a specific area is:
(a)
(b)
(c)
(d)
38.
All of the following are normally functions of pricing policy except:
(a)
(b)
(c)
(d)
39.
aggressive selling should be applied
the product should be eliminated as soon as a better alternative can be found
the product should not be eliminated too quickly
sellers have got to get together to “fix” the market!
The product development department budget is best justified in terms of:
(a)
(b)
(c)
(d)
43.
lower price below total cost
limit market to specific segments
set up long term arrangements with major retailers
any of these
If a product takes an irreversible downward trend in sales and seller is not recovering variable
costs:
(a)
(b)
(c)
(d)
42.
full cost
cost plus
what the market will pay
a fair profit
To avoid competition, the firm could:
(a)
(b)
(c)
(d)
41.
achieving target return on investment
helping salesmen sell with no difficulty
maintaining or improving market share
avoiding competition
Except when a line of industrial products with different grades are marketed, price is generally
related to:
(a)
(b)
(c)
(d)
40.
zone pricing
competitive pricing
basing point pricing
f.o.b. pricing
product sales
necessity of product developments for long-term company survival
product net profit
personal needs of the development manager
When sales volume of a food product is increasing and profits increasing, this is the period of:
(a)
(b)
(c)
(d)
growth
maturity
saturation
heavenly blue
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208
44.
When sales volume is very slowly rising and profits are falling, this is the period of:
(a)
(b)
(c)
(d)
45.
A marketing -oriented executive views product development as:
(a)
(b)
(c)
(d)
46.
mainly research
taking an intelligent chance on new products
a company-wide activity under the direction of marketing
a company-wide activity under the direction of engineering
Marketing segmentation is:
(a)
(b)
(c)
(d)
47.
growth
maturity
decline
sadness
the same as product differentiation
similar to product differentiation
dividing the market by customer
aimed at dividing the market by product
We can justify retaining a product in the short run if it:
(a) has involved large Research and Development
(b) contributes and aids the product line
(c) does not earn a contribution
(d) satisfies customers
48.
Planned obsolescence is:
(a)
(b)
(c)
(d)
49.
The main reason for product diversification is to:
(a)
(b)
(c)
(d)
50.
boost company morale
achieve greater rate of growth of sales and profits
follow competitive companies
use excess company funds effectively
Product policy is concerned with:
(a)
(b)
(c)
(d)
51.
justified if the customer will stand for it
always profitable
a necessary part of technological change
generally profitable
product deletion
all of these
the character and number of product lines
product, quality and guarantees
Product planning involves all of the following except:
(a)
(b)
(c)
(d)
developing competitive weapons
requiring adjustment to shifting market opportunities
avoiding risk
taking cognisance of environmental changes
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209
52.
Product mix is mainly broadened to:
(a)
(b)
(c)
(d)
53.
The key feature in new product development is:
(a)
(b)
(c)
(d)
54.
stabilizing of sales volume
standardization of product
catering for consumer purchasing patterns
achieving higher company prestige
There is a general tendency to market directly because middlemen, amongst other things:
(a)
(b)
(c)
(d)
58.
consumer purchasing patterns
distribution costs
competition
all of these
The basic premise of mass coverage is:
(a)
(b)
(c)
(d)
57.
sometimes true
false
true
not relevant to marketing
Market coverage or the number of outlets in a trading area is determined by:
(a)
(b)
(c)
(d)
56.
new product ideas
co-operation in setting target dates
commitment to substantial investment
adequate channels of distribution
“In the long run price of a successful product must cover total cost. “ This statement is:
(a)
(b)
(c)
(d)
55.
utilize by-products
meet competition
make salesmen more effective
fit customer requirements
all of the below
fail to seek out new customers
do not devote enough time to manufacturers’ products or customers
do not ‘sell’ - just take orders
Manufacturers market indirectly:
(a)
(b)
(c)
(d)
not to make a large financial commitment on a long-term basis
to lessen selling expenses
to gain access to market segments from which they are otherwise barred
all of these
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210
59.
A manufacturer would use a sales branch without stock rather than with stock:
(a)
(b)
(c)
(d)
60.
In selecting the major type of outlet to be used, a manufacturer should consider, in the first
instance:
(a)
(b)
(c)
(d)
61.
building primary and selective demand
making immediate sales
introducing products to new segments of the market
introducing new special events
A consumer marketer, in developing a favourable marketing image, is trying to establish:
(a)
(b)
(c)
(d)
65.
because advertising is a continuous process
because advertising agents lose motivation
because the budget has already been set
because customers expect you to advertise
All of the following are specific promotion objectives except:
(a)
(b)
(c)
(d)
64.
tracing salesmen
paying salesmen well
joint calls to enhance the prestige of the normal salesman
using them to prepare the way for the regular salesmen
It is risky to disrupt the continuity of the advertising effort
(a)
(b)
(c)
(d)
63.
outlets used by competitors
the needs of his target market
relationship with his sales force
product price
The manufacturer can ahieve the greatest success with missionary salesmen by:
(a)
(b)
(c)
(d)
62.
to avoid additional financial burden
if customer service is not performed at branch level
if customers do not buy often and/or in small quantities
all of these
that the firm’s products fulfil the marketing needs best
that the firm is large enough to handle customer orders
the firm is growing
that he has an attractive personality
A pull/push promotion strategy has the following objectives:
(a)
(b)
(c)
(d)
to increase profits
to attract consumers and influence their purchasing decision
to keep traders happy
to segment the market
10
211
66.
“Successful advertising reduces the overall cost of selling.” This statement is:
(a)
(b)
(c)
(d)
67.
Deciding the advertising media to use involves all the following except:
(a)
(b)
(c)
(a)
68.
the customers are changing
the products are changing
each new decision requires a fresh evaluation of all the factors involved
the external environment is changing
Planning for industrial marketing is:
(a)
(b)
(c)
(d)
72.
advising us on how to develop new products
competence in copy, layout and media selection
advising on sales training
liaison with other specialists
It is dangerous for a marketer to rely too heavily on past experience in making marketing
decisions because:
(a)
(b)
(c)
(d)
71.
flexibility in territorial coverage
all of these
control over timing
audience selectivity
In practice the key function of an advertising agency is:
(a)
(b)
(c)
(d)
70.
media reach in the target market
media frequency of exposure
the media we prefer
media cost per thousand
The advantage of direct mail selling is:
(a)
(b)
(c)
(d)
69.
true
false
sometimes true
irrelevant to marketing
statement of objectives
definition of assumptions
a whole series of steps including the three mentioned here
evaluation of alternatives
Research and Development strategy seeks to:
(a)
(b)
(c)
(d)
direct R & D efforts towards the market
co-ordinate R & D efforts with production
measure the productivity of marketing
disorganize the R & D function
11
212
73.
In marketing control seeks to:
(a)
(b)
(c)
(d)
74.
Control is essential in marketing because:
(a)
(b)
(c)
(d)
75.
price and product
product and marketing
product and selling
consumer orientation
Market research seeks mainly to:
(a)
(b)
(c)
(d)
80.
it is always based on past costs and prices
it is relevant only for limited sales volumes
it pretends that costs are fixed or variable
all of these
Marketing should involve strategies for:
(a)
(b)
(c)
(d)
79.
they are made for tame accountants
they fail to recognize “opportunity” value of marketing management information
personal whims play a major role in keeping the reports
they report only in money
The biggest drawback to break-even analysis is:
(a)
(b)
(c)
(d)
78.
want to be conservative
relate it to total industry sales
know it is usually complicated
use it as a performance standard
Accounting reports are not normally useful for marketing because:
(a)
(b)
(c)
(d)
77.
marketing staff do not work without it
you cannot make money without it
it is the means of keeping an operation going according to plan
inefficiency is normal
Our target of market share should be automatically adjusted when we note increased
competitive actions because we:
(a)
(b)
(c)
(d)
76.
balance authority and action
improve decision making and planning by a rapid feedback of results
promote creativity and effectiveness
limit information flow to responsible authorities
provide management data for marketing decisions
gather information
measure markets
analyse sales results
Continuous assessment of marketing opportunities assures that a company will be:
(a)
(b)
(c)
(d)
dynamic in marketing and production
prepared to meeting changing marketing opportunities
able to identify challenges and problems
profitable
12
213
81.
Penetration pricing implies that the firm:
(a)
(b)
(c)
(d)
82.
Skimming pricing:
(a)
(b)
(c)
(d)
83.
will encourage small orders
are useful when lower distribution cost is a function of the size of order
do not penalize the large buyer who makes an occasional small purchase
are useful in marketing major equipment
Cash discounts to customers:
(a)
(b)
(c)
(d)
87.
do not hold the loyalty of buyers
should be employed when lower distribution cost is related to the size of the order
do not penalize the buyer who makes a series of small purchases
probably will eliminate small orders
Non-cumulative quantity discounts:
(a)
(b)
(c)
(d)
86.
is a high degree of price elasticity
are substantial economics of scale
is an absence of patent barriers
all of these
Cumulative quantity discounts:
(a)
(b)
(c)
(d)
85.
means setting a high price to maximize initial return
implies that the firm wants to saturate as much of the market as quickly as possible
is a means to exploit a specific segment of the market
is a sound strategy when there are high R & D costs
Penetration is a sound strategy when there:
(a)
(b)
(c)
(d)
84.
desires to exploit a specific market segment
wants to maximize the recovery rate on a new product investment
wants to saturate as much of the potential market as quickly as possible
wants to establish a long-term market position
encourage immediate payment
reduce price
all of these
pass on savings to the buyer
Price competition is most important during which stage of the product life cycle:
(a)
(b)
(c)
(d)
introduction
growth
maturity
decline
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214
88.
Contribution pricing means pricing above:
(a)
(b)
(c)
(d)
89.
A firm can have greater say in fixing its prices with:
(a)
(b)
(c)
(d)
90.
there are more buyers
prices are lower
there are more products
of inventory policies
Demand for industrial goods is derived because:
(a)
(b)
(c)
(d)
95.
marketed directly by manufacturers
not identifiable in the finished product
marketed by middlemen
major purchasing decision
Demand for industrial goods fluctuates more widely than demand for consumer goods
becuase:
(a)
(b)
(c)
(d)
94.
planning
principles
post-mortem
promotion
Operating supplies for a manufacturer are always:
(a)
(b)
(c)
(d)
93.
variable
fixed
true
still too high!
The marketing mix involves: Product, Price, Place, and:
(a)
(b)
(c)
(d)
92.
extensive distribution
strong salesmen
a good reputation
product differentiation
In pricing we are mainly concerned with product costs that are:
(a)
(b)
(c)
(d)
91.
total cost
fixed cost
variable cost
material cost
it is affected by top policies
it is dependent on consumer demand
it depends on the wholesale price index
none of these
A sudden market price rise of an industrial product will probably:
(a)
(b)
(c)
(d)
bring a growth in total demand
bring a decline in total demand
not affect total demand
cut back supply
14
215
96.
In a vertical market:
(a)
(b)
(c)
(d)
97.
Vendor analysis:
(a)
(b)
(c)
(d)
98.
information gained by your sales force
advice of all the executives concerned
all the corporate resources
examples from other successful products
Rational buying motives imply:
(a)
(b)
(c)
(d)
100.
concerns the buyer’s characteristics
concerns the seller’s characteristics
concerns both buyer’s and seller’s characteristics
picks the best coffee machine
In the development of a product policy one has to use:
(a)
(b)
(c)
(d)
99.
a large sales force is necessary
there are many customers
an extensive distribution system is needed
a change in the buying pattern of a single customer can cause wide variations in sales
concentration on price only
a high degree of guesswork
buying in the open market
consideration of many factors as well as price
Sound consumer marketing is dependent on:
(a)
(b)
(c)
(d)
good products
keen prices
sound marketing planning
strong sales force
216
Our Answers to the Quiz
I-c
2I - d
4I -d
61 - a
2-a
22 - a
42 - d
62 - b
3-d
23 - c
43 - c
63 - c
4-a
24 - a
44 - d
64 - d
5-b
25 - d
45 - a
65 - b
6-c
26 - a
46 - c
66 - a
7-d
27 - c
47 - d
67 - b
8-b
28 - b
49 - c
68 - c
9-b
29 - a
49 - a
69 - a
10 - a
30 - b
50 - d
70 - c
II-d
3I - c
51 - b
71 - b
12 - a
32 - d
52 - a
72 - .4
13 - c
33 - b
53 - b
73 - a
14 - b
34 - b
54 - a
74 - d
15 - c
35 - a
55 - a
75 - b
16 -d
36 - c
56 - c
76 - d
I7 - b
37 - c
57 - d
77 - d
18 - d
38 - c
58 - b
78 - b
19 - b
39 - b
59 - c
79 - d
20 - a
40 - c
6o - c
80 – c
217
APPENDIX C – FURTHER STUDY-
218