PRINCIPLES OF MARKETING NOTES

LECTURER MS CHIGWENDE

CUIM 137

LEVEL 1:1

Definition of Marketing

According to Kotler and Armstrong (2013) Marketing is the process by which companies
create value for customers and build strong customer relationships in order to capture value
in return.

Marketing is the management process responsible for identifying, anticipating and satisfying
customer requirements profitably (CIM)

The American Marketing Association definition – Marketing is the process of planning and
executing the conception, pricing, promotion and organisations distribution of ideas, goods
and services to create exchanges that satisfy individual and goals.

Marketing is the process of planning and executing the conception, pricing, promotion, and
distribution (4 Ps) of ideas, goods and services to create exchanges (with customers) that
satisfy individual and organizational objectives. The process for which organizations create
value for customers in the form of ideas, goods and services to facilitate satisfying exchange
relationships and capture value from customers From these definitions the following
concepts can be identified;

Needs, wants and demands

The most basic concept underlying marketing is human needs. Human needs are states of
felt deprivation. These include physical needs for food, shelter, and clothing

Value, Satisfaction and Quality

Consumers make buying choices based on their perceptions of value that various products
and services deliver.

Consumer Value
This is the difference between the values the consumer gains from owning and using a
product and the cost of obtaining the product.

Customer satisfaction

The extent to which a product’s perceived performance matches a buyer’s expectation. If

the performance falls short of expectations the buyer is dissatisfied. If performances
matches or exceed expectations, the buyer is satisfied or delighted.

Total Quality management

Satisfaction is closely linked to quality. Many companies have adopted total quality
programs, designed to constantly improve the quality of their products and marketing
processes.

Transaction

A trade between two parties that involves at least two things of value, agreed upon
conditions, a time of agreement and a place of agreement.

Markets

The set of all actual and potential buyers of a good or service.

Marketing Process

(a) Understanding customer’s needs and their expectations

(b) Developing a customer-oriented marketing strategy to exchange value
(c) Delivering value driven offerings to satisfy customer needs
(d) Capturing value from customers
(e) Building profitable with customers
What can be marketed?
Consumer goods and services include
(a) Convenience goods (newspapers and grocery items
(b) Semi-durable goods (household appliances, white goods like stoves, fridges,
microwaves, electric kettles)
(c) Specialty or durable goods (television sets, paintings, motor vehicles, houses and
flats
(d) Services (banking, auditing, travel, repair services and medical services)
Importance of marketing

It plays a big role in economic growth and development, as a result marketing is considered
to be one of the most important activities in a business enterprise, while at early stages of
development it was considered to be the last activity

It can be explained as

(i ) Delivery of standards of living to the society

- the morden market always aims for customer satisfaction

- Marketing encourages research an innovation, the development and spread of new

ideas and services
- More choices of goods fosters competition which in turn causes the reduction of
prices, which has an impact on consumers standards of living.

(ii) Increasing employment opportunities

- Marketing comprises of adverting, sales, distribution and many more activities so the
development of marketing automatically give rise for the need for people to work in
several areas of marketing

(iii)increase in national income

-Marketing activities help to create, maintain and increase the demand for goods and
services in a society.

- to ,meet this increased demand companies need to increase the level of production in
turn raising their income, These increases in turn increase the national income

The Marketing Management Orientations/ philosophies

The production concept

The production concept holds that consumers favour products that are available and
highly affordable.

Therefore management should focus on improving production and distribution

efficiency.
This concept is one of the oldest concepts that holds sellers, it is still useful in some
situations e.g. Lenovo company dominates the highly competitive, price sensitive
Chinese PC markets through low labour costs, high production efficiency and mass
distribution(they enjoy the economies of scale),

This concept was also applied by Henry Ford on his Model T automobile, he was asked
why the model T was not available in a variety of colours he responded by saying
“customers can have it in any colour as long as it is black.” He concentrated on
production only.

However in some situations production concept can lead to marketing myopia.

Companies adopting this orientation run a major risk of focusing too narrowly on their
own operations and losing sight of the real objective of satisfying the customer needs
and building customer relationships.

The Product Concept

It focuses on the features of a product.

It assumes that consumers will buy products with the best quality, performance and
features. Managers seek to win customers through product excellence in terms of
improved product, new product features and ideally designed and engineered.

Often organisations practising this concept don’t bother to study the market and
consumers in depth. They concentrate on making the company’s products better while
simultaneously neglecting to consider changes in the market.

The selling Concept

The selling concept holds that consumers will not buy enough of the firm’s products
unless it undertakes a large scale selling and promotion effort.

The selling concept is typically practiced with unsought goods- those goods that buyers
do not normally think of buying, such as insurance, these industries must be good at
tracking down prospects and sealing them on product’s benefits.

Such aggressive selling however carries high risks. It focuses on creating sales
transactions rather than building long term profitable customer relationships.

The aim is often to sell what the company is making rather than making what the
customer wants.

It assumes that customers who are coaxed into buying the product will like it or if they
don’t like it they will possibly forget their disappointment and buy it later again.

The Marketing Concept.

It holds that the key to achieving organisational goals consists of the company being
more effective than competitors in creating, delivering, and communicating customer
value, to its chosen target markets.

The concept exists when an organisation focuses all its efforts on providing products
that satisfy its customers.

The customer is the focal point for how each area of the organisation is run; the
products are created with the goal of satisfying customer needs

All departments are to be organised around the marketing function of anticipating

customer needs and working towards customer satisfaction.

Implementing the marketing concept often means more than simply responding to
customers’ stated desires and obvious needs, Customer- driven company’s research on
current customers to deeply learn about their desires, gather new product and service
ideas and test proposed product improvements.

The marketing concept takes an outside view that focuses on satisfying customer needs
as a path to profits.

The Societal Concept

It holds that the marketing strategy should deliver value to customers and society’s well
being.

It calls for sustainable marketing, socially and environmentally responsible marketing

that meet present needs of customers and businesses while also preserving or
enhancing the ability of future generations to meet their needs.

Companies should balance three considerations in setting their marketing strategies-

company profits, consumer wants and society’s interests.
ANALYSING THE MARKETING ENVIRONMENT

A company’s marketing consists of the actors and forces that affect the marketing
management’s ability to build and maintain successful relationships for example Xerox
Company

Marketers must be environmental trend trackers and opportunity seekers.

The marketing environment consists of a micro environment and macro environment. The
microenvironment consists of actors close to the company that affect its ability to serve is
customers-the company, suppliers, marketing intermediaries, customer markets,
competitors and publics

Macro environment-demographic, economic, natural, technological, political and cultural

forces.

The benefits of a formal environmental scanning

 Better general awareness of and responsiveness to environmental changes

 Monitor trends, issues and events and study their implications
 Better strategic planning and decision making (develop forecast, scenarios
and issues analysis as input to strategic decision making
 Greater effectiveness in dealing with government
 Improved industry and market analysis
 Better foreign investment and international marketing
 Improved resource allocation and diversification decisions
The
The Microenvironment
Microenvironment
Company
Company
Forces
Forces Affecting
Affecting aa
Publics
Publics
Company’s Supplie
Supplie
Company’s Ability
Ability to
to
Serve
Serve
Intermediar
Customers
Competitors
CustomersIntermediar
Competitors Physical
Physicaldistribution
distributionfir
fi
Marketing
Marketingservices
servicesagen
Customers
Customers Financial
agen
intermediarie
Financial intermediar

The marketing manager’s job is to build relationships with customers by creating value and
satisfaction

Marketing managers cannot do this alone; marketing success requires building relationships
with other company departments, suppliers, marketing intermediaries, customer markets,
competitors and publics and customers which combine to make the company’s delivery
network.

The company

In designing marketing plans, marketing managers take into account groups such as top
management, finance, research and development (R&D), purchasing, operations,
accounting etc, all of these interrelated groups form the internal environment.

Top management sets the companies objectives, broad strategies and policies

Marketing managers make decisions within the strategies and plans by top management
Suppliers

Suppliers form an important link in the company’ overall customer value delivery network.

They provide the resources needed by the company to produce its goods and services.

Supplier problems can seriously affect marketing.

Marketing managers must watch supplier availability and costs.

Supply shortages or delays, labour strikes and events can cost sales in the short run and
damage customer satisfaction in the long run.

Rising supply costs may force price increases that can harm the company’s sales volume.

Marketing Intermediaries

Help the company to promote, sell and distribute its products to final buyers. They include
resellers, physical distribution firms, marketing services agents and financial intermediaries

Resellers are distribution channel firms that help companies find customers or make sales to
them. These include wholesalers and retailers who buy and resell merchandise

Physical distribution firms help company stock and move goods from their points of origin to
their destinations

Marketing services agencies are marketing research firms and marketing consulting firms
that help the company target and promote its products to the right markets

Financial intermediaries include banks, credit companies, insurance companies and other
businesses that help finance the transactions or insure against risks associated with buying
and reselling of goods.

Like suppliers, marketing intermediaries form an important component of the company’s

overall value delivery network. In its quest to create satisfying customer relationships the
company must do more than just optimise it own performance. It must partner effectively
with marketing intermediaries to optimise the importance of the entire system.

Competitors

Those who serve a target market with similar products and services. Conducting competitor
analysis is critical for success of the firm. A marketer must monitor its competitors’ offerings
to create strategic advantage.
The
The Macroenvironment
Macroenvironment
Demographic
Demographic
Forces
Forces that
that Shape
Shape
Socio-Cultural
Socio-Cultural
OpportunitiesEconomic
Economic
Opportunities
and
and Pose
Pose Threats
Threats
to
Political
Politicalto aa Company
CompanyNatural
Natural
Technological
Technological
Demographic

Demography is the study of human populations in terms of size, density, location, age,
gender, race, occupation and other statistics

Changes in demographics mean changes in markets so they are very important to

marketers.

For example in china there was a period when the population was highly increasing and the
government passed on regulations limiting the families to one child only and these parents
in china spend most of their income on their only child, something like 40% and this
information is greatly important to a marketer.
Thus marketers keep a close eye on demographic trends and development in their markets,
both at home and abroad.

They analyse the changing age structure and changing family structures - Marrying later,
fewer children, working women, geographic population shifts- the migratory patterns
(Moving to the urban areas ), educational characteristics(Increased Education

Increased college attendance and white-collar workers) and population diversity- racial
make-up.

Economic
Economic Environment
Environment

Economic Key
Economic Key Changes
Change
Economic
Development
Economic in
Development in Income
Incom
Concerns
Concerns for
for
Marketers
Marketers

It consists of factors that affect consumer purchasing power and spending patterns. These
are inflation, government’s monetary policy, unemployment, exchange rates, interest rates,
Gross Domestic product.

The economic situation varies from country to country.

There are variations in the levels of income and living standards, interpersonal distribution
of income, economic organization, and occupational structure and so on.

These factors affect market conditions.

The level of development in a country and the nature of its economy will indicate the type
of products that may be marketed in it and the marketing strategy that may be employed in
it.
In high-income countries there is a good market for a large variety of consumer goods.

But in low-income countries where a large segment does not have sufficient income even
for their basic necessities, the situation is quite different

Political Environment

Political
Political Environment
Environment
Increased
Increased Changing
Changing
LegislationKey
Legislation Enforcement
Key Enforcement
Competition,
Competition,fair
fairtrade
tradepractices
Prodt safety,
Prodt safety,
Trends
Trends in
practices
in the
the
Political
Political
Environment
Environment
Greater
Greater
Concern
Concern for
for
Ethics
Ethics

The main actors in the political environment include politicians, political parties,
governments, pressure groups that seek to influence governments and politicians. In
analyzing this environment marketers consider,
 (a) Political stability- businesses prefer to operate in environments that are politically
stable as political unrest can be disruptive to business activities. In severe cases,
political stability results in loss of assets by business without any compensation.
(b) Changes in government- governments are formed by political parties. Governments
exert pressure on business and other organizations through enactment and
enforcement of legislation and formulation and implementation of government
policies.

Technological Environment

Technological
Technological Environmen
Environmen
Rapid Pace of High R & D
Rapid Pace of High R & D
Change
Change Budgets
Budgets

Issues
Issues in
in the
the Technological
Technological
Environment
Environment

Focus
Focus on
on Minor
Minor Increased
Increased
Improvements
Improvements Regulation
Regulation

Technological advances are perhaps the most dramatic forces affecting today’s marketing
strategies and these are forces that create new product and market opportunities

Technology is vital for competitive advantage, and is a major driver of globalization.

Consider the following points:
Does technology allow for products and services to be made more cheaply and to a better
standard of quality?

Does the technology offer consumers and businesses more innovative products and services
such as Internet banking, new generation mobile telephones, etc?

How is distribution changed by new technologies e.g. books via the Internet, flight tickets,
auctions, etc?

Natural
Natural Environment
Environment
More
More Government
Government
Intervention
Intervention in
in natural
natural
resource
resource management
management
Factors
Affecting Shortages o
Higher
Higher Pollution
Pollution the Shortages o
Levels Raw
Raw Materia
Materi
Levels Natural ((air,
air,water,
water,coal,
coal,for
fo
Environment
Increased
Increased Costs
Costs
of
of Energy
Energy

Involves the natural resources that are needed as inputs by marketers or that are affected
by marketing activities.

Environmental problems including global warming, depletion of the ozone layer, depletion
of natural resources and the degradation of air, water and soil quality.

Marketers need to be aware of the threats and opportunities associated with changes in this
area the processes and materials used to produce products, scarcity of natural resources.
Marketers should also be aware of increased government intervention in natural resources
management.

The governments of different countries vary in their concern and efforts to promote a clean
environment for example the green to support environmental sustainability (USA)

SOCIO-CULTURAL FACTORS

The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:

(a) What is the dominant religion?

(b) What are attitudes to foreign products and services?

(c )Does language impact upon the diffusion of products onto markets?

(d) How much time do consumers have for leisure?

(e) What are the roles of men and women within society?

(f) How long are the population living? Are the older generations wealthy?

(g) Does the population have a strong/weak opinion on green issues?

CULTURE: Culture describes the kind of behaviour considered acceptable in society.

The prescriptive characteristic of culture simplifies a consumer’s decision-making process by

limiting product choices to those, which are socially acceptable.

The same feature creates problems for those products, which are not in time with culture.

The institutions and other forces that affect a society’s basic values, perceptions,
preference, and behaviours.

Core beliefs and values are passed on from parents to children and are reinforced by
schools, churches, business, and government.

Secondary beliefs and values are more open to change.

The major cultural dimensions include language, education, social organization, attitudes
and values, religion, and aesthetics
MANAGING MARKETING INFORMATION TO GAIN CUSTOMER INSIGHTS

MARKETING INFORMATION SYSTEM (MKIS)

Internal Data

Many companies build extensive data bases, electronic collections of consumer and markets
information obtained from data sources within the companies’ network.

Marketing managers can readily access and work with information from data sources within
the company’s network.

Marketing managers can readily access and work with information in the data base to
identify marketing opportunities and problems and plan programs and evaluate
performance.

Information in the data base can come from many sources.

The marketing department furnishes information on customer demographics,

psychographics, sales transactions and website visits

The customer service departments keep records of customer satisfaction or service

problems, accounting department – prepares financial statements and keeps detailed
records of sales, costs, cash flows etc.
Internal data bases usually can be accessed more quickly and cheaply than other
information sources but they also present some problems because internal information is
often collected for other purposes.

It may be incomplete or in wrong form for making decisions, data also ages quickly.

Competitive Marketing Intelligence

Is a systematic collection and analysis of publicly available information about consumers,

competitors and developments in the market place.

The goal of competitive marketing intelligence is to improve strategic decision making by

understanding the consumer environment, assessing and tracking competitor’s actions and
providing early warnings of opportunities and threats

Good marketing intelligence can help marketers gain insights into how consumers talk about
and connect with their brands

Many companies send out teams of trained observers to mix and mingle with customers as
they use and talk about the company’s products.

Other companies monitor consumer’s online chats with the help of monitoring services.

Companies use marketing intelligence to gain early warnings of competitor moves,

strategies, new product launches etc.

Competitor intelligence can be collected from people inside the company, the employees,
suppliers, resellers and key customers.

Companies can get good information by observing competitors and monitoring their
published information, annual reports, publication, trade show exhibits, press release, web
pages etc.

Marketing Research

In addition to marketing intelligence, information about general consumers, competitors,

and market place happenings, marketers also need formal studies that provide customer
and market insights for specific marketing information and decisions.

Marketing research is the systematic design, collection, analysis and reporting of data
relevant to a specific marketing situation facing an organisation

Marketing research gives insights into customer motivations, purchase behaviour and
satisfaction. It can help them to assess market potential and market share or measure the
effectiveness of pricing, product, distribution and promotion effectiveness.
The Marketing Research Process

Step 1: Problem Definition

The first step in any marketing research project is to define the problem.

In defining the problem, the researcher should take into account the purpose of the study,
the relevant background information, what information is needed, and how it will be used in
decision making.

Problem definition involves discussion with the decision makers, interviews with industry
experts, analysis of secondary data, and, perhaps, some qualitative research, such as focus
groups.

Once the problem has been precisely defined, the research can be designed and conducted
properly.

Step 2: Development of an Approach to the Problem

Development of an approach to the problem includes formulating an objective or

theoretical framework, analytical models, research questions, hypotheses, and identifying
characteristics or factors that can influence the research design.

This process is guided by discussions with management and industry experts, case studies
and simulations, analysis of secondary data, qualitative research and pragmatic
considerations.

Step 3: Research Design Formulation

A research design is a framework or blueprint for conducting the marketing research

project.

It details the procedures necessary for obtaining the required information, and its purpose is
to design a study that will test the hypotheses of interest, determine possible answers to
the research questions, and provide the information needed for decision making.

Conducting exploratory research, precisely defining the variables, and designing appropriate
scales to measure them are also a part of the research design.

The issue of how the data should be obtained from the respondents (for example, by
conducting a survey or an experiment) must be addressed. It is also necessary to design a
questionnaire and a sampling plan to select respondents for the study.
More formally, formulating the research design involves the following steps

1. Secondary data analysis

2. Qualitative research
3. Methods of collecting quantitative data (survey, observation, and experimentation)
4. Definition of the information needed
5. Measurement and scaling procedures
6. Questionnaire design
7. Sampling process and sample size
8. Plan of data analysis

Step 4: Field Work or Data Collection

Data collection involves a field force or staff that operates either in the field, as in the case
of personal interviewing (in-home, mall intercept, or computer-assisted personal
interviewing), from an office by telephone (telephone or computer-assisted telephone
interviewing), or through mail (traditional mail and mail panel surveys with prerecruited
households).

Proper selection, training, supervision, and evaluation of the field force help minimize data-
collection errors.

Step 5: Data Preparation and Analysis

Data preparation includes the editing, coding, transcription, and verification of data. Each
questionnaire or observation form is inspected, or edited, and, if necessary, corrected.

Number or letter codes are assigned to represent each response to each question in the
questionnaire.

The data from the questionnaires are transcribed or key-punched on to magnetic tape, or
disks or input directly into the computer.

Verification ensures that the data from the original questionnaires have been accurately
transcribed, while data analysis, guided by the plan of data analysis, gives meaning to the
data that have been collected.

THE MARKETING MIX

The term "marketing-mix," was first coined by Neil Borden, the president of the American
Marketing Association in 1953.

It is still used today to make important decisions that lead to the execution of a marketing
plan.

The various approaches that are used have evolved over time, especially with the increased
use of technology.

It’s a Combination of marketing elements used in the sale of a particular product.

The marketing elements centre around four distinct functions, sometimes called the Four
Ps: product, price, place (of distribution), and promotion. All these functions are considered
in planning a marketing strategy, and any one may be enhanced, deducted, or changed in
some degree in order to create the strategy necessary to efficiently and effectively sell a
product

PRODUCT

A product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a need or a want.

Products include more than just tangible objects such as cars, computers, or cell phones-
products also include services, events, persons, places etc

Levels of products and services

Product planners need to think about products and services on three levels- each level adds
more customer value.
 Core ... Actual ...
Augmented product

Core product

The most basic level is the core customer value, which addresses the question- What is the
buyer really buying?

When designing products marketers must first define the core problem- solving benefits or
benefits that consumers seek.

Eg A man buying a car to move from one place to another

Actual Product
At the second level, product planners must turn the core benefit into an actual product,
they to develop the product and service features into an actual product;

They need to develop product and service features, design, and quality level, brand name,
packaging etc eg a LG. phone is an actual product, its name, parts, styling, features,
packaging and other attributes have all been carefully combined to deliver the core
customer value of staying connected.

Augmented Product

Finally product planners must build an augmented product around the core benefits and
actual product by offering additional consumer services and benefits.

The Blackberry phone is more than just a communication device. It provides with a
complete situation to mobile connectivity problems, the company give buyers a warranty on
parts and instructions on how to use the device.

Products and Service Classifications

Products and services fall into broad classes based on the type of consumers that use them:
consumer’s products and Industrial Products

Consumer products- are products and services bought by final consumers for personal
consumption

Consumer Products include the following:

 Convenience Products
 Shopping Products
 Specialty products
 Unsought products

Convenience Products

Products which consumers frequently purchase, Convenience products are usually low
priced and marketers place them in many locations to make them readily available when
the customer need or want them. They maybe

(i )a staple product

Products bought routinely without much thought. These include products such s bread,
milk, meali meal , products used almost every day, almost in every household, Habitual, low
effort, frequent purchases, and low involvement
(ii)Impulse products

Purchased without any planning or search efforts

Customers just buy the product on sight eg chocolates, crisps etc

Displayed at POS (usually bought quickly)

(iii)Emergency Products

Goods purchased when it’s urgent or great.

Price of the product will not be important at the time of need eg raincoats- thunder begins.
Ambulance service- an accident occurs and protector plus.....

Shopping Products

Are less frequently purchased consumer products and services that consumers compare
carefully on suitability, quality, price, and style.

When buying shopping products and services, consumers spend much time and effort in
gathering information and making comparisons

Examples include furniture, clothing, used cars, major appliances and hotel and airline
services

Shopping products marketers usually distribute their products through fewer products but
provide deeper sales support to help customers in their comparison efforts.

Specialty Products

A product with one or more unique characteristics that a group of buyers is willing to spend
considerable time and effort to purchase

Consumers carefully plan the purchase of the product because they know exactly what they
want and will not accept a substitute.

Consumers don’t evaluate alternatives when searching for such a product.

They are extremely brand loyal and concerned primarily with finding with the pre- selected
product available.

Examples include specific brands of cars, high priced photography equipment, designer
clothes, medical or legal specialists

Buyers normally do not compare specialty products; they invest only time needed to reach
dealers carrying the wanted products.

Unsought Products
Unsought products are consumer products that the consumer either does not know about
or knows about but does not normally consider buying

Most major new innovations are unsought until the consumer becomes aware of them
through advertising.

Classic examples of known but unsought products and services are life insurance, pre-
planned funeral services and blood donations to the Red Cross, byb their very nature
unsought products require a lot of advertising, personal selling and other marketing efforts.

INDUSTRIAL PRODUCTS

These are products that are bought for use in the production of other products or in an
organisational operation

They are also referred to as products bought for resale an they fall under the following
categories:

a) Raw materials
These are unprocessed items such as iron ore, logs, crops which are moved to the
next production process with little handling
They become part of the finished good
There are two types of raw materials- Agricultural products and natural products

b) Capital equipment
Refers to large tools and machines used in the production process and operation of
the firm
Capital equipment is often expensive and intended to be used for a long period of
time e.g. machinery and tools
c) Accessory equipment
Used in production and office activities but doesn’t become part of the final physical
product being manufactured eg hand tools, computers etc
d) Component parts
It is a finished item that needs little processing before becoming part of a finished
product eg tyres
Although they are used in the manufacture of large products they are easily
distinguishable from those products e.g wire, plastics or textiles

Product and Service Attributes

Developing a product or a service involves defining the benefits that it will offer. These
benefits are communicated and delivered by the product attributes such as quality,
features, design, style etc

Product Quality

It is one of the marketer’s major positioning tools. Quality has a direct impact or product or
service performance, thus it is closely linked to customer value and satisfaction.

Quality affects product or service performance, thus it is closely linked to customer value
and satisfaction

Narrowly it can be defined as freedom from defects

Most Marketers go beyond this narrow definition

American Society for quality defines quality as the characteristics of a product or a service
that bears on its ability to satisfy a stated or implied customer needs.

Total Quality Management (TQM)

TQM is an approach in which all of the company’s people are involved in constantly
improving the quality of products, services and business processes.

Individual Product Decisions

Product attributes Branding Packaging Labelling

Product Support services

Product features

A product can be offered with varying features. A company can create higher level models
by adding more features. Features are a competitive tool for differentiating company’s
products from competitors.

Being the first producer to introduce a valued new feature is one of the most effective ways
to compete.

Product Style and Design

Another way to add customer value is through distinctive product style and design. Design is
a larger concept than style. Style simply describes the appearance of a product
 Styles can be eye catching. A sensational style may grab attention and produce pleasing
aesthetics but it does not necessarily make the product perform better

Unlike style- Design is more than skin deep-it goes to the very heart of the product.

Good design contributes to a product’s usefulness as well as its looks.

Branding

A product is also branded, A brand is a name, term, symbol, design or a combination of

these that identify the products or services of one seller or group of sellers and
differentiates them from those of sellers.

Consumers view a product as an important part of the product and branding can add value
to a consumers purchase.

Customers attach meanings to brands and develop brand relationships

As a result brands have meaning well beyond a product’s physical attributes.

Packaging

A product is also packaged. Packaging involves designing and producing the container or
wrapper for a product.

Traditionally the primary function of a package was to hold and protect the product, in
recent times, however numerous factors have made packaging an important marketing tool
as well, it’s also being used for attracting attention, describing the product to make the sale.
Packaging has become an important marketing tool.

Labelling

Labels range from simple tags attached to products to complex graphics that are part of the
packaging. They perform several functions-

It identifies the product or the brand

It describes several things about the product- who made it, where was it made, when it was
made, its contents, how it was used and how to use it safely

Labels and brand logs can support the brand’s positioning and personality.

Finally the label might help promote the brand, support its positioning and connect with
customers.
Product support services

Customer Service is another element of product strategy. A company’s offer usually includes
some support services which can be a minor or major part of the total offering.

Product Life Cycle

A product has a life cycle in much the same way as a living organism e.g. people are born,
mature and die.

By the same token products are introduced in the market and in terms of revenue they grow
and reach a decline stage at a later stage.

Stages of Product Life Cycle

Product life cycle comprises four stages:

(a) Introduction stage

(b) Growth stage
(c) Maturity stage
(d) Decline stage

Product Life Cycle (PLC)

a. Introduction stage\
 When a new product is first launched profits are negative or low because of low sales
and high distribution and promotion expenses.
Much money is needed to attract distributors and build their inventories
Promotion spending is relatively high to inform consumers of the new product and get
to try it.
The company and its few competitors produce basic versions of the product
Product
Branding, Quality level and intellectual property and protections are obtained to
stimulate consumers for the entire product category. Product is under more
consideration, as first impression is the last impression.

Price
High(skim) pricing is used for making high profits with intention to cover initial cost in a
short period and low pricing is used to penetrate and gain the market share. Company
choice of pricing strategy depends on their goals.

Place
Distribution at this stage is usually selective and scattered.

Promotion
At introductory stage, promotion is done with intention to build brand awareness.
Samples/trials are provided that is fruitful in attracting early adopters and potential
customers. Promotional programs are more essential in this phase. It is as much
important as to produce the product because it positions the product.

b. Growth Stage
If the new product satisfies the market it will enter the growth stage. Sales start to
increase

The early adopters will continue to buy

New competitors will enter the market.

Product
Along with maintaining the existing quality, new features and improvements in product
quality may be done. All this is done to compete and maintain the market share.

Price
Price is maintained or may increase as company gets high demand at low competition or
it may be reduced to grasp more customers.

Distribution
Distribution becomes more significant with the increase demand and acceptability of
product. More channels are added for intensive distribution in order to meet increasing
 demand. On the other hand resellers start getting interested in the product, so trade
discounts are also minimal.

Promotion
At growth stage, promotion is increased. When acceptability of product increases, more
efforts are made for brand preference and loyalty.

c. Maturity stage
This stage normally lasts longer than the previous stages.
It is the stage in which a product’s growth slows or levels off.
Competitors begin marking down prices increasing their advertising and sales promotion
These steps lead to a drop in profits
Some of the weaker competitors start dropping out.
Marketing mix decisions include:

Product
At maturity stage, companies add features and modify the product in order to compete
in market and differentiate the product from competition. At this stage, it is best way to
get dominance over competitors and increase market share.

Price
Because of intense competition, at maturity stage, price is reduced in order to compete.
It attracts the price conscious segment and retain the customers.

Distribution
New channels are added to face intense competition and incentives are offered to
retailers to get shelf preference over competitors.

Promotion
Promotion is done in order to create product differentiation and loyalty. Incentives
are also offered to attract more customers.

d. Decline stage
Sales may decrease to zero or they may drop to a level where they continue for many
years.
It may also be due technological advances or customer taste has been changed.

At decline stage company has three options:

a. Maintain the product, Reduce cost and finding new uses of product.
b. Harvest the product by reducing marketing cost and continue offering the product to
loyal niche until zero profit.
c. Discontinue the product when there’s no profit or a successor is available. Selling out
to competitors who want to keep the product.
 At declining stage, marketing mix decisions depends on company’s strategy. For
example, if company wants to harvest, the product will remain same and price will be
reduced. In case of liquidation, supply will be reduced dramatically.

Limitations of Product Life Cycle (PLC)

Product life cycle is criticized that it has no empirical support and it is not fruitful in special
cases.

Different products have different properties so their life cycles also vary.

It shows that product life cycle is not best tool to predict the sales.

Sometimes managerial decisions affect the life of products in this case Product Life Cycle is
not playing any role.

Product life cycle is very fruitful for larger firms and corporations but it is not hundred
percent accurate tool to predict the life cycle and sales of products in all the situations

Characteristic Introduction Growth Maturity Decline

Sales Low Rapidly Peak in sales declining

increasing
Costs/ customer High Average Low Low
Profits Negative Rising High Declining
Type of Innovators Early adopters Early and late Laggards
customers majority
Competitors Few Growing Stable but Declining in
numbers declines at a number
later stage
Marketing Create Product Maximising Maximised Reduce market
objectives awareness and market share profit costs
trial
Product Basic Differentiated Differentiated Milk the brand
strategies or phase out
Pricing Market Penetration- Best matching Cut down price
Strategies scheming charging low price or price to
price beat the
competitors
Distribution Selective Wider Intensive Selective
Strategies
Promotion Aims at building Build awareness Maintain Reduce or
Strategies awareness in the mass awareness and eliminate
market focus on brand
differences and
benefits
PRICE

Price is the amount of money charged for a product or a service- Broadly it is the sum of all
values that customers give to gain the benefits of having or using a product or a service

Price remains one of the most important elements that determines the firm’s market share
and profitability

Price is the only element in the marketing mix that produces revenue, all other elements
represent costs.

Factors Considered when Setting Prices

Overall Marketing Strategy, Objectives and Mix

Marketing Strategy

Price is the only element of the company’s broader marketing strategy, thus before prices,
the company must decide on its overall marketing strategy for the product or service

If the company has selected its target market and positioning carefully, then its marketing
strategy will be fairly straight forward. If you want to be associated with high quality then
you can charge higher prices.

Objectives

Pricing may play an important role in helping to accomplish company objectives at many
levels. A firm can set prices to attract new customers or profitably retain existing ones.

It can set prices low to prevent competition from entering the market or set prices at
competitor’s levels to stabilise the market.

It can set prices to keep the loyalty and support of the resellers or avoid government
intervention

Prices can also be reduced temporarily to create excitement for a brand

Marketing Mix

Price is only one of the marketing mix tools that a company uses to achieve its marketing
objectives. Price decisions must be coordinated with product design, distribution, and
promotion decisions to form a consistent and effective integrated marketing program.
Decisions made for other marketing variables may affect pricing decisions e.g. a decision to
position a product on high performance quality will mean that the seller must charge a
higher price to cover higher costs.

The Market and Demand

The market demand:

While costs set the floor of the price, the market and demand factors set the ceiling.

The market type and level of demand have an effect on pricing decisions e.g:

Pure competition- the market consists of many buyers and sellers trading in a uniform
commodity such as wheat, copper etc. No single buyer or seller has much effect on the
going market price.

In a purely competitive market, marketing research, product development, pricing,

advertising and sales promotion play little or no role, thus sellers in these markets do not
spend much time on marketing strategy.

Monopolistic Competition- The market consists of many buyers and sellers who trade over
a range of products than a single market price.

A range of prices occurs because sellers can differentiate their offers to buyers. Sellers try to
develop offers for different customer segments and in addition to price they freely use
branding, advertising and personal selling to set their offers apart.

Oligopolistic Competition- the market consist of a few sellers who are highly sensitive to
each others pricing and marketing strategies. Because there are few sellers each seller is
alert and responsive to competitors pricing strategies.

Pricing may be linked to cost, profit, regulation or fear of competition.

Consumer perception of price and value:

Buyers ultimately decide prices. Managers must combine their technical expertise with
creative judgement and an awareness of buyers’ innovations.

c. Competitors, prices and offers:

How the competition prices its products in relation to consumer reaction can affect
company pricing strategies.
Some companies have standing policies to match price changes of their competition while
others respond with non-price changes in the marketing mix, such as increased features or
performance.

d.Regulation
The gvt may come up with price ceilings or the industry may determine the price floor
THE MAJOR PRICING DECISIONS

Customer Value Based-Pricing

The company first assesses customer needs and value perceptions.

It then sets its target price based on customer perceptions of value.

The targeted value and price drive decisions about what costs can be incurred and the
resulting product design.

As a result, pricing begins with analysing consumer needs and value perceptions and price is
set to match the perceived value.

Value Added Pricing

Rather than cutting prices to match competitors they attach value added features and
services to differentiate their offers and thus support higher prices.

Cost based Pricing

It involves setting prices based on their costs- costs for producing, distributing and selling
the product plus a fair rate of return for its effort and risk.

Some companies with lower costs can set lower prices that result in smaller margins but
greater sales and profits, other companies like Apple can intentionally pay higher costs so
that they can claim higher prices and margins.

Competition Based Pricing

Involves setting prices based on competitors strategies, costs and market offerings.
Consumers will base their judgements of a product’s value on the prices that competitors
charge for similar products.

In assessing competitors pricing strategies the company should ask several questions

1. How does the companies pricing strategies the compare with competitor’s offerings
in terms of customer’s value ?

If Consumers perceive that the company’s product or service provides greater value, the
company can charge a higher price.

If consumers perceive that the company’s product or service provides greater value the
company can charge higher price.
 If consumers perceive less value the company can charge higher price.

If consumers perceive less value relative to competing products, the company must
either charge a lower price or change customer perceptions to justify a higher price.

2. How strong are competitors, what are their current pricing strategies?
If a company faces a host of smaller competitors, charging high prices relative to the
value they deliver, it might charge lower prices to weaker competitors from the
market. If the market is dominated by larger, low price competitors the company
may decide to target unserved niche markets with value added products at higher
prices.

Cost Plus/ Markup Pricing

Adding a standard mark-up to the cost of the product

Variable costs + Fixed costs up to the cost of the product.

Breakeven Analysis and Target profit Pricing

Setting price to breakeven on the costs of making and marketing a product or setting price
to make a target turn.

NEW PRODUCT STRATEGIES

Market Skimming

Many companies that invent new products set high initial prices ‘to skim’ revenues layer
from the market. Apple frequently applies this strategy

Market Penetration Pricing

Rather than setting a high initial price to skim off small but profitable market segments,
some companies use market penetration pricing. Companies set a low initial price to
penetrate the market quickly and deeply to attract a large number of buyers quickly and win
a large market share. The high sales volume results in falling costs, allowing companies to
cut prices even further.

PRODUCT MIX PRICING STRATEGIES

The strategy for setting a product’s price often has to be changed when the product is part
of the product mix

The looks for a set of prices that maximises its profits on the total product mix.

Product Line Pricing

Companies usually develop product lines rather than single products

In product line pricing, management must determine the price steps to set between the
various products in a line.

The price steps should take into account cost differences between the products in the line.
More importantly they should account for differences in customer perceptions of the value
of different features.

Optional product Pricing

Many companies use optional product pricing- offering to sell optional or accessory
products along with the main product e.g. a car buyer may choose to order positioning
systems (GPS) and Bluetooth wireless communication.

Captive Product Pricing

Setting a price for products that must be used along with a main product such as blades for
a razor, games for a video game console.

Producers of the main products, razors, video game consoles, printers often price them low
and set high mark-ups in the supplies.

Product Bundle Price

Sellers often combine several products and offer the bundle at a reduced price e.g. in
restaurants they bundle a burger, chips, soft drink at a combo price.

PRICE ADJUSTMENT STRATEGIES

Discount and allowance Pricing

Discount- a straight reduction in price on purchase during a stated period of time or of

larger quantities.

Allowance- promotional money paid by manufacturers to retailers in return for an

agreement to feature the manufacturers products in some way.

Segmented pricing

Companies will often adjust their basic prices to allow for differences in customers,
products, and locations. In segmented pricing, the company sells a product or a service at
two or more prices, even though the difference in prices is not based on differences in costs.

Psychological Pricing

Price says something about the product. For example, many consumers use prices to judge
quality. For example a $100 bottle of perfume may contain only $ 3 worth of the scent, but
some people are willing to pay the $100 because the price indicates something. In
Psychological pricing sellers consider psychological pricing, not simply the economics. for
example consumers usually perceive higher-priced products as having high quality

Instead of appealing to the rational side of the consumer, this strategy appeals to their
emotional side.

The pricing may aim to strike a thrifty note with a bargain or stir up feelings of prestige with
a high-end item. Use psychological pricing to choose an appealing price based on the needs
and wants of your target audience.

The odd pricing strategy prices products just below the whole dollar amount. For example,
instead of charge $5 for a product you might charge $4.99.

Buyers associate the price closer to $4 than $5 even though it is only one cent less. Similar
strategies are used for larger dollar amounts. For example, a home might be priced at
$199,500 instead of $200,000.

You might also aim to stay underneath a particular price point such as under $100. The
discounting strategy attracts customers who feel they are getting a deal with a temporary
price reduction.

Price lining involves distinct lines of products, each in a distinct price range, such as budget,
mid-range and high-end. Additional features on the upgraded lines don't typically cost much
but allow you to increase the price significantly.

Promotional Pricing

With promotional pricing, companies will temporarily price their products below list price
and sometimes even below cost to create buying excitement and urgency. Promotional
pricing takes several forms.
A seller may simply offer discounts from normal prices to increase sales and reduce
inventories.
Sellers also use special-event pricing in certain seasons to draw more customers. Thus,
large-screen TVs and other consumer electronics are promotionally priced in November and
December to attract holiday shoppers into the stores.
Manufacturers sometimes offer cash rebates to consumers who buy the product from
dealers within a specified time; the manufacturer sends the rebate directly to the customer.
Rebates have been popular with automakers and producers of cell phones and small
appliances, but they are also used with consumer packaged goods.
Some manufacturers offer low interest financing, longer warranties, or free maintenance to
reduce the consumer’s “price.”

This practice has become another favorite of the auto industry. Promotional pricing,
however, can have adverse effects. Used too frequently and copied by competitors, price
promotions can create “deal-prone” customers who wait until brands go on sale before
buying them. Or, constantly reduced prices can erode a brand’s value in the eyes of
customers.

Geographical Pricing

A company also must decide how to price its products for customers located in different
parts of the world. Should the company risk losing the business of more-distant customers
by charging them higher prices to cover the higher shipping costs? Or should the company
charge all customers the same prices regardless of location

International Pricing

Companies that market their products internationally must decide what prices to charge in
the different countries in which they operate.

In some cases, a company can set a uniform worldwide price. For example, Boeing sells its
jetliners at about the same price everywhere, whether in the United States, Europe, or a
third-world country.

However, most companies adjust their prices to reflect local market conditions and cost
considerations.

The price that a company should charge in a specific country depends on many factors,
including economic conditions, competitive situations, laws and regulations, and the
development of the wholesaling and retailing system.

Consumer perceptions and preferences also may vary from country to country, calling for
different prices.

Or the company may have different marketing objectives in various world markets, which
require changes in pricing strategy.

For example, Samsung might introduce a new product into mature markets in highly
developed countries with the goal of quickly gaining mass-market share—this would call for
a penetration-pricing strategy.

In contrast, it might enter a less-developed market by targeting smaller, less price-sensitive

segments; in this case, market-skimming pricing makes sense.

Discriminatory pricing strategies

Companies often adjust their basic price to accommodate differences in customers,
products, locations, and so on.
Price discrimination occurs when a company sells a product or service at two or more prices
that do not reflect a proportional difference in costs.
In first-degree price discrimination, the seller charges a separate price to each customer
depending on the intensity of his or her demand.
In second-degree price discrim-ination, the seller charges less to buyers who buy a larger
volume. In third-degree price discrimination, the seller charges different amounts to
different classes of buyers,

Premium Pricing

Practice in which a product, such as high-end perfumes, jewelry, clothing, or cars, is sold at
a price higher than that of competing brands to give it snob appeal through an aura of
'exclusivity.' Also called image pricing or prestige pricing.

Economy Pricing

A valuation technique which assigns a low price toselected products.

PROMOTION MIX
The company’s promotion mix is also called its marketing communication mix.

It consists of a specific blend of advertising, public relations, personal selling, sales

promotion and direct marketing tools that the company uses to persuasively communicate
customer value and build customer relationship tools

Advertising

Any paid form of non-personal presentation and promotion of ideas, goods and services by
an identified sponsor

The general characteristics of advertising are:

I) pervasiveness

Advertising allows the seller to repeat a message many times hence repetition means that a
brand positioning concept can be communicated effectively.eg

11) Amplified expressiveness

Advertising provides opportunities for dramatising the company and its products through
the artful use of print, sound and colour.eg

111) Impersonality

The audience doesn’t feel obliged to pay attention or respond to advertising

iv) Good for awareness building

It is good for awareness building because of its wide geographical coverage

v) Impersonal

Advertising lacks the capability to close the sale, it also carries one way communication

vi) It is also expensive

Marketers must make four important decisions when developing an advertising program

Major decisions

1st step
Advertising Objectives

Informative advertising

Communicating customer value

building a brand and company image

explain how a product works

informing the market of a price change

Persuasive advertising

Building brand preference

Encouraging switching to a brand

Changing customer perceptions of product value.

Reminder advertising

Maintaining customer relationships

Reminding consumers that the product may be needed in the near future.

Reminding consumers where to buy the product

Keeping the brand in a customer’s mind during off seasons

Setting the Advertising Budget

After determining its advertising objectives the company sets its advertising budget for each
product.

This is allocating money and other resources to a product or company advertising program.

Developing the advertising strategy

This is the strategy by which the company accomplishes it advertising objectives.

It consist of two major elements: creating adverting messages and selecting advertising
madia.

Message Strategy

Creating the advertising message

Developing an effecting message strategy, beginning with identifying customer benefits,
these can be used as adverts appeals

The message should be well executed, such as showing the lifestyle, fantasy, mood or image
etc

Selecting the media

Major steps in advertising media selection are

1. determining on reach, frequency and impact

2. Choosing among major media life styles
3. Selecting specific media vehicles and
4. Choosing media timing- seasonal or on holidays

Media types-Television, radio, newspapers, internet etc

Evaluating Advertising Effectiveness and the return on advert investment

Measuring the rate of return on advert investment

PUBLIC RELATIONS

Building good relations with the government with the various publics by obtaining
favourable publicity, building up a good corporate image and handling or heading off
unfavourable rumours, stories and departments. PR departments may perform any or all of
the following functions

 Press relations or press agency: creating and placing newsworthy information in the
news media to attract attention to a person or service
 Product publicity- publicising specific products
 Public affairs- building and maintaining national and or local communicating
relationships.
 Lobbying, building and maintaining relationships with legislators and government
officials to influence legislations and regulations
 Investor relations- maintaining relationships with with shareholders and others in
the financial community.
 Development – working with donors or member of non profit organisations to gain
financial or volunteer support.
 Public relations is used to promote products, people, places, ideas, activities,
organisations and even nations
 Companies use PR to build good public relations with consumers, investors, the
media and their communities.
 Trade associations have used PR to rebuild interest in declining commodities
 PR can have a strong impact on public awareness at a much lower cost than
advertising can. The company does not pay for the space or time in the media rather
it pays for a staff to develop and circulate information and manage events

The Major Public Relations Tools

News- creates favourable news about the company and its products or people.

Speeches-

Special events, news conferences, press tours, grand openings

Written materials- annual reports, brochures, articles, company newsletter and

magazines

Audio visual material-slide and sound programmes, dvds

Corporate Identity materials- help to create corporate identity that the public
immediately recognises logos, brochures, stationery, business cards, buildings, uniforms,
company cars and trucks

Advantages

 Creates a positive attitude towards a product or company.

 Enhances credibility of a product or company.

Disadvantages

May not permit accurate measurement of effect on sales

Involves much effort directed toward non-marketing oriented goals

Publicity

Is the marketing oriented aspect of public relations. It can be defined as non personal
stimulation of demand for a good, service, person, cause, or organisation through
placement of significant news about it in a published medium or through a favourable
presentation of it on the radio, television, or stage

Since companies do not pay for publicity, they have less control over publication by the
press or electronic media of good or bad company news
But this information means that consumers find this type of news source more
believable than if were disseminated directly by the company, of course, bad publicity
can damage a company’s reputation and diminish brand equity.

PERSONAL SELLING

Personal presentation by the firm’s sales force for the purpose of making sales and build
customer relationships

The people who do the selling are called: sales people, sales representatives, agents,
sales consultants etc

Personal selling has the following characteristics

Interactive

Personal selling involves an immediate and interactive relationships between two or

more persons

 Questions can be asked and responded too immediately

 Adaptable
 Presentations can be changed depending on the customer needs
 Personal selling makes the buyer feel under some obligation to listen to the sales
person eg Jehovas Witness
 Permits measurement of effectiveness
 Ellicts immediate response
 Tailors the message to fit the customer

Disadvantages

 Relies almost exclusively upon the ability of the sales person

 Involves high cost per contact.

SALES PROMOTION

Short term incentives to encourage the purchase or sale of a product or service.

Sales promotions mainly done to getting retailers to carry new products and more
inventory or promote the company’s products and give them more shelf space, or
getting the sales force to sign up new accounts.

Incentives provide a quick boost of sales but however effects maybe in a short term.

Excessive use of incentives may damage brand image.

Some incentives used in sales promotion includes discounts, demonstrations, point of

purchase display and competition. Eg Ok Grand Challenge
 It invites the rewards quick response as it says buy it now.

Can also be run in other several ways e.g. innovative packaging, obtaining prime
positions in retail outlets through inhouse merchandising as well as selling products in
branded packs e.g sale of colgate tooth paste and tooth brush, hairstyle and gel

Advantages

 Produces an immediate consumer response

 Attracts attention and creates product awareness
 Allows easy measurement of results
 Provides short term sales increase

Disadvantages

 Is non personal in nature.

 Is difficult to differentiate from competitors efforts.

EXHIBITIONS AND TRADE FAIRS

These are organised by the government and the trade board. The bodies also provide a
chance to industrial goods manufactures to show case their goods, e.g. Harare
Agricultural Show, ZITF etc

DIRECT MARKETING

Direct marketing consists of connecting directly with carefully targeted consumers, often
on a one to one basis. Using a detailed database companies tailor their marketing offers
and communications to the needs of narrowly defined segments or individual buyers.
Beyond brand and relationship building, direct marketers usually seek a direct
immediate and measurable consumer response.

Tools used for direct marketing

Direct mail marketing-involves sending an offer, announcement, reminder to a person at a

particular physical or virtual address

Catalog marketing

A printed bound piece of at least eight pages, selling multiple products offering, and offering
a direct ordering magazine- these days web catalogs have also emerged and they eliminate
printing and mailing costs.

Telephone Marketing
Involves using telephone to sell directly to consumers and business markets.

Kiosk Marketing

As consumers become more and more comfortable with digital and touch screen
technologies, many companies are placing information and ordering machines called kiosks-
in stores, airports, hotels, college campuses and other locations.

Kiosks are everywhere these days from self service hotel and airline check-in devices to
instore ordering devices that let you order merchandises not carried in the store.

Mobile Phone Marketing

Many marketers view mobile phones as the next big direct marketing medium.

Online marketing

One of the fastes growing form of direct marketing. Wide-spread use of the internet is
having a dramatic impact on both buyers and marketers who serve them.

Advantages

 Generates an immediate response

 Allows complete customised personal messages
 Produces measurable results
 Direct marketing is convenient, easy and private
 Direct marketers never close their doors, customers don’t have to trek to and
through stores to find products, and they can do it from anywhere, even from
their homes.
 It becomes easy for marketers to reach their customers
 cheaper

Disadvantages

 Involves a high cost per reader

 Depends on quality and accuracy of mailing list
 May annoy consumers

PLACE/DISTRIBUTION
Place refers to providing the product at a place which is convenient for consumers to access.
It is synonymous with distribution.

Various strategies such as intensive distribution, selective distribution, exclusive distribution

and franchising can be used by the marketer to complement the other aspects of the
marketing mix.

The Importance of Distribution Channels in Marketing Strategy

Most producers use intermediaries to bring their products to market. They try to develop a
distribution channel (marketing channel) to do this.

A distribution channel is a set of interdependent organizations that help make a product

available for use or consumption by the consumer or business user.

Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or

retailers who help move a product from the producer to the consumer or business user.

A company’s channel decisions directly affect every other marketing decision. Place
decisions, for example, affect pricing.

Marketers that distribute products through mass merchandisers such as Wal-Mart will have
different pricing objectives and strategies than will those that sell to specialty stores.

Distribution decisions can sometimes give a product a distinct position in the market. The
choice of retailers and other intermediaries is strongly tied to the product itself.

Manufacturers select mass merchandisers to sell mid-price-range products while they

distribute top-of-the-line products through high-end department and specialty stores.

The firm’s sales force and communications decisions depend on how much persuasion,
training, motivation, and support its channel partners need. Whether a company develops
or acquires certain new products may depend on how well those products fit the
capabilities of its channel members.

Some companies pay too little attention to their distribution channels. Others such as
Fedex, dell Computers and Charles Schwabhave used imaginative distribution systems to
gain a competitive advantage.

Functions of Distribution Channels

Distribution channels perform a number of functions that make possible the flow of goods
from the producer to the customer. These functions must be handled by someone in the
channel. Though the type of organization that performs the different functions can vary
from channel to channel, the functions themselves cannot be eliminated.

 Channels provide time, place, and ownership utility. They make products available
when, where, and in the sizes and quantities that customers want.
 Distribution channels provide a number of logistics or physical distribution functions
that increase the efficiency of the flow of goods from producer to customer.
 Distribution channels create efficiencies by reducing the number of transactions
necessary for goods to flow from many different manufacturers to large numbers of
customers.
-This occurs in two ways. The first is called breaking bulk. Wholesalers and retailers
purchase large quantities of goods from manufacturers but sell only one or a few at
a time to many different customers.
-Second, channel intermediaries reduce the number of transactions by creating
assortments, providing a variety of products in one location so that customers can
conveniently buy many different items from one seller at one time. Channels are
efficient.
 The transportation and storage of goods is another type of physical distribution
function. Retailers and other channel members move the goods from the production
site to other locations where they are held until they are wanted by customers.
 Channel intermediaries also perform a number of facilitating functions, functions
that make the purchase process easier for customers and manufacturers.
Intermediaries often provide customer services such as offering credit to buyers and
accepting customer returns. Customer services are oftentimes more important in
B2B markets in which customers purchase larger quantities of higher priced
products.
 Some wholesalers and retailers assist the manufacturer by providing repair and
maintenance service for products they handle.
 Channel members also perform a risk-taking function. If a retailer buys a product
from a manufacturer and it doesn’t sell, it is “stuck” with the item and will lose
money.
 Channel members perform a variety of communication and transaction functions.
Wholesalers buy products to make them available for retailers and sell products to
other channel members. Retailers handle transactions with final consumers. Channel
members can provide two way communications for manufacturers. They may supply
the sales force, advertising, and other marketing communications necessary to
inform consumers and persuade them to buy. And the channel members can be
invaluable sources of information on consumer complaints, changing tastes, and new
competitors in the market.
Types of Marketing Channels

The first step in selecting a marketing channel is determining which type of channel will best
meet both the seller’s objectives and the distribution needs of customer and business goods
and services

Most channel options involve at least one marketing intermediary. A marketing

intermediary or (middlemen) is an organisation that operates between producers or
business users.

Retailers and wholesalers are both marketing intermediaries. A retail store owned and
operated by someone other than the manufacturer of the products is one type of marketing
intermediary.

Wholesaler

Is an intermediary that takes title to goods it handles and then distributes these goods to
retailers, other distributors or sometimes end consumers?

A short marketing channel involves few intermediaries. By contrast a long marketing

channel involves many intermediaries working in succession to move goods from producers
to consumers.
Business products usually move through short channels due to geographic concentrations
and few business purchasers

Service firms market primarily through short channels because they sell intangible products
and need to maintain personal relationships within their channels

Direct Selling

The simplest and shortest marketing channel is a direct channel.

A direct channel carries goods directly from a producer to the business purchaser or
ultimate user.

This channel forms part of direct selling.

Direct selling is an important option for goods that require extensive demonstrations in
convincing customers to buy.

Direct selling plays a significant role in business to business marketing.

Most major installations, accessory equipment and even component parts and raw
materials are sold through direct contacts between producing firms and final buyers.

The internet provides another direct selling channel for the B2B and B2C purchases.

Channels Using Marketing Intermediaries

Although direct channels allow simple and straight forward marketing. They are not
practical in every case

Some products serve markets in different areas of the country or world have a large number
of potential end users. Other categories of goods rely heavily on repeat purchases. The
producers of these goods may find more efficient, less expensive and less time consuming
alternatives to direct channels by using intermediaries.

Producer to Wholesaler to Retailer to Consumer

This method carries goods between literally thousands of small producers within limited
lines and local retailers. A firm with a limited lines and local retailers. A firm with limited
financial resources will rely on the services of a wholesaler that serves as an immediate
source of funds and then markets to thousands of retailers. On the other hand, a small
retailer can draw on a wholesaler’s specialised distribution skills. In addition many
manufactures hire their own field sales representatives to service retail accounts with
marketing information. Wholesalers may then handle on actual sales transactions.

Producer to Wholesaler to Business user

Similar characteristics in the organisational market often attract marketing intermediaries to
operate between producers and business purchaser. The term industrial distributor
commonly refers to intermediaries in the business markets that take title to the goods.

Producer to Agent to wholesaler to Retailer to Consumer

Like agents, brokers are independent intermediaries who may or may not take possession of
goods but never take title to these goods. Agents and brokers also serve the business
market when small producers attempt to market their offering through large wholesalers.

Such an intermediary often called a manufacturers representative, provides an independent

sales force to contact wholesale buyers. A kitchen equipment manufacturer may have its
own manufacturers representative to market its goods for example.

Producer to Agent to Business user.

For a product with large unit sales, however, and for which transportation accounts for a
small percentage of the total cost, the producer-agent-business user channel is usually
employed. The agent in effect becomes the producer’s sales force, but bulk shipments of
the product reduce the intermediary’s inventory management function.

Channel Strategy Decisions

Marketers face strategic decisions in choosing channels and marketing intermediaries for
their products. Selecting a specific channel is the most basic of these decisions. Marketers
must also resolve questions about the level of distribution intensity, assess the desirability
of vertical marketing systems and evaluate the performance of current intermediaries.

Selection of Marketing Channel

Factors to Consider

1) The Nature of the Product:

These factors include physical characteristics of a product and their impact on the selection
of a particular channel of distribution.

Various factors under this category are:

(a) Perishability:
Products which are perishable in nature are distributed by employing a shorter channel of
distribution so that goods could be delivered to the consumers without delay. Delay in
distribution of these products will deteriorate their quality.
(b) Size and weight of product:
Bulky and heavy products like coal and food grains etc. are directly distributed to the users
involve heavy transportation costs. In order to minimise these costs a short and direct
distribution channel is suitable.

(c) Unit value of a product:

Products with lesser unit value and high turnover are distributed by employing longer
channels of distribution. Household products like utensils, cloth, cosmetics etc. take longer
time in reaching the consumers.. On the other hand, products like jewellery having high
product value are directly sold to the consumers by the jewellers.

(c) Standardisation:
Products of standard size and quality usually take longer time by adopting longer channel of
distribution. For example, machine tools and automobile products which are of standard
size reach the consumer through the wholesalers and retailers. Un-standardised articles
take lesser time and pass through shorter channels of distribution.

(e) Technical Nature of Products:

Industrial products which are highly technical in nature are usually distributed directly to the
industrial users and take lesser time and adopt shorter channel of distribution. In this case
after sales service and technical advice is provided by the manufacturer to the consumers.

On the other hand, consumer products of technical nature are usually sold through
wholesalers and retailers. In this manner longer channel of distribution is employed for their
sales. After sales services are provided by the wholesalers and retailers. Examples of such
products are televisions, scooters, refrigerators, etc.

(f) Product Lines:

A manufacturer producing different products in the same lines sells directly or through
retailers and lesser time is consumed in their distribution. For example, in case automobile
rubber products this practice is followed. On the other hand, a manufacturer dealing only in
one item appoints sole selling agents, wholesalers and retailers for selling the product. For
example, in case of ‘Vanaspati Ghee’ longer distribution channel in undertaken.

(2) The Nature of the market:

This is another factor influencing the choice of a proper channel of distribution. In the words
of Lazo and Corbin “Marketing managements select channels on the basis of customer
wants-how, where and under what circumstances. The number of buyers of the product
affects the choice of a f channel of distribution.
Following factors are considered in this regard:
(a)Consumer of industrial market:
In case of industrial markets, number of buyers is less; a shorter channel of distribution can
be adopted. These buyers usually directly purchase from the manufacturers. Marketing
intermediaries are not needed in this case.

But in case of consumer markets, where there are a large number of buyers, a longer
channel of distribution is employed. Distribution process cannot be effectively carried out
without the services of wholesalers and retailers.

(b) Number of prospective buyers:

If the number of buyers is likely to be more, the distribution channel will be long. On the
other hand, if the number of consumers is expected to be less, the manufacturer can
effectively sell directly to the consumers by appointing salesmen.

(c)Size of the order:

If the size of the order placed by the customers is big, direct selling can be undertaken by
the manufacturer as in case of industrial goods. But where the size of the order is small,
middlemen are appointed to distribute the products.

(d) Geographic concentration of market:

Where the customers are concentrated at one particular place or market, distribution
channel will be short and the manufacturer can directly supply the goods in that area by
opening his own shops or sales depot. In case where buyers are widely scattered, it is very
difficult for the manufacturer to establish a direct link with the consumers, services of
wholesalers and retailers will be used.

(e) Buying habits of customers:

This includes tastes, preferences, likes and dislikes of customers. Customers also expect
certain services like credit and personal attention and after sales services etc. All these
factors greatly influence the choice of distribution channel.

(3) The Nature of Middlemen:

Marketing intermediaries are vital components in the distribution of goods. They greatly
influence the marketing of goods.

Important factors relating to the selection of a particular middleman are explained as

under:
(a) Cost of distribution of goods:
Cost of distribution through middlemen is one of the main considerations to be taken into
account by the manufacturer. Higher cost of distribution will result in the increased cost of
product. The manufacturer should select the most economical distribution channel.

In finalising the channel of distribution, services provided by the intermediaries must be

kept in mind. It may be pointed out that the manufacturer can select an expensive
marketing intermediary because that may ensure various marketing services which cannot
be offered by others.

(b) Availability of desired middlemen:

Sometimes desired middlemen may not be available for the distribution of goods. They may
be busy in dealing with the competitive products. Under such circumstances the
manufacturer has to make his own arrangements by opening his branches or sales depots to
distribute the goods to the consumers.

(c) Unsuitable marketing policies for middlemen:

The marketing policies of the manufacturer may not be welcomed by the middlemen the
terms and conditions may not favour the middlemen. For example, some wholesalers or
retailers would like to act as sole selling agents for the product in a particular area or region.

(d) Services provided by middlemen:

The manufacturer should select those middlemen who provide various marketing services
viz, storage, credit and packing etc. At the same time the middlemen should ensure various
services to customers.

(e) Ensuring greater volume of sales:

A manufacturer would like to appoint that middlemen who assure greater sales volume over
the long run.

(f) Reputation and financial soundness:

In appointing middleman, the manufacturer must take into consideration the financial
stability and reputation of the middleman. A financially sound middleman can provide credit
facilities to customers and make prompt payment to the manufacturer.

(4) The nature and size of the manufacturing unit:

The nature and size of manufacturing unit has a great impact on the selection of a
distribution channel.

The various considerations in this regard are as follows:

(A) Manufacturer Reputation and Financial Stability:
Reputed and financially sound manufacturing concerns can easily engage middlemen as
compared to lesser reputed and newly established units. Usually a manufacturing unit
having a sound financial base can easily distribute the goods without appointing middlemen
by opening their own sales depots and branches. A financially weaker unit cannot operate
without the help of middlemen.
(B) Ability and Experience of the Undertaking:
Industrial undertakings having ample marketing ability and experience can effectively
manage their distribution activities themselves. They have lesser dependence on
undertaking intermediaries. On the other hand, marketing units possessing lesser marketing
ability and experience depend more on middlemen for the distribution of goods.

(C) Desire for Control of Channel:

A manufacturer may resort to a shorter distribution channel in order to exercise effective
control over distribution. This is suitable in case of perishable goods and is helpful in
establishing direct link between the manufacturer and the consumer. The cost of
distribution may be more by adopting such a channel of distribution.

(D) Industrial Conventions:

Industrial conventions followed influence the selection of distribution channel. If a particular
mode of distribution is adopted in an industry, the same will be followed by every
manufacturing unit in that industry in distribution their products.

(E) Services Provided By the Manufacturers:

The selection of marketing intermediaries is also influenced by various services provided by
the manufacturer. These services include extensive advertisement for the product, after
sales services and facilities of credit. The manufacturers providing these services can easily
avail the services of reputed retailers and wholesalers.

(5) Government Regulations and Policies:

Government policies and regulations also influence the choice of distribution channels. The
Government may impose certain restrictions on the wholesale trade of a particular product
arid takeover the distribution of certain products. All these restrictions have a direct impact
in selecting the channel of distribution.
(6) Competition:
The nature and extent of competition prevalent in a industry is another detrimental
consideration in selecting a distribution channel. Different manufacturers producing similar
products may employ the same channels of distribution.

Distribution Intensity/ Strategies

Distribution Intensity

Distribution intensity refers to the number of intermediaries through which a manufacturer

distributes its goods. The decision about distribution intensity should ensure adequate
market coverage for a product. In general, distribution intensity varies along a continuum
with three general categories: intensive distribution, selective distribution, and exclusive
distribution.

Intensive Distribution

An intensive distribution strategy seeks to distribute a product through all available

channels in an area. Usually, an intensive distribution strategy suits items with wide appeal
across broad groups of consumers, such as convenience goods.

Selective Distribution

Selective distribution is distribution of a product through only a limited number of channels.

This arrangement helps to control price cutting. By limiting the number of retailers,
marketers can reduce total marketing costs while establishing strong working relationships
within the channel.

Moreover, selected retailers often agree to comply with the company’s rules for advertising,
pricing, and displaying its products.

Where service is important, the manufacturer usually provides training and assistance to
dealers it chooses. Cooperative advertising can also be utilized for mutual benefit. Selective
distribution strategies are suitable for shopping products such as clothing, furniture,
household appliances, computers, and electronic equipment for which consumers are
willing to spend time visiting different retail outlets to compare product alternatives.
Producers can choose only those wholesalers and retailers that have a good credit rating,
provide good market coverage, serve customers well, and cooperate effectively.
Wholesalers and retailers like selective distribution because it results in higher sales and
profits than are possible with intensive distribution where sellers have to compete on price.
Exclusive Distribution

Exclusive distribution is distribution of a product through one wholesaler or retailer in a

specific geographical area. The automobile industry provides a good example of exclusive
distribution.

Though marketers may sacrifice some market coverage with exclusive distribution, they
often develop and maintain an image of quality and prestige for the product. In addition,
exclusive distribution limits marketing costs since the firm deals with a smaller number of
accounts. In exclusive distribution, producers and retailers cooperate closely in decisions
concerning advertising and promotion, inventory carried by the retailers, and prices.

Exclusive distribution is typically used with products that are high priced, that have
considerable service requirements, and when there are a limited number of buyers in any
single geographic area. Exclusive distribution allows wholesalers and retailers to recoup the
costs associated with long selling processes for each customer and, in some cases, extensive
after-sale service. Specialty goods are usually good candidates for this kind of distribution
intensity.

New Product Development

NewProductDevelopmentProcess
Step 2. Idea Screening

 Process to spot good ideas and drop poor ones as soon as possible.

 Many companies have systems for rating and screening ideas which estimate:

◦ Market Size

◦ Product Price

◦ Development Time & Costs

◦ Manufacturing Costs

◦ Rate of Return

◦ Then, the idea is evaluated against a set of general company criteria.

Step 2. Idea Screening

  Another way of new product idea screening framework asks three questions

 1st Is it real- is there a real need and desire for the product and will the customers
buy it.

 Is there a clear product concept and will such a product satisfy a market.

Step 2. Idea Screening

 Second can we win? Does the product offer a sustainable competitive advantage?

 Does the company have the resources to make such a product a success

Finally is it worth doing?

Does the product fit the company’s overall growth strategy.

Does it offer sufficient profit potential

The company should be able to answer yes to all the three questions

Step 3. Concept Development & Testing

1.Develop Product Ideas into Alternative Product Concept

2.Concept Testing - Test the Product Concepts with Groups of Target Customers

3. Choose the Best One

Step 4. Marketing Strategy Development

 The marketing strategy statement consist of three parts

1st part describes the target market, the planned value proposition and the sales, market
share and profit goals for the 1st few years.

Step 4. Marketing Strategy Development

 2nd part of the marketing strategy statement outlines the product’s planned price,
distribution and marketing budget for the first year.

 3rd part of the marketing strategy statement describes the planned long run sales
profit goals and marketing mix strategy.
 Step

5.BusinessAnalysis
Step 6. Product Development

Business Analysis

 Review of Product Sales, Costs, and Profits Projections to See if They Meet
Company Objectives

1. If No, Eliminate Product Concept

 2. If Yes, Move to Product Development

 New Product Development Process

Step 7. Test Marketing

Standard Test Market

 Full marketing campaign in a small number of representative cities.

Controlled Test Market

 A few stores that have agreed to carry New products for a fee

Test Market

 Test in a simulated shopping environment to a sample of consumers.

 New Product Development Process

Step 8. Commercialization

 Commercialization is the Introduction of the New Product into the Marketplace

 When?

 Where?

 To whom ?

 How?
Market Segmentation

Companies today recognize that they cannot appeal to all buyers in the marketplace—or at
least not to all buyers in the same way.

Buyers are too numerous, widely scattered, and varied in their needs and buying practices.
Moreover, the companies themselves vary widely in their abilities to serve different
segments of the market. Instead, A company must identify the parts of the market that it
can serve best and most profitably. It must design customer-driven marketing strategies
that build the right relationships with the right customers.
Thus, most companies have moved away from mass marketing and toward target
marketing:

Identifying market segments, selecting one or more of them, and developing products
and marketing programs tailored to each.

Instead of scattering their marketing efforts

(the “shotgun” approach), firms are focusing on the buyers who have greater interest in the
values they create best (the “rifle” approachthe four major steps in designing a customer-
driven marketing
strategy.

In the first two steps, the company selects the customers that it will serve.

Market segmentation involves dividing a market into smaller segments of buyers with
distinct
needs, characteristics, or behaviors that might require separate marketing strategies or
mixes.
The company identifies different ways to segment the market and develops profiles of the
resulting market segments.
Market targeting (or targeting) consists of evaluating each market segment’s attractiveness
and selecting one or more market segments to enter. In the final two steps, the company
decides on a value proposition—how it will create value for target customers.

Differentiation involves actually differentiating the firm’s market offering to create superior
customer value.

Positioning consists of arranging for a market offering to occupy a clear, distinctive, and
desirable place relative to competing products in the minds of target consumers. We discuss
each of these steps in turn.

Segmenting Consumer Markets

There is no single way to segment a market.
A marketer has to try different segmentation variables, alone and in combination, to find
the best way to view market structure.
Here we look at the major geographic, demographic, psychographic, and behavioral
variables.

Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical
units,such as nations, regions, states, counties, cities, or even neighborhoods.

A company may decide to operate in one or a few geographical areas or operate in all areas
but pay attention to geographical differences in needs and wants.

Many companies today are localizing their products, advertising, promotion, and sales
efforts to fit the needs of individual regions, cities, and even neighborhoods For example
Chicken Inn in Towns, TrueWorths in Major cities

Demographic segmentation divides the market into segments based on variables such as
age, gender, family size, family life cycle, income, occupation, education, religion, race,
generation, and nationality.
Demographic factors are the most popular bases for segmenting customer groups. One
reason is that consumer needs, wants, and usage rates often vary closely with demographic
variables.
Another is that demographic variables are easier to measure than most other types of
variables.
Even when marketers first define segments using other bases, such as benefits sought or
behavior, they must know a segment’s demographic characteristics to assess the size of the
target market and reach it efficiently

Age and Life-Cycle Stage. Consumer needs and wants change with age. Some companies
use age and life-cycle segmentation, offering different products or using different
marketing approaches for different age and life-cycle groups. For example,

Gender. Gender segmentation has long been used in clothing, cosmetics, toiletries, and
magazines. For example,Nivea markets Nivea for Men, a product line for men ranging from
its 3-in-1 Active3
body wash, shampoo, and shaving cream combination to a revitalizing eye cream. According
to a Nivea marketer,

Psychographic Segmentation
Psychographic segmentation divides buyers into different segments based on social class,
lifestyle, or personality characteristics.
People in the same demographic group can have very different psychographic
characteristics marketers often segment their markets by consumer lifestyles and base their
marketing strategies on lifestyle appeals.
For example, car-sharing nicher Zipcar rents cars by the hour or the day. But it doesn’t see
itself as a car-rental company.
Instead it sees itself as enhancing its customer’s urban lifestyles and targets accordingly.
“It’s not about cars,” says Zipcar’s CEO, “it’s about urban life.”

Marketers also use personality variables to segment markets.

For example, cruise lines target adventure seekers.
Royal Caribbean appeals to high-energy couples and families by providing hundreds of
activities, such as rock wall climbing and ice skating

Behavioral Segmentation
Behavioral segmentation divides buyers into segments based on their knowledge, attitudes,
uses, or responses to a product. Many marketers believe that behavior variables are the
best starting point for building market segments.
Occasions. Buyers can be grouped according to occasions when they get the idea to buy,
actually make their purchase, or use the purchased item.
Occasion segmentation can help firms build up product usage. Some holidays, such as
Mother’s Day and Father’s Day, were originally promoted partly to increase the sale of
candy, flowers, cards, and other gifts. And many marketers prepare special offers and ads
for holiday occasions.
Benefits Sought. A powerful form of segmentation is grouping buyers according to the
different benefits that they seek from a product. Benefit segmentation requires finding the
major benefits people look for in a product class, the kinds of people who look for each
benefit, and the major brands that delivereach benefit.

User Status. Markets can be segmented into nonusers, ex-users, potential users, first-time
users, and regular users of a product.
Marketers want to reinforce and retain regular users, attract targeted nonusers, and
reinvigorate relationships with ex-users.
Included in the potential user group are consumers facing life-stage changes—such as
newlyweds and new parents—who can be turned into heavy users eg cooking utinsils etc

Usage Rate. Markets can also be segmented into light, medium, and heavy product users.
Heavy users are often a small percentage of the market but account for a high percentage of
total consumption

Loyalty Status. A market can also be segmented by consumer loyalty. Consumers can be
loyal to brands Apple Buyers can be divided into groups according to their degree of loyalty.
Some consumers are completely loyal—they buy one brand all the time. For example, Apple
has an almost cultlike following of loyal users. Other consumers are somewhat loyal—they
are loyal to two or three brands of a given product or favor one brand while sometimes
buying others. Still other buyers show no loyalty to any brand— they either want something
different each time they buy, or they buy whatever’s on sale.
 A company can learn a lot by analyzing loyalty patterns in its market. It should start by
studying its own loyal customers.
Segmenting Business Markets
Consumer and business marketers use many of the same variables to segment their
markets. Business buyers can be segmented geographically, demographically (industry,
company size), or by benefits sought, user status, usage rate, and loyalty status. Yet,
business marketers also use some additional variables, such as customer operating
characteristics,purchasing approaches, situational factors, and personal characteristics.

Requirements for Effective Segmentation

Clearly, there are many ways to segment a market, but not all segmentations are effective

Measurable: The size, purchasing power, and profiles of the segments can be measured.
Certain segmentation variables are difficult to measure. eg keeping a data base of left
handed people
Accessible: The market segments can be effectively reached and served

Substantial: The market segments are large or profitable enough to serve. A segment should
be the largest possible homogeneous group worth pursuing with a tailored marketing
program. It would not pay, for example, for an automobile manufacturer to develop cars
especially for people whose height is greater than seven feet.

Differentiable: The segments are conceptually distinguishable and respond differently to

different marketing mix elements and programs. If men and women respond similarly to
marketing efforts for soft drinks, they do not constitute separate segments.

• Actionable: Effective programs can be designed for attracting and serving the segments.
For example, although one small airline identified seven market segments, its staff was too
small to develop separate marketing programs for each segment.

Market Targeting

Market segmentation reveals the firm’s market segment opportunities. The firm now has to
evaluate the various segments and decide how many and which segments it can serve best.
We now look at how companies evaluate and select target segments.

Evaluating Market Segments

In evaluating different market segments, a firm must look at three factors: segment size and
growth, segment structural attractiveness, and company objectives and resources. The
company must first collect and analyze data on current segment sales, growth rates, and the
expected profitability for various segments. It will be interested in segments that have the
right size and growth characteristics

But “right size and growth” is a relative matter. The largest, fastest-growing segments are
not always the most attractive ones for every company. Smaller companies may lack the
skills and resources needed to serve larger segments. Or they may find these segments too
competitive. Such companies may target segments that are smaller and less attractive, in an
absolute sense, but that are potentially more profitable for them. The company also needs
to examine major structural factors that affect long-run segment attractiveness.14 For
example, a segment is less attractive if it already contains many strong and aggressive
competitors. The existence of many actual or potential substitute products may limit prices
and the profits that can be earned in a segment. The relative power of buyers also affects
segment attractiveness.
Buyers with strong bargaining power relative to sellers will try to force prices down, demand
more services, and set competitors against one another—all at the expense of seller
profitability. Finally, a segment may be less attractive if it contains powerful suppliers who
can control prices or reduce the quality or quantity of ordered goods and services.

Even if a segment has the right size and growth and is structurally attractive, the company
must consider its own objectives and resources. Some attractive segments can be dismissed
quickly because they do not mesh with the company’s long-run objectives. Or the company
may lack the skills and resources needed to succeed in an attractive segment.

For example, given the current economic conditions, the economy segment of the
automobile market is large and growing. But given its objectives and resources, it would
make little sense for luxury performance carmaker BMWto enter this segment.Acompany
should enter only segments in which it can create superior customer value and gain
advantages over its competitors.

Selecting Target Market Segments

After evaluating different segments, the company must decide which and how many
segments it will target.

A target market consists of a set of buyers who share common needs or characteristics that
the company decides to serve.

Market targeting can be carried out at several different levels

Using an undifferentiated marketing (or mass marketing) strategy, a firm might decide to
ignore market segment differences and target the whole market with one offer. Such a
strategy focuses on what is common in the needs of consumers rather than on what is
different. The company designs a product and a marketing program that will appeal to the
largest number of buyers. As noted earlier in the chapter, most modern marketers have
strong doubts about this strategy. Difficulties arise in developing a product or brand that will
satisfy all consumers.
Moreover, mass marketers often have trouble competing with more-focused firms that do a
better job of satisfying the needs of specific segments and niches.

Differentiated Marketing
Using a differentiated marketing (or segmented marketing) strategy, a firm decides to
target several market segments and designs separate offers for each. Toyota Corporation
produces several different brands of cars—from Scion to Toyota to Lexus—each targeting its
own segments of car buyers.

Concentrated Marketing

Using a concentrated marketing (or niche marketing) strategy, instead of going after a small
share of a large market, a firm goes after a large share of one or a few smaller segments

Through concentrated marketing, the firm achieves a strong market position because of its
greater knowledge of consumer needs in the niches it serves and the special reputation it
acquires. It can market more effectively by fine-tuning its products, prices, and programs to
the needs of carefully defined segments.

It can also market more efficiently, targeting its products or services, channels, and
communications programs toward only consumers that it can serve best and most
profitably. Whereas segments are fairly large and normally attract several competitors,
niches are smaller and may attract only one or a few competitors. Niching lets smaller
companies focus their limited resources on serving niches that may be unimportant to or
overlooked by larger competitors.

Many companies start as nichers to get a foothold against larger, more resourceful
competitors and then grow into broader competitors. For example, Southwest Airlines
began by serving intrastate, no-frills commuters in Texas but is now one of the nation’s
largest airlines.

Micromarketing
Differentiated and concentrated marketers tailor their offers and marketing programs to
meet the needs of various market segments and niches. At the same time, however, they do
not customize their offers to each individual customer.

Micromarketing is the practice of tailoring products and marketing programs to suit the
tastes of specific individuals and locations.Rather than seeing a customer in every individual,
micromarketers see the individual in every customer. Micromarketing includes local
marketing and individual marketing.
Local Marketing. Local marketing involves tailoring brands and promotions to the needs
and wants of local customer groups—cities, neighborhoods, and even specific stores. For
example, Walmart customizes its merchandise store by store to meet the needs of local
shoppers. The retailer’s store designers create each new store’s format according to
neighborhood characteristics—

Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by
reducing the economies of scale. It can also create logistics problems as companies try to
meet the varied requirements of different regional and local markets. Further, a brand’s
overall image might be diluted if the product and message vary too much in different
localities. Still, as companies face increasingly fragmented markets, and as new supporting
technologies develop, the advantages of local marketing often outweigh the drawbacks.
Local
marketing helps a company to market more effectively in the face of pronounced regional
and local differences in demographics and lifestyles.
Individual Marketing. In the extreme, micromarketing becomes individual marketing—
tailoring products and marketing programs to the needs and preferences of individual
customers Individual marketing has also been labeled one-to-one marketing, mass
customization, and markets-of-one marketing

Differentiation and Positioning

Beyond deciding which segments of the market it will target, the company must decide on a
value proposition—how it will create differentiated value for targeted segments and what
positions it wants to occupy in those segments. A product’s position is the way the product
is defined by consumers on important attributes—the place the product occupies in
consumers’ minds relative to competing products. Products are made in factories, but
brands happen in the minds of consumers.

The differentiation and positioning task consists of three steps: identifying a set of
differentiating competitive advantages on which to build a position, choosing the right
competitive advantages, and selecting an overall positioning strategy. The company must
then effectively communicate and deliver the chosen position to the market.