Block 3 Marketing - Arab Open University

Block 3Marketing

Contents

Block 3 introduction 3

Section A Marketing defined and in contextSession 28 The marketing concept 1 11Session 29 The marketing concept 2 21Session 30 Marketing strategy and the marketing environment 1 27Session 31 Marketing strategy and the marketing environment 2 37

Section B Understanding consumers and business customersSession 32 Buying behaviour (consumer and business) 1 47Session 33 Buying behaviour (consumer and business) 2 61Session 34 Segmenting markets, targeting and positioning 1 67Session 35 Segmenting markets, targeting and positioning 2 75Session 36 Marketing research 81

Section C Marketing programmesSession 37 Products, services and branding 1 95Session 38 Products, services and branding 2 105Session 39 Products, services and branding 3 113Session 40 Marketing channels and pricing 1 125Session 41 Marketing channels and pricing 2 137Session 42 Marketing communications 1 145Session 43 Marketing communications 2 157

Block 3 summary 165

B203 Business functions in context

B203 Business functions in context is a web-based course.This printed version of the web materials allows you to read longerpieces of text offline and provides a place for you to highlight textor make marginal notes. You will need to access the course websiteto take advantage of B203’s full functionality and linking.

Course teamMatt Hinton, Course ChairJune Payne, Course ManagerHaider Ali, AuthorDavid Barnes, AuthorMariaLaura Di Domenico, AuthorSally Dibb, AuthorCaroline Emberson, AuthorGraham Francis, AuthorVira Krakhmal, AuthorJenny Lewis, AuthorLesley Messer, Programme ManagerVal O’Connor, Course Team AssistantJenny Powell, Course Team AssistantGabe Reedy, e-Learning AdvisorGeorge Watson, Regional Manager

Developmental testersChristopher BradleyPhil CuffMichael HankinsonChris HullJames McGillAdam MesserJamie RuddyRosa Salamone

External assessorNeil Marriott, Head of WinchesterBusiness School, University of Winchester

Critical readersAlison BettleyPauline GleadleJacky HintonJacky HollowayFinola Kerrigan, Kings College LondonDavid MayleMarco Mongiello, Imperial CollegeTerry O’SullivanCaroline RamsayHoward Viney

Production teamJes Ackland-Snow, Interactive Media DeveloperAndy Braidley, Service AdministratorAnne Brown, Media AssistantHoward Davies, Interactive Media DeveloperJonathan Davies, Graphic DesignerJulie Fletcher, Media Project ManagerGill Gowans, Co-publishing Media DeveloperPaul Hoffman, Editorial Media DeveloperSiggy Martin, Assistant Print BuyerChris Nelson, Media AssistantJane Roberts, ProducerDiana Russell, Copy-editorKelvin Street, LibraryCaroline Williams, Rights and Picture ResearchEmily Yossarian, Editorial Media Developer

The Open UniversityWalton Hall, Milton KeynesMK7 6AAFirst published 2009. Second edition 2010.Copyright © 2010 The Open UniversityAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, transmitted orutilised in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without writtenpermission from the publisher or a licence from the Copyright Licensing Agency Ltd. Details of such licences (forreprographic reproduction) may be obtained from the Copyright Licensing Agency Ltd, Saffron House, 6–10 KirbyStreet, London EC1N 8TS; website http://www.cla.co.uk/. Open University course materials may also be madeavailable in electronic formats for use by students of the University. All rights, including copyright and related rightsand database rights, in electronic course materials and their contents are owned by or licensed to The OpenUniversity, or otherwise used by The Open University as permitted by applicable law.In using electronic course materials and their contents you agree that your use will be solely for the purposes offollowing an Open University course of study or otherwise as licensed by The Open University or its assigns.Except as permitted above you undertake not to copy, store in any medium (including electronic storage or use ina website), distribute, transmit or retransmit, broadcast, modify or show in public such electronic materials in wholeor in part without the prior written consent of The Open University or in accordance with the Copyright, Designs andPatents Act 1988.Edited and designed by The Open University.Printed in the United Kingdom by The Charlesworth Group, Wakefield.The paper used in this publication is procured from forests independently certified to the levelof Forest Stewardship Council (FSC) principles and criteria. Chain of custody certification allowsthe tracing of this paper back to specific forest-management units (see www.fsc.org).

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B203 Business functions incontext

Block 3 introductionPrepared by Haider Ali and Sally Dibb

Block 3 4

Block 3 introduction 4

Objectives of Block 3 4

Structure of Block 3 4

The textbook 6

Getting the most out of the block 7

Block 3 structure table 9

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Block 3

Block 3 introductionPrevious: Block 2 summary

Marketing touches all of our lives in many ways. Most of your friends and

family will be able to tell you what the term ‘marketing’ means to them.

Maybe they associate it with ‘selling’ or ‘advertising’, or perhaps with ‘junk

mail’, ‘promotional events’ or ‘sponsorship’. Perhaps for you ‘marketing’

conjures up images of big brand advertising in glossy magazines, of

supermarket loyalty cards, or of smartly packaged cosmetics in airport

lounges. These are just some of the ways in which a consumer – someone

who buys products and services for their own use – might think about

marketing. While all of these are legitimate aspects of the subject, the

practice of marketing in organisations is much broader than this implies and

involves many different types of customers. Someone who works in a

marketing department might associate marketing with launching new

products, collecting customer feedback, preparing budgets or planning a

promotional campaign. In this block you will take a considered view of the

nature and scope of marketing, and look in more detail at how marketers

can use it.

The aim of this block is to introduce you to the most important topics within

the academic subject of marketing. The block is divided into three major

sections, A, B and C. Within each section are between four and seven

sessions. Altogether this block has sixteen sessions. Although the length of

the sessions varies, each typically involves between two and four hours of

study time on average.

Objectives of Block 3By the end of this block you should be able to:

. explain the role and purpose of the marketing function in an

organisation

. understand the impact that marketing can have on organisational

strategy

. explain the most important decisions marketing managers take, and

describe some of the tools that can be used to inform these decisions

. understand the challenges inherent in undertaking marketing

. appreciate the importance of marketers taking a customer-focused

perspective.

Structure of Block 3The structure of the sections and sessions are given below with brief

descriptions of their content. The textbook for this block, Dibb and Simkin,

is also mentioned; this will be introduced in full in the next section ‘The

textbook’.

The sections and sessions are outlined below.

. Section A Marketing defined and in context Sessions 28, 29, 30 and 31

Sessions 28 and 29: The marketing concept 1 and 2

Marketing consists of a range of activities involved with anticipating and

satisfying customer needs. Organisations which are marketing orientated

Business functions in context - Block 3 introduction

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are much more likely to be successful in these marketing activities. You will

be learning more about these activities and how they are carried out as you

progress through the block. In this session you will be introduced to what

marketing is and how it is defined. You will learn about the principles that

underlie marketing as an activity and as a philosophy and will consider how

firms can become marketing orientated. The essential components of

marketing will also be considered. For Sessions 28 and 29, you will need to

refer to Dibb and Simkin, Chapter 1 ‘The Marketing Concept’.

Sessions 30 and 31: Marketing strategy and the marketing

environment 1 and 2

Effective marketing begins with the formulation of marketing strategy. This

involves considering how the organisation’s resources can be used to

achieve marketing objectives. In this session you will learn how firms go

about formulating their marketing strategy. As you will discover, these

activities are strongly influenced by the marketing environment in which the

organisation is operating. The different elements which make up the

marketing environment will be introduced and their impact upon marketing

strategy will be considered. For Sessions 30 and 31, you will need to refer

to Dibb and Simkin, Chapter 2 ‘Marketing Strategy’ and Chapter 3 ‘The

Marketing Environment’.

. Section B Understanding consumers and business customers Sessions

32, 33, 34, 35 and 36

Sessions 32 and 33: Buying behaviour (consumer and business) 1 and

2

Satisfying customers is at the heart of good marketing strategy. To achieve

this, organisations need to have an excellent understanding of their

customers, their needs and wants, and how they behave as buyers. This

session deals with the factors which influence customers’ purchasing

activities in consumer and business markets. Consumer marketing is

directed at private individuals such as you who buy goods and services for

personal consumption. Business marketing deals with organisational

customers who purchase in order to make or sell their own products or

services.

For both consumer and business marketing there are two important areas

of buying behaviour to consider: the customer decision-making process,

and the factors that influence customer decision making. Marketers who

have an excellent understanding of both of these areas are much more

likely to develop marketing programmes which appeal to these customers.

For Sessions 32 and 33, you will need to refer to Dibb and Simkin,

Chapter 4 ‘Consumer Buying Behaviour’ and Chapter 5 ‘Business Markets

and Business Buying Behaviour’.

Session 34 and 35: Segmenting markets, targeting and positioning 1

and 2

Market segmentation involves grouping customers with relatively similar

needs and characteristics into segments. The time when organisations

were able to adopt a mass marketing approach to their business has long

passed. As customers’ needs become increasingly diverse, marketers are

expected to respond with suitably varied product and service offers. This

session examines how market segmentation can be used by businesses to

deal with this challenge. You will be introduced to the three steps of market

segmentation: segmenting, targeting and positioning. You will also consider

how firms use market segmentation to decide which customers to serve

and how best to allocate their resources. For Sessions 34 and 35, you will

need to refer to Dibb and Simkin Chapter 6 ‘Segmenting Markets, Targeting

and Positioning’.

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Session 36: Marketing research

Marketers use marketing research to learn about their customers, their

competitors and the marketing environment in which they operate. In this

session you will learn about the steps involved in the marketing research

process. The different tools and methods which marketers can use to

gather information will be examined. You will also consider the advantages

and disadvantages associated with these approaches. Finally, the impact

that the information gathered via marketing research can have on

managerial decision making will be considered. For Session 36, you will

need to refer to Dibb and Simkin, Chapter 7 ‘Marketing Research’.

. Section C Marketing programmes Sessions 37, 38, 39, 40, 41, 42 and

43

Sessions 37, 38 and 39: Products, services and branding 1, 2 and 3

Products are regarded by many as being the core element of the marketing

mix. In this session you will be introduced to what a product is, consider its

main components and explore how it is classified. The material will

examine the particular characteristics of services and how they are

marketed. You will also learn about how products and services are

developed and managed. In subsequent sessions other elements of the

marketing mix will be considered in more detail. For Sessions 37, 38 and

39, you will need to refer to Dibb and Simkin, Chapter 8 ‘Product

Decisions’, Chapter 9 ‘Developing Products and Managing Product

Portfolios’, Chapter 10 ‘The Marketing of Services’ and Chapter 14

‘Branding’.

Sessions 40 and 41: Marketing channels and pricing 1 and 2

Having considered the ‘product’ element of the marketing mix, this session

focuses on the channels that marketers use to get their offerings to

customers and the issues they must consider when they formulate their

distribution strategies. This is sometimes referred to as the ‘place’

component of the marketing mix. You will also consider the ‘pricing’

element of the marketing mix in this session, exploring the different ways in

which a firm can set its prices. For Sessions 40 and 41, you will need to

refer to Dibb and Simkin, Chapter 11 ‘Marketing Channels’ and Chapter 12

‘Pricing Concepts’.

Sessions 42 and 43: Marketing communications 1 and 2

The marketing communications part of the marketing mix comprises a

range of elements, including advertising, direct mail, personal selling,

publicity and sponsorship. Marketers making decisions about

communications need to ensure that an appropriate mix of promotional

tools is used. They must also take into consideration various strategic

issues when they make their choices. This session explains the ingredients

of the promotional mix and explores these strategic considerations. You will

learn about how these issues affect the decisions which marketers make.

For Sessions 42 and 43, you will need to refer to Dibb and Simkin,

Chapter 13 ‘An Overview of Marketing Communications’.

The textbookThe textbook that accompanies this block is Marketing Essentials by Sally

Dibb and Lyndon Simkin, published by Cengage Learning (2009). The book

is referred to as Dibb and Simkin throughout the block. Dibb and Simkin is

accompanied by the Marketing Essentials website. Although you do not

need to access this in order to study this block, you may find the additional

learning resources are helpful.


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Dibb and Simkin provides comprehensive coverage of the topic areas

associated with the subject of marketing. The book is a recently published

abridged version of one of the leading European marketing textbooks

written by UK authors. Whereas texts authored by US authors often focus

heavily on the US market, this book contains a diverse range of illustrating

examples and case materials from around the world. The guiding

philosophy for Dibb and Simkin is to reflect current thinking in the world of

marketing in a format which is easy to use, stimulating and topical.

The book includes a range of features to make your learning experience

easier, including applied examples, case studies and internet exercises. At

the end of each chapter there are suggestions for further reading and a list

of useful websites. While it is not essential for you to undertake these

readings or visit the websites, they offer a useful source of additional

information if you want to find out more about what you are studying. Each

chapter in Dibb and Simkin also ends with a list of ‘Important terms’ which

you should know.

Each chapter also has a section dealing with ‘Key links’, highlighting the

key links between the topics covered in that chapter and other topics in the

field of marketing. This is an important and useful section, since there are a

number of significant interrelationships between different marketing topics.

Because marketing is a very broad subject, not all aspects can be covered

within B203. Consequently some of the topics which are sometimes

featured in marketing courses will be mentioned, but will not be covered in

detail. These topics are:

. the internet

. international marketing

. wholesalers, retailing

. advertising, sales management, setting prices

. marketing planning

. social responsibility.

While there may not be specific sessions devoted to these topics, some of

the key issues associated with them are embedded in the block. This

applies to the internet, international marketing and social responsibility, all

of which are featured to some extent in various sessions. Other topics fall

outside the scope of this block, which aims to introduce you to the major

concepts and principles in marketing. The specifics of wholesaling,

advertising and marketing planning are not covered because these topics

tend to be very ‘operational’ in their coverage, dealing primarily with the

practical issues which managers face. However, the strategic issues

relating to the choice of marketing communications are considered.

Getting the most out of the blockMarketing textbooks provide a rich source of information about the subject

area. Dibb and Simkin also engages the reader with many in-text

examples, end of chapter questions and case studies. However, marketing

textbooks are sometimes criticised because they do not do enough to

provide solutions to such questions and cases. For students who may not

have ready access to a tutor or to classroom sessions this can be a

significant disadvantage.

The teaching in this block is designed to address this concern. The aim is

to combine the benefits of the subject coverage achieved in Dibb and

Simkin with the answers you need to consolidate your learning. Instead of

repeating key points from the topics covered in Dibb and Simkin, the focus

is on providing carefully tailored answers to the cases and questions

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featured in the textbook. In each session you will be directed to read a

portion of a chapter from Dibb and Simkin. The activities that follow will ask

one or more questions which relate to this text. Some suggested solutions

against which you can compare your own answers will be provided in the

feedback section at the end of each activity. These solutions are designed

to pinpoint interesting issues related to the questions, some of which may

not have been covered in Dibb and Simkin. You should regard both the

textbook selections and the points made in these feedback sections as

essential reading. There are also some internet exercises featured in the

block which are designed to consolidate your learning.

As the questions in the activities aim to consolidate your understanding of

marketing concepts, you should endeavour to work through them all. These

questions are not intended to comprehensively address all of the points

made in the readings. Instead, the emphasis is on some of the more

challenging and interesting issues arising from each reading. You should

not view the choice of questions as indicating the importance of different

topics, or as signalling possible areas for exam questions.

The questions in the activities expect you to apply course concepts to real

situations and business problems. Marketing is a managerial subject, so it

is important to see how the issues you learn about are related to

managerial practice. On the other hand, the discussion and review

questions included in each chapter of the textbook can be more conceptual,

encouraging you to discuss the course concepts in more abstract terms.

You are strongly encouraged to attempt the questions yourself before

looking at the suggested solutions in the feedback sections. You should

also be aware that your answers may include additional points which are

not covered in the solutions provided. This reflects the multifaceted nature

of the subject area and the fact that different perspectives can sometimes

be taken on the problem being considered. Where possible, the answers

presented as feedback will clarify this point.

Many of the questions you are asked will refer to specific course concepts.

A useful way for you to reinforce your learning is to briefly repeat these

concepts as part of your answer. This will help you to recall the relevant

concepts and explain them in your own words. Students often find this to

be invaluable in developing their understanding of new ideas. To encourage

this approach, you will find that the suggested answers often contain these

kinds of brief definitions and explanations.

This means that in addition to reading the various passages from Dibb and

Simkin, you must develop an understanding of the ideas and concepts

presented by the authors. You will need to think carefully about what is

being written. Marketing is a very practical subject, and so you will need to

consider how real organisations might apply what you are reading. Dibb

and Simkin offers many such real-life examples for you to ponder. However,

you will also find it helpful to draw on examples from organisations that you

are familiar with, perhaps as a customer or an employee. There are many

instances when you witness marketing in practice in your daily life. Even a

routine visit to the supermarket can provide you with an excellent

opportunity to consider how marketing principles are being used in the real

world.

This block is divided into 16 sessions and is designed to take around 60

hours of study time in total. Although not all of the sessions are exactly the

same length, they are typically between about two and four hours in length.

The timings indicated give you an idea of roughly how long you should

expect to take to read the relevant chapters and to carry out the associated

activities. Please bear in mind that the amount of time that different people

take to do these tasks will vary, so this is only meant to be a guide. Some

of the activities might take you less than the time indicated, others might


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take you more. It is not necessary for you to cover all of the material in a

session in one go, although you may choose to do so. The most important

thing is to establish a pattern of working which suits your own

circumstances.

As you progress through the material, you can make notes in MyStuff as

you feel appropriate.

Block 3 structure tableThis table shows how the sections, sessions, and Dibb and Simkin

readings are ordered:

Block 3 structure table

Section Session Dibb and

Simkin

A. Marketing defined

and in context

28 and

29

The marketing

concept 1 and 2

pp. 4–34

30 and

31

Marketing strategy

and the marketing

environment 1 and 2

pp. 35–69 and

pp. 72–105

B. Understanding

consumers and

business customers

32 and

33

Buying behaviour

(consumer and

business) 1 and 2

pp. 106–65

34 and

35

Segmenting markets,

targeting and

positioning 1 and 2

pp. 166–202

36 Marketing research pp. 203–34

C. Marketing

programmes

37, 38

and 39

Products, services

and branding 1, 2 and

3

pp. 245–311

and 406–23

40 and

41

Marketing channels

and pricing 1 and 2

pp. 322–76

42 and

43

Marketing

communications 1 and

2

pp. 377–404

You are now ready to start your study.

Now go to Session 28: The marketing concept 1 or take a break before

continuing.

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Session 28: The marketing concept

1Prepared by Haider Ali and Sally Dibb

Session 28 12

Introduction to Sessions 28 and 29 12

Activity 28.1: Marketing defined and marketing in context 13

Activity 28.2: How different organisations use marketing 13

Activity 28.3: The marketing process and why marketing matters 15

Activity 28.4: The evolution of the marketing concept 16

Activity 28.5: Organisations which do not use the marketing

concept 17

Session 28 summary 19

Glossary 20

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Session 28

Introduction to Sessions 28 and 29Previous: Block 3 introduction

Most people regularly encounter marketing in their daily lives. Glossy

product packages displayed in department stores, fast-moving television

advertisements, product pop-ups on the internet, and promotional leaflets

delivered via newspapers or with the post are just a few manifestations of

marketing activity. Yet long before these outputs are produced, marketers

are working to understand the needs and desires of customers and to learn

more about the marketplace in which their firms are operating. Such

understanding enables these individuals to identify attractive opportunities

for their organisations by targeting particular groups of customers with

products and marketing effort. These are some of the hidden aspects of

marketing of which you may not be aware, although if you have a job in

marketing you will be familiar with them already.

Marketing is based on the idea of exchange, typically involving firms

providing customers with products and services in exchange for money.

The success of these exchanges depends on providing desirable offerings

which meet the needs of those being targeted. These first sessions

introduce you to some of the conceptual material which explains how

marketing aims to achieve this. There is also some useful background

information describing the development of the marketing discipline.

Although you will not necessarily need to learn all of this material, it will

help explain the background to marketing and make you appreciate the

importance of some of the conceptual material.

In Sessions 28 and 29 you will learn about the meaning of the term

‘marketing’ and consider the circumstances in which marketing activities

can be used. The sessions also explore the different orientations that firms

can have towards the marketplace. The material is divided into Session 28,

which covers the marketing exchange and the marketing process, and

introduces the elements of the marketing concept; and Session 29, which

introduces marketing strategy and marketing programmes. In order to cover

this material, the following areas are included:

. the nature of marketing exchange and requirements for it to take place

(Session 28)

. the marketing process and how it is sequenced (Session 28)

. the elements of the marketing concept and how they are used

(Session 28)

. an introduction to different organisations which adopt the marketing

concept (Session 28)

. the major components of a marketing strategy and the interrelationships

between them (Session 29)

. the elements of marketing programmes (the marketing mix)

(Session 29).

Sessions 28 and 29 are based on Chapter 1 ‘The Marketing Concept’ of

Dibb and Simkin (pp. 4–34).

Your work on Block 3 will help you answer TMA 02. It might be a good idea

for you to start by visiting TMA 02 questions now, so that you have them in

mind as your work progresses.

Business functions in context - Session 28: The marketing concept 1

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Activity 28.1: Marketing defined and marketing

in contextAllow 30 minutes for the reading in Task A and 10 minutes for Task B.

In this first reading you will learn about the definition of marketing and the

marketing process.

Task A

Now go to Dibb and Simkin, Chapter 1, pp. 4–12. Read up to but not

including the section entitled ‘The marketing process’.

After having read the passage answer the following question.

Task B

In view of the material you have just read, what elements do you think are

required for an exchange to take place?

Feedback

There are a number of requirements for an exchange to take place. There

must be two or more parties, each of which has something of value to the

other. Each party must be willing to give up what they have in return for

what the other party can offer. Both parties must also be able to

communicate with each other.

The concept of exchange is central to marketing. Marketing concepts and

tools can be applied in any situation where exchange takes place. This

means that it is not just the obvious buying–selling situations that are

suitable contexts for the application of marketing. Exchange takes place in

a wide range of circumstances; for example, when a supermarket sells

some bread to a customer, money is exchanged for the product. The

concept of exchange is valuable because it can also be applied to more

abstract situations and to others which are not commercial. For example,

when a government undertakes an anti-smoking campaign it is offering

people a certain set of ideas (that smoking is bad for them) and in return is

seeking a change in behaviour (for people to stop smoking). In such

circumstances the government will probably make use of some of the

concepts and tools that you will learn about while studying this course.

Activity 28.2: How different organisations use

marketingAllow 40 minutes for this activity.

The aim of this activity is to show that many different organisations use

marketing in their day-to-day operations. Although some of these firms

were established in order to make a profit, others were not.

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Task

Select each of the links below to be directed to the websites of Coca-Cola,

the management consultancy Boston Consulting Group (BCG) and the

Guide Dogs for the Blind Association, an organisation which relies entirely

on voluntary contributions to provide guide dogs and other services for

people with sight problems. When you visit the websites for each of these

organisations, spend some time thinking about who are their customers.

You should also consider what is the nature of the exchange taking place.

First, go to the Coca-Cola website using the link below. Select the part of

the screen that links to ‘Marketplace’. Next from the menu click on ‘How we

conduct our business’. You can now browse the sections ‘Working with our

consumers’ and ‘Working with our customers’ to learn about how the

relationships between this drinks company and its customers actually work.

You can then remind yourself about some of the Coca-Cola products by

clicking on ‘Developing our portfolio’, which is also in the menu on the

‘Marketplace’ page.

Now go to ‘What we do’ (The Coca-Cola Company, 2008) on the Coca-

Cola website.

Second, take a look at the Boston Consulting Group website using the

following link.

Take a look at the mission statement provided here via the ‘About BCG

tab’. Next, click on the ‘Impact and expertise’ tab and browse through the

drop-down menus listing the ‘Industries’ and ‘Business topics’ in which this

firm operates. If you click on ‘Health care’ in the Industries list and

‘Marketing & sales’ in the Business topics list, you can get a flavour of what

BCG does.

Now go to the Boston Consulting Group website (The Boston Consulting

Group, Inc., 2008).

Finally, go to the Guide Dogs for the Blind Association website.

Select the ‘About us’ tab at the top of the home page, then read about the

organisation’s mission and what it does. You should then select ‘25 things

you should know about guide dogs’ from the menu on this page and read

the part about ‘Where our money comes from’.

Now go to the Guide Dogs for the Blind Association website (The Guide

Dogs for the Blind Association, 2000).

Feedback

Marketing principles and tools are used by organisations of all types: profit

and not-for-profit, private and public sector, those providing products and

those producing services. This activity gives you a glimpse of the variety of

situations in which marketing is applied. The aim is to illustrate the wide

contexts in which marketing is used. Perhaps some of the examples were a

surprise to you and you had not previously thought about marketing being

used in this way.

Coca-Cola is a brand which many people associate with high-profile

marketing campaigns. These campaigns are typically designed to promote

the firm’s range of drinks to consumers. The nature of the exchange is that

consumers trade money for the drinks they buy. However, Coca-Cola also

has business customers, including the retail outlets which distribute its

products. Here, too, an exchange takes place. You will have learned more

about this from the website.

The Boston Consulting Group is a very different organisation. This firm is

not directly involved with consumers, instead supplying a diverse range of

services to business customers from a wide variety of sectors. These


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customers agree a contract with BCG, which will involve making agreed

payments in exchange for agreed deliverables.

Like BCG, the Guide Dogs for the Blind Association is engaged in the

provision of services, although you might feel that the term ‘customers’ is

not particularly appropriate for those who are served by this organisation.

These include individuals with sight problems, who are provided with guide

dogs and other services to help in their daily lives. The organisation also

funds research into sight problems and educates the wider public about

caring for their eyes. Although the Guide Dogs for the Blind Association

was not set up to make profits, it does need to raise funds to support its

activities. This means that the exchanges taking place are a little more

complex than for the other firms you have looked at. The organisation’s

‘customers’ include individuals with sight problems and the general public.

The finances which support the exchanges come entirely from voluntary

donations to the organisation. Presumably these donor individuals and

businesses also receive something in return: the satisfaction of behaving in

a philanthropic way.

Activity 28.3: The marketing process and why

marketing mattersAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

In the next reading you will cover the following topics: the marketing

process and the importance of marketing.

Task A

Now go to Dibb and Simkin, Chapter 1, pp. 12–16. Read from the start of

the section ‘The marketing process’ and up to but not including the section

entitled ‘The marketing concept and its evolution’.


Task B

What is the marketing process, and why should the process be so

sequenced?

Feedback

The marketing process identifies the different stages that marketers need to

go through prior to and after implementing a marketing strategy. You can

see this process illustrated in Figure 1.2 on p. 13 of Dibb and Simkin. The

sequencing is set out in specific steps because the results of one step are

required before the next can be undertaken.

The main roles of marketing are to identify opportunities (opportunity) to

pursue and then to determine an appropriate marketing strategy. Unless the

market has been analysed it is not possible to know which opportunities are

worth pursuing, how customers will need to be served, and how best to

compete against rival firms and offerings. This means the basic foundation

for marketing is the analysis stage in the marketing process. Once the

required insights into the market have been attained through these

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analyses, it is safe to develop a marketing strategy. This needs trade-off

decisions to be made, as no firm is able to pursue all identified

opportunities, or all customer groups. While developing the marketing

strategy it is necessary to identify the best way to compete so as to stand

out against competitors. Until these two stages of the marketing process

(analysis and strategy) are finished, it is foolhardy to develop marketing

programmes and spend money implementing them.

Activity 28.4: The evolution of the marketing

conceptAllow 15 minutes for the reading in Task A and 20 minutes for Task B.

The following reading covers the marketing concept and its evolution and

considers the essentials of marketing.

Task A

Now go to Dibb and Simkin, Chapter 1, pp. 16–20. Read from the section

‘The marketing concept and its evolution’ up to but not including the section

entitled ‘Marketing strategy’. The material on the evolution of marketing is

useful background material, but paragraphs dealing with ‘Implementing the

marketing concept’ are more important. You should also pay special

attention to the section dealing with the ‘Essentials of marketing’.


Task B

Discuss the basic elements of the marketing concept.

Think of an example of a business which uses this concept. How has this

business adopted the marketing concept? Explain your views.

Feedback

The marketing concept is a philosophy which is used by many different

kinds of organisation. It summarises the view that marketers hold about

their customers and their role in fulfilling the needs of these customers.

Firms that subscribe to the marketing orientation hold that ‘an organisation

should try to provide products that satisfy customers’ needs through a

coordinated set of activities that also allows the organisation to achieve its

goals’ (Dibb and Simkin, p. 17).

Dibb and Simkin say that the marketing orientation holds that firms should

not only try to address customers’ ‘short-term, immediate needs but also

broad, long-term desires’ (Dibb and Simkin, p. 17). This is not always easy,

as there can be tensions between the two goals. For example, you will

come across firms, such as McDonald’s fast-food restaurants, who are well

known for delivering customer satisfaction and who gain excellent

commercial results, but who are nevertheless criticised for jeopardising

customers’ long-term health. McDonald’s is one organisation that uses the

marketing concept. In the second part of the question you are asked to

think about an example of your own. When you have done so you should

think about issues such as how this organisation meets customer needs.


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What activities do they get involved in to help them get close to customers?

How is this reflected in the products or services that they supply?

Dibb and Simkin (p. 17) make the very important point that marketing-

orientated firms are typically not philanthropic. As well as satisfying their

customers, they must also achieve their own goals, such as increasing

profits.

Activity 28.5: Organisations which do not use

the marketing conceptAllow 20 minutes for this activity.

Task

Identify several organisations that have obviously not adopted the

marketing concept. Which characteristics of these organisations indicate

non-acceptance of the marketing concept?

Feedback

Examples of organisations that have not adopted the marketing concept

can be found among companies that have no interest in customers’ needs

and wants. Some of these firms simply try to sell what they have to anyone

who is prepared to buy it. Others appear to make no effort to please the

customer and encourage them to return to buy again. Examples of such

companies include state-owned airlines that serve destinations for which

there is little or no competition. Passengers know that they have no choice

but to fly with these airlines, and as a result the management and staff

have no incentive to meet customers’ needs and wants. Some firms which

attempt to ‘hard sell’ their products over the telephone or door-to-door also

fit into this category. If you have personal experience of being approached

by timeshare salespeople while on holiday, you might include this in your

examples. No doubt you will have thought of many others.

In Dibb and Simkin (p. 17) the evolution of the marketing concept is

presented in historical terms. You should be aware, however, that the

characteristics of firms in what they designate the production and sales

eras still apply to some organisations today. This raises interesting

questions about why some firms can follow such strategies and remain

successful. Table 28.1 explains these strategies.

As you can see, for each philosophy that a firm may follow there are some

underlying assumptions that managers have made about the marketplace

and buying behaviour. When these assumptions hold true, the firm following

that particular philosophy will be successful. But when the assumptions are

wrong for any reason, the organisation will have commercial problems.

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Table 28.1: Key differences between different orientations

Production Sales Marketing

Assumptions

regarding market

conditions.

There is a lack

of supply. There

is a shortage of

quality products.

Oversupply or

lack of demand

means additional

sales effort is

required.

Oversupply or

lack of demand

can be overcome

if marketers take

time to

understand the

needs and wants

of customers.

Assumptions

regarding buying

behaviour.

Customers are

not concerned

about product

quality or variety.

Customers are

not aware of the

possibilities for

the product

class.

Customers need

to be pushed

into buying.

Customers prefer

products which

cater for their

needs and

wants. Where

this is achieved,

customers are

likely to return.

Less sales effort

is needed .

Situations when

effective.

There is a lack

of supply and

customers will

buy whatever is

available.

Buying behaviour

is characterised

by inertia.

Customers have

a choice and will

prefer those

products which

cater most

closely for their

needs.

Situations when

ineffective.

Customers have

a choice and

they want quality

and variety.

The focus on

selling leads

marketers to sell

whatever they

have, rather than

consider

customers’

needs.

Customers see

no benefit in

acquiring the

product. There

are shortages of

supply and

customers will

buy anything.

This is the last activity in this session. You might like to save any notes you

have made for this session in a New note for Activity 28.5 in MyStuff.


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Session 28 summaryIn the course of this first session on the marketing concept you have been

introduced to the idea of marketing exchange and have considered the

nature of this exchange in different kinds of organisations. You have also

learned about the marketing process and the elements involved within it.

This provides important insights into the kinds of activities in which

marketers are involved and helps explain the scope of marketing in

organisations today. The historical background to the marketing concept

has also been explained. In the next session you will learn about marketing

strategy and its underlying components. You will also be introduced to

marketing programmes, which are the visible parts of marketing which most

of us recognise.

Now go to Session 29: The marketing concept 2 or take a break before

continuing.

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Glossary

exchange

The provision or transfer of goods, services and ideas in return for

something of value

marketing

Individual and organisational activities that facilitate and expedite satisfying

exchange relationships in a dynamic environment through the creation,

distribution, promotion and pricing of goods, services and ideas

marketing concept

The philosophy that an organisation should try to provide products that

satisfy customers’ needs through a coordinated set of activities that also

allows the organisation to achieve its goals

marketing mix

The tactical ‘toolkit’ of the marketing programme; product, place/distribution,

promotion, price and people variables that an organisation can control in

order to appeal to the target market and facilitate satisfying exchange

marketing orientation

A marketing-oriented organisation devotes resources to understanding the

needs and buying behaviour of customers, competitors’ activities and

strategies, and of market trends and external forces – now and as they may

shape up in the future; inter-functional coordination ensures that the

organisation’s activities and capabilities are aligned to this marketing

intelligence.

marketing programmes

A marketer’s marketing mix of activities and implementation processes

designed to operationalise the marketing strategy

marketing strategy

The selection of which marketing opportunities to pursue, analysis of target

market(s), and the creation and maintenance of an appropriate marketing

mix that will satisfy those people in the target market(s)

opportunity

A favourable set of conditions that limit barriers or provide rewards


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Session 29: The marketing concept

2Prepared by Haider Ali and Sally Dibb

Session 29 22

Introduction to Session 29 22

Activity 29.1: Introducing and defining marketing strategy 22

Activity 29.2: Marketing programmes and marketing management 23

Activity 29.3: IKEA and the marketing concept 24


Glossary 26

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Session 29

Introduction to Session 29Previous: Session 28: The marketing concept 1

This session follows directly on from Session 28 – you can remind yourself

about the content and aims of these sessions by taking another look at the

Introduction to Sessions 28 and 29.

Activity 29.1: Introducing and defining

marketing strategyAllow 20 minutes for the reading in Task A and 20 minutes for Task B.

The next reading introduces you to marketing strategy.

Task A


‘Marketing strategy’ up to but not including the section entitled ‘Marketing

programmes’. This material is very important.


Task B

Describe the major components of a marketing strategy. How are these

major components related?

Feedback

Marketing strategy is defined by Dibb and Simkin (p. 20) as ‘selecting

opportunities to pursue, analysing a target market …, developing a

competitive advantage and creating and maintaining an appropriate

marketing mix … that will satisfy those customers in the target market’. The

major components of marketing strategy comprise the marketing

environment, the target market strategy and the marketing mix. These

components are related in the following way.

Marketing strategy starts by appraising emerging and existing opportunities.

Once choices have been made, the firm devises a target market strategy,

involving segmenting (market segment) (grouping the market’s customers),

selecting between these segments (targeting), agreeing an appropriate

brand positioning and developing a basis for competing. Following this, a

suitable marketing mix is configured which will deliver the basis for

competing and brand positioning to the selected target market(s).


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Activity 29.2: Marketing programmes and

marketing managementAllow 10 minutes for the reading in Task A and 10 minutes for Task B.

You will now read about marketing programmes and marketing

management, before concluding with an overview from the Dibb and Simkin

textbook.

Task A


‘Marketing programmes’ to the end of the section entitled ‘Marketing

management’.

After having read the passage answer the following questions.

Task B

Why are the elements of the marketing mix known as variables? What are

these variables?

Feedback

The elements of the marketing mix are known as variables because

marketers can manipulate them in order to achieve their marketing

objectives. The variables are commonly referred to as the 4Ps:

. product

. place

. price

. promotion.

In addition, Dibb and Simkin refer to a fifth P, the ‘people’ variable for

services marketers. Marketers can manipulate these marketing mix

elements to develop suitable offerings for customers. This will involve

having a suitable combination of product characteristics, choosing

appropriate distribution strategies, and varying prices and promotion

strategies to suit the market in which the product is being sold.

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Activity 29.3: IKEA and the marketing conceptAllow 5 minutes for the reading in Task A and 25 minutes for Task B.

Task A

Now go to Dibb and Simkin, Chapter 1, pp. 33–4 and read the case study

‘IKEA marches on’.

Task B

Then answer the following questions:

1 Why is IKEA successful?

2 To whom does the Marketing Outpost concept appeal? Why has IKEA

developed this novel format?

3 In what ways does IKEA deploy the marketing concept?

Feedback

1 The reasons given for IKEA’s success are that the concept stands for

value, style and quality. All of the products for the home are under one

roof, and there is free parking, a café in each store and children’s play

areas. The firm also uses cheap out-of-town sites and methods such as

self-assembly packs in order to keep costs down. As well as low prices,

the company regularly updates its products in order to keep up with

changes in fashions and tastes. Other reasons for the company’s

success include its logistics, which minimise the amount of stock that

stores have to hold and at the same time reduce the chances of stores

being out of stock.

2 The Marketing Outpost retail format was developed for the Manhattan

market. The reason behind this format was probably the limited area

available in that location. Given these constraints, the company tries to

maximise the extent to which it can meet customer needs by regularly

changing the offer available in the store. This flexibility enables the

company to satisfy the same customers over time by refreshing the

products on offer on a regular basis.

3 IKEA uses the marketing concept in the following ways. Products are

updated in order to suit customers’ changing tastes. The company does

not restrict its customer offerings to what it makes, but instead considers

the customers’ overall needs and tries to address these using a variety

of marketing mix elements. These include providing a convenient store

location and offering extra services, such as the café, to ease the

shopping experience.




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Session 29 summaryAs you reach the end of this second session on the marketing concept you

will have learned about the nature of marketing strategy and how it is made

up. You should also understand more about how this is put into practice by

different kinds of organisations. The session has also introduced the idea of

marketing programmes, which are sometimes also referred to as the

marketing mix. These are the visible parts of marketing that most people in

the street recognise. In the next two sessions you will find out much more

about marketing strategy (Session 30) and will learn about the marketing

environment (Session 31).

Now go to Session 30: Marketing strategy and the marketing environment

1 or take a break before continuing.

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Glossary

basis for competing

A business’s combined strengths as identified in a SWOT analysis and any

differential advantage, which should form the leading edge of the

business’s marketing strategy

brand positioning

The creation of a desirable, distinctive and plausible image for a brand in

the minds of targeted customers

competitive advantage

The achievement of superior performance vis-à-vis rivals, through

differentiation to create distinctive product appeal or brand identity; through

providing customer value and achieving the lowest delivered cost; or by

focusing on narrowly scoped product categories or market niches so as to

be viewed as a leading specialist

marketing environment

External changing forces within the trading environment: laws, regulations,

political activities, societal pressures, economic conditions and

technological advances

marketing management

A process of planning, organising, implementing and controlling marketing

activities to facilitate and expedite exchanges effectively and efficiently

marketing mix

The tactical ‘toolkit’ of the marketing programme; product, place/distribution,

promotion, price and people variables that an organisation can control in

order to appeal to the target market and facilitate satisfying exchange

market segment

A group of individuals, groups or organisations sharing one or more similar

characteristics that cause them to have relatively similar product needs and

buying characteristics

targeting

The decision about which market segment(s) a business prioritises for its

sales and marketing efforts

target market

A group of people for whom a company creates and maintains a marketing

mix that specifically fits their needs and preferences


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Session 30: Marketing strategy and

the marketing environment 1Prepared by Haider Ali and Sally Dibb

Session 30 28


Activity 30.1: What is marketing strategy? 29

Activity 30.2: Understanding the elements of strategic market

planning 30

Activity 30.3: The analysis of marketing opportunities 30

Activity 30.4: Why some companies choose to diversify 31

Activity 30.5: Understanding competitive advantage, differential

advantage and implementation 31

Activity 30.6: Marketing strategy and the non-profit organisation 32


Glossary 34

Black plate (2,1)

Session 30

Introduction to Sessions 30 and 31Previous: Session 29: The marketing concept 2

Although ordinary people often associate marketing with visual outputs

such as advertising and brands (brand), in reality these are often the final

elements of the marketing process. Long before they reach this stage,

organisations must answer fundamental questions about what business

they are in, what opportunities they are pursuing, and how they intend to

compete in their chosen market. These are important strategic issues

because if the wrong decisions are taken there may be serious commercial

implications. Even the slickest advertising campaign, the smartest branding

or the funkiest packaging will not be enough to overcome poor strategic

decisions.

The opportunities which are open to firms are strongly influenced by the

marketing environment in which they operate. Although this collection of

factors is outside the direct control of the organisation, it nonetheless

shapes the firm’s ability to do business. As you will learn in the next two

sessions, the marketing environment includes broad or macro forces

(macro marketing environment) (economic, political, societal, legal and

technological) and micro forces (micro marketing environment), which relate

more closely to the organisation’s competitive arena. For example, the

rental figures of a firm operating holiday caravan parks in the south of

England are strongly affected by certain aspects of the marketing

environment. Prevailing economic conditions are a key consideration,

particularly as many of the firm’s target customers are from the poorer

sections of society. During an economic downturn, spending on luxuries

such as holidays is often the first to be cut. Other factors affecting the level

of business include the degree of local competition from other operators

targeting the same types of customers – and whether the weather was poor

last summer.

In practice, organisations must remain in touch with these environmental

influences and take them into consideration when making strategic

decisions. In Sessions 30 and 31 you will be introduced to the range of

environmental factors which impact upon the marketing activities of

organisations. You will also find out why and how marketers must take

them into account when designing their marketing strategies. The material

is divided into Session 30, in which you will learn more about marketing

strategy, and Session 31, which introduces the marketing environment. In

order to do this, the following issues will be covered:

. the reasons why an organisation should develop a marketing strategy

and the difference between strategic market planning and the strategy

itself (Session 30)

. why marketing opportunity analysis is necessary and what are the

determinants of marketing opportunity (Session 30)

. the meaning of the term ‘differential advantage’ and how this relates to

the concept of competitive advantage (Session 30)

. how marketers can examine and respond to the marketing environment

(Session 31)

. the political, legal, regulatory, societal/green, economic, competitive and

technological forces that impact on organisations (Session 31)

Business functions in context - Session 30: Marketing strategy and the marketing environment 1

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Black plate (3,1)

. the micro marketing environment and the marketing environment and

strategic opportunities (Session 31).

Sessions 30 and 31 relate to Chapter 2 ‘Marketing Strategy’ and Chapter 3

‘The Marketing Environment’ of Dibb and Simkin (pp. 35–69 and 72–105).

Activity 30.1: What is marketing strategy?Allow 25 minutes for the reading in Task A and 20 minutes for Task B.

In this first reading, you will read about the definition of marketing and the

marketing process.

Task A


including the section entitled ‘Organisational opportunities and resources’.


Task B

Why should an organisation develop a marketing strategy? What is the

difference between strategic market planning and the strategy itself?

Feedback

Marketing strategy is defined as a ‘strategy indicating the opportunities to

pursue, specific target markets to address, and the types of competitive

advantages that are to be developed and exploited’ (Dibb and Simkin,

p. 37). The reasons why an organisation should develop a marketing

strategy are as follows:

. The strategy will ensure that there are benefits to the organisation from

selling its products or services as well as to the targeted customers.

. The strategy will enable the organisation to focus on opportunities that it

wishes to pursue and on specific objectives.

Strategic market planning and the marketing strategy itself are different

because it is the process of undertaking the market planning which yields

the marketing strategy, whereas the marketing strategy is the output of that

planning process.

In the next reading you will learn more about organisational opportunities

and resources, strategic objectives and focus, target market strategy and

brand positioning.

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Activity 30.2: Understanding the elements of

strategic market planningAllow 15 minutes for this activity.

Task

Identify the major components of strategic market planning and explain how

they are interrelated.

Feedback

The components of strategic market planning are shown in Figure 2.3 on

p. 40 of Dibb and Simkin. As shown in the diagram, the organisation’s

goals have to be established and need to take into account various

environmental forces, such as economic, societal/green, legal and

technological factors. These forces then influence subsequent areas of

decision making. Organisational goals drive corporate strategy, which must

take organisational opportunities and resources into consideration.

Corporate strategy helps to determine marketing objectives which, in turn,

drive the marketing strategies and programmes that the organisation

pursues.

Activity 30.3: The analysis of marketing

opportunitiesAllow 25 minutes for the reading in Task A and 15 minutes for Task B.

Task A


‘Organisational opportunities and resources’ up to but not including the

section entitled ‘Competitive advantage’.


Task B

Why is marketing opportunity analysis necessary? What are the

determinants of marketing opportunity?

Feedback

Marketing opportunity analysis is a way for an organisation to ascertain if

there is a ‘fit’ between its capabilities and the external environment.

The determinants of marketing opportunity are the combination of

circumstances (in the marketing environment) arising at such a time that an

organisation can take advantage of them. Sometimes the circumstances

may be suitable but the time may not be right for the organisation. This


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Black plate (5,1)

might be because the firm does not have a product ready to release to the

market. Circumstances are therefore determined by the external

environment (outside the organisation), whereas timing is related to the

internal environment and the firm’s ability to take advantage of the

circumstances.

Activity 30.4: Why some companies choose to

diversifyAllow 15 minutes for this activity.

Task

Answer the following questions:

1 Why do you think more companies are diversifying?

2 Give an example of a diversified business.

Feedback

1 Diversified growth refers to situations where a firm develops new

products to be sold in new markets. This can be further subdivided into

horizontal diversification, concentric diversification and conglomerate

diversification. Firms are diversifying because they are being ‘pushed’

into doing so as a result of increasing competition in their existing

markets, and they are ‘able’ to do so because of the opportunities

offered by the increasing pace of technological change to develop new

products. Diversification also allows firms to spread their managerial

expertise across a wider range of businesses.

2 Virgin, in the United Kingdom, is an example of a diversified business. It

operates an airline, a telecommunications company, a rail company and

health and fitness centres. It has a range of different products

competing in different markets. Dibb and Simkin deal with diversified

growth on p. 47.

Activity 30.5: Understanding competitive

advantage, differential advantage and

implementationAllow 50 minutes for the reading in Task A and 25 minutes for Task B.

The following reading covers competitive advantage, competitive positions

and differential advantage, marketing objectives, marketing mix decisions

and implementation and performance monitoring.

31


Black plate (6,1)

Task A


‘Competitive advantage’ up to the end of the section entitled ‘Summary’.


Task B

What is meant by the term differential advantage? How does this relate to

the concept of competitive advantage?

Feedback

The terms ‘differential advantage’, ‘competitive advantage’ and ‘competitive

edge’ are often used very loosely and often (wrongly) interchangeably.

Differential advantage is defined in the Dibb and Simkin text (p. 56) as ‘an

attribute of a brand, product or service or marketing mix that is desired by

the targeted consumer and provided by only one supplier’. In contrast,

competitive advantage is defined as ‘superior performance vis-à-vis rivals,

through differentiation to create distinctive product appeal’ (p. 49).

Strategy guru Michael Porter explains that there are three generic routes to

competitive advantage: differentiation, cost leadership and focus.

Differential advantage builds on the first of these. Differential advantage

distinguishes a company’s product/service from that of competitors due to a

functional or perceived functional difference that is unique to just one

supplying organisation. The reality is that lots of organisations or brands

simply do not have a differential advantage. Competitive advantage, on the

other hand, refers to when an organisation outperforms its competitors or

undercuts them in terms of price. This means that any aspect of the

marketing mix, basis for competing or brand positioning may deliver a

differential advantage and thereby provide the potential for a successful

competitive advantage.

Activity 30.6: Marketing strategy and the non-

profit organisationAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

This activity is concerned with non-profit marketing.

Task A

Now go to Dibb and Simkin, Chapter 2, pp. 64–5 and read the ‘St

Andrew’s Healthcare’ case study.


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Task B


1 For a non-profit organisation, what aspects of a marketing strategy will

be most important?

2 Why are organisations such as St Andrew’s Healthcare turning to

marketing and the development of marketing strategies?

3 In what ways would a strategic market plan benefit St Andrew’s

Healthcare?

Feedback

1 For a non-profit organisation, the most important aspect of the

marketing strategy is focusing on the organisation’s brand positioning.

The key differentiating factor may be the quality of service provided by

the organisation compared with other charitable organisations. Strong

brand reputation will help the organisation to enjoy the benefits of the

referral programme.

2 The entry of private sector hospitals into the more lucrative aspects of

the healthcare business has forced organisations like St Andrew’s to

use various marketing strategies in order to maintain their market share

of these lucrative segments. In order to maintain visibility in this market,

organisations like St Andrews are concentrating on tailoring their

marketing mix to cater for the growing mix of audiences.

3 A strategic market plan may help St Andrew’s to maintain and grow its

market share in the sector. Changing market trends have forced St

Andrew’s to focus on its marketing in order to accomplish the

organisation’s mission, ‘to truly help those suffering from mental health

problems’.



Session 30 summaryDuring this first session examining marketing strategy and the marketing

environment you have been extending your knowledge of marketing

strategy. In particular, you have focused on the make-up of marketing

strategy and have been introduced to the strategic market planning

process. You should now understand much more about the importance of

opportunity analysis and appreciate its relationship with the development of

differential advantage. In the next session you will find out more about the

marketing environment (Session 31).

Now go to Session 31: Marketing strategy and the marketing environment

2 or take a break before continuing.

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Glossary

advertising

A paid-for form of non-personal communication about an organisation and

its products that is transmitted to a target audience through a mass medium

brand

A name, term, design, symbol or any other feature that identifies one

seller’s good or service as distinct from those of other sellers

capabilities

A company’s distinctive competencies to do something well and efficiently

competitive advantage

The achievement of superior performance vis-à-vis rivals, through

differentiation to create distinctive product appeal or brand identity; through

providing customer value and achieving the lowest delivered cost; or by

focusing on narrowly scoped product categories or market niches so as to

be viewed as a leading specialist

concentric diversification

A process that occurs when new products related to current products are

introduced into new markets

conglomerate diversification

A process that occurs when new products unrelated to current technology,

products or markets are introduced into new markets

corporate strategy

A strategy that determines how resources are to be used to meet the

organisation’s goals in the areas of production, logistics, finance, research

and development, human resources, IT and marketing

Differential advantage

An attribute of a brand, product, service or marketing mix that is desired by

the targeted customer and provided by only one supplier

horizontal diversification

A process that occurs when new products not technologically related to

current products are introduced into current markets

macro marketing environment

The broader forces affecting all organisations in a market: political, legal,

regulatory, societal/green, technological and economic/competitive

marketing environment

External changing forces within the trading environment: laws, regulations,

political activities, societal pressures, economic conditions and

technological advances

marketing strategy

A strategy indicating the opportunities to pursue, specific target markets to

address, and the types of competitive advantages that are to be developed

and exploited

micro marketing environment

The more company-specific forces reflecting the nature of the business, its

suppliers, marketing intermediaries, buyers, all types of competitors –

direct, substitute and new entrant – and its publics


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mission

The broad, long-term tasks that the organisation wants to accomplish

opportunity

A favourable set of conditions that limit barriers or provide rewards

strategic market planning

A process that yields a marketing strategy that is the framework for a

marketing plan

strategic objectives

Include intense growth, diversified growth or integrated growth

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Session 31: Marketing strategy and

the marketing environment 2Prepared by Haider Ali and Sally Dibb

Session 31 38


Activity 31.1: Understanding the make-up of the marketing

environment 38

Activity 31.2: Political, legal, regulatory, societal and technological

forces 39

Activity 31.3: Economic and competitive forces 39

Activity 31.4: The micro marketing environment and strategic

opportunities 40

Activity 31.5: Why monitoring the marketing environment matters 41

Activity 31.6: Why sustainability matters to consumers and

marketers 42

Activity 31.7: How environmental change affects the chewing gum

market 43


Glossary 45

Black plate (2,1)

Session 31

Introduction to Session 31Previous: Session 30: Marketing strategy and the marketing environment 1




Activity 31.1: Understanding the make-up of

the marketing environmentAllow 20 minutes for the reading in Task A and 15 minutes for Task B.

The marketing environment

You will now be focusing your attention on Chapter 3 of Dibb and Simkin.

The first reading is concerned with examining and responding to the

marketing environment.

Task A

Now go to Dibb and Simkin, Chapter 3, pp. 72–8. Read from the beginning

of the chapter up to but not including the section entitled ‘Political forces’.


Task B

Why are environmental scanning and analysis so important?

Feedback

Dibb and Simkin (p. 75) define environmental scanning as ‘the process of

collecting information about the forces in the marketing environment’.

Environmental analysis refers to the ‘process of assessing and interpreting

the information gathered through environmental scanning’. Scanning is

important because organisations need to be aware of developments that

may be taking place in the environment in which they are competing. When

a firm is out of touch with these changes, it may not be ready to take

advantage of new opportunities, leaving them open to competitors, or it

may be unaware of impending threats that may harm the business.

Collecting information about the environment needs to be followed by

careful assessment and analysis of the data. This environmental analysis

ensures that the data is correctly interpreted. For example, consumer

expenditure on a firm’s goods may be rising. By also analysing how much

is being spent with competitors, it is possible to assess whether or not

future market share is likely to be maintained.

You should note that the definition of environmental scanning refers to

collecting information about ‘forces’. Different authors who write about the

environment define these environmental forces, or environmental factors, in

different ways. For example, some people refer to PEST factors, which

include political, economic, social and technological considerations; while


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others refer to STEEPLE, which covers social, technological, economic,

ecological, political, legal and environmental factors. There is no particular

theoretical basis for these approaches, so the choice of which to use is a

managerial one based on what seems most meaningful for marketers.

Activity 31.2: Political, legal, regulatory, societal

and technological forcesAllow 25 minutes for the reading in Task A and 15 minutes for Task B.

In the next reading you will learn about political forces, legal forces,

regulatory forces, societal/green forces and technological forces.

Task A


‘Political forces’ up to the end of the section entitled ‘The adoption and use

of technology’.


Task B

Name several non-governmental regulatory forces. Do you believe that self-

regulation is more or less effective than governmental regulatory agencies?

Why?

Feedback

The notion of non-governmental regulatory forces refers to business self-

regulation. This occurs where members of an industry seek voluntary

regulation to ensure that members behave according to a code of conduct.

The result of such regulation ought to be that less advantage is taken of

the public. As a result industry avoids having to be regulated by laws,

which would be more difficult and expensive to deal with.

Self-regulation can be more effective than governmental regulatory

agencies since it can be undertaken in a less bureaucratic manner.

Agencies exist to support industry members. However, there is a risk that

an industry regulating itself may be less robust than would be the case with

regulation.

Activity 31.3: Economic and competitive forcesAllow 25 minutes for the reading in Task A and 10 minutes for Task B.

The next reading covers economic and competitive forces. The activities

that follow deal with the area of consumer spending.

39


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Task A


‘Economic and competitive forces’ up to but not including the section

entitled ‘The micro marketing environment’.

After having read the passage answer the questions in Task B.

Task B

What factors influence a consumer’s willingness to spend?

Feedback

The factors that influence a consumer’s willingness to spend include future

employment, income levels, family size and so on. These are rational

economic motivations which you can probably relate to because they

impact upon the amount of money you have available. Social and

psychological motivations can also influence consumer willingness to

spend. These might include being influenced by the products and brands

that your friends are buying, or buying a brand which you think projects a

certain aspect of your personality.

These influences on expenditure do not simply take into account how much

money people have available to spend today, but also affect their

expectations about future economic welfare. If people are pessimistic about

the future economic environment, then they may reduce expenditure,

regardless of how much they have to spend right now. Perhaps you can

remember a time in your life when you were cautious about spending for

these kinds of reasons.

Activity 31.4: The micro marketing environment

and strategic opportunitiesAllow 25 minutes for the reading in Task A and 30 minutes for Task B.

The final reading from Chapter 3 covers the micro marketing environment

and the marketing environment and strategic opportunities.

Task A


‘The micro marketing environment’ up to the end of the section entitled

‘Summary’.

After having read the passage answer the questions in Task B.


40

Black plate (5,1)

Task B

Why should marketers not confine themselves to tracking like-for-like

competitors? What other types of competitors are there?

Feedback

The term ‘like-for-like’ competitor refers to firms which sell products and

services that are similar to those sold by the company itself. These firms

are obviously competitors; however, there are also what can be referred to

as ‘substitute competitors’ who may not produce products or services in the

same category, but which nevertheless serve the same customer need. For

example, mobile telephones are not in the same product category as digital

cameras, but many now have camera functionality that is as good as some

digital cameras’. As a consequence, some consumers may consider

upgrading their phone instead of buying a digital camera. For this reason

digital camera manufacturers need to be aware of what is happening in the

mobile phone market as well as their own. Looking at customers’

expenditure more widely, firms may need to consider what else is

competing for this element of discretionary spending, e.g., various leisure

options.

Activity 31.5: Why monitoring the marketing

environment mattersAllow 5 minutes for the reading in Task A and 25 minutes for Task B.

Task A

Now go to Dibb and Simkin, Chapter 3, p. 104 and read the applied mini

case.

Task B


As Coca-Cola’s marketing manager, how would an understanding of the

marketing environment have led to the Active Lifestyle initiative? How

might the company have monitored the forces of its marketing

environment?

Feedback

By analysing the marketing environment, Coca-Cola would recognise that

sales of healthier drinks are rising while sales of sugary drinks are falling.

The company would also be aware of the impact of government campaigns

encouraging people to follow healthier diets and of the moves by other food

and beverage firms to grow sales of healthier product offerings. The

company might have gained information from retailers and distributors

about the types of products which customers want to buy. The company

might also have learned from suppliers about new technologies in food and

beverage production which are leading to the development of new offerings

41


Black plate (6,1)

for the healthy lifestyle sector. Finally, the company could have been

advised by its public relations agencies about how best to address the

growing impetus towards healthier lifestyles.

Activity 31.6: Why sustainability matters to

consumers and marketersAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A

Now go to Dibb and Simkin, Chapter 3, pp. 104–5 and read the case

study, ‘Social awareness: BMW recycling the consumer’.

Task B

Answer the following questions:

1 What has persuaded BMW to launch such initiatives as its recycling

plants and the ‘Sustainability. It can be done’ forum?

2 In what ways are local authorities encouraging recycling?

3 What are the implications of the growing consumer interest in recycling

for manufacturers of consumer goods?

Feedback

1 In anticipation of the fact that the EU will eventually enforce recycling,

German car manufacturer BMW has taken proactive steps to introduce

its own recycling initiative. This approach is helping the company to

promote its image as an environmentally responsible corporation. This

has included stressing ‘recyclablility’ in its adverts so that the image of

BMW as a socially responsible organisation is established in

consumers’ minds.

2 Organisations are becoming more responsive to green issues and are

taking various measures to protect the environment. Recycling banks

are a good example. They exist in most towns at multiple locations for

the collection of recyclable items such as bottles, cans, paper and

clothing. Local councils are also supporting the recycling idea and are

trying to reduce the amount of landfill space they need, with many now

introducing new systems for the collection of domestic rubbish. Under

these schemes, consumers must sort their rubbish so that the

recyclable items can be collected separately from their other waste. The

success of these approaches depends to a large extent on educating

people to adopt new behaviour in relation to their rubbish. Local

councils are actively involved in this process, providing information on

their websites and distributing leaflets in their local area. Schools are

also playing an important role in changing attitudes towards recycling by

educating children about the environment and how it needs to be

protected.

3 With growing consumer awareness about recycling, a new marketing

concept has been created – ‘green marketing’. More organisations are

trying to build their image in the minds of consumers as environmental-

friendly organisations. The creation of the European Recovery and


42

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Recycling Association (ERRA) is a classic example of how different

organisations are taking this opportunity to portray themselves as

socially responsible firms. For instance, as highlighted in this case,

BMW has adopted standardised colour coding of various recyclable

parts. This illustrates the opportunity which marketers now have to

identify their products as being ‘green’.

Activity 31.7: How environmental change

affects the chewing gum marketAllow 45 minutes for this activity.

Task A

Now go to the ‘Block 3 Marketing’ section on the B203 DVD and select

‘The Money Programme: The chewing gum war’. This is an episode of the

BBC 2 series The Money Programme, first broadcast on Friday 25

May 2007. There is also a transcript of ‘The Money programme: The

chewing gum war’.

Task B

After you have watched the entire programme, answer the following

questions:

1 What are the environmental factors that have stimulated the launch of

the new chewing gum brand?

2 What has been the impact of this development on the existing market

leader?

Feedback

1 At the time Trident was introduced by Cadbury, sales of chocolate were

down and Cadbury was keen to focus on a growth area – hence the

launch of its chewing gum. Trident (the new gum made by Cadbury’s)

took a 12.5 per cent share of the market, leaving Wrigley with a still-

dominant 86.3 per cent. The £250 million total gum market was up

almost 20 per cent on the previous year and Wrigley itself had grown its

sales by 5 per cent.

2 Cadbury initially launched four Trident products in Britain. They

appeared on newsagents’ shelves alongside the 32 gum products sold

by Wrigley. Wrigley set up a research programme under the title ‘the

Wrigley Science Institute’. Based in Chicago, its head, Gilbert Leveille,

sponsored research at universities around the world, looking for health

benefits of chewing gum. At the time of this programme they had

established that gum can help reduce tooth decay, but had yet to

confirm some of the newer claims, such as that chewing during learning

can improve memory.



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Session 31 summaryDuring this second session considering marketing strategy and the

marketing environment you have been introduced to the marketing

environment and have learned more about how it is made up. This has

involved examining the elements of the wider (or macro) marketing

environment and considering their impact on different kinds of

organisations. You have also extended your knowledge about the micro

marketing environment and how this impacts upon strategic opportunities.

In the next two sessions you will be introduced to buying behaviour,

focusing on consumer buyers (Session 32) and business buyers

(Session 33).

Now go to Session 32: Buying behaviour (consumer and business) 1 or

take a break before continuing.


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Glossary

competitors

Organisations viewed as marketing products similar to, or substitutable for,

a company’s products, when targeted at the same customers

environmental factors

Uncontrollable forces such as politics, competitive and economic factors,

legal and regulatory issues, technological changes and socio-cultural

issues

environmental scanning

The process of collecting information about the forces in the marketing

environment

green marketing

The specific development, pricing, promotion and distribution of products

that do not harm the natural environment

micro marketing environment

The more company-specific forces reflecting the nature of the business, its

suppliers, marketing intermediaries, buyers, all types of competitors –

direct, substitute and new entrant – and its publics

45


Black plate (1,1)


Session 32: Buying behaviour

(consumer and business) 1Prepared by Haider Ali and Sally Dibb

Session 32 48


Activity 32.1: Introducing the consumer buying decision process

and its stages 49

Activity 32.2: The impact of personal and psychological factors on

consumer buying 51

Activity 32.3: How social factors influence consumer buying 51

Activity 32.4: What influences buyers of weekend breaks 52

Activity 32.5: How consumers buy furniture and what factors

influence their choice 54

Activity 32.6: How Dove is breaking down beauty stereotypes 56


Glossary 58

Black plate (2,1)

Session 32

Introduction to Sessions 32 and 33Previous: Session 31: Marketing strategy and the marketing environment 2

Organisations which are the most effective at marketing also tend to be the

best at looking after their customers. As you will now be aware, this

involves understanding and meeting the needs and desires of customers in

order to keep them satisfied. While some firms can genuinely boast an

excellent understanding of their customers, others do this less effectively.

One of the areas that some organisations need to understand better relates

to their customers’ buying behaviour. This term describes the processes

that consumers and business customers go through when making

purchases and the myriad factors which influence them as they do so.

Think about the last time you went on a short break or booked a family

holiday. In reaching a purchase decision you would have gone through a

particular process. This might have involved searching for information on

the internet, talking to friends and family, visiting travel agents, looking at

travel offers in the newspapers. During this search you would have

acquired information which helped you to make your eventual decision.

This decision would have been influenced by many different factors. No

doubt you had a particular budget in mind. Perhaps the timing of your

holiday limited the availability of certain options. Maybe you only

considered destinations which offered children’s activities; or perhaps water

sports were a high priority. It is also likely that in making your decision you

had to consider the opinions of others, including family members. All of

these are aspects of your buying behaviour. It is probably obvious that the

better the understanding tour operators and holiday companies have of

these issues, the more likely they are to offer packages which consumers

want to buy.

The importance of understanding buying behaviour is not confined to

consumer markets. Firms which trade in business markets must also keep

closely in touch with the buying behaviour of their customers. Where the

level of product complexity is high, or in circumstances where the product

must be specifically tailored to the needs of a customer, this understanding

becomes even more vital. For example, machine tool manufacturers need

to have close contact with buying organisations to ensure the suitability of

the equipment they supply.

In Sessions 32 and 33 you will learn about the buying behaviour of

consumers and of business customers. As well as finding out about the

processes that these customers go through when buying products and

services, you will consider the range of factors which shapes this buying

behaviour. The material is divided into Session 32, in which you learn about

consumer buying behaviour, and Session 33, which introduces the buying

behaviour of organisations. The concepts that you will cover include the

following:

. different types of buying behaviour and the nature of the consumer

buying decision process (Session 32)

. personal influencing factors, psychological factors and social factors that

influence the buying decision process (Session 32)

. different types of business market and the dimensions of business

buying (Session 33)

Business functions in context - Session 32: Buying behaviour (consumer and business) 1

48

Black plate (3,1)

. the particular characteristics of business buying, and how marketing

accommodates these features (Session 33).

Sessions 32 and 33 are based on Chapter 4 ‘Consumer Buying Behaviour’

and Chapter 5 ‘Business Marketing and Business Buying Behaviour’ of

Dibb and Simkin (pp. 106–65).

Activity 32.1: Introducing the consumer buying

decision process and its stagesAllow 20 minutes for the reading in Task A and 40 minutes for Tasks B, C

and D.

In this reading you will be introduced to different types of buying behaviour

and the consumer buying decision process.

Task A


the chapter up to but not including the section entitled ‘Personal factors

influencing the buying decision process’.

After having read the passage answer the questions in Tasks B, C and D.

Task B

Name the types of buying behaviour consumers use.

Feedback

On p. 108 Dibb and Simkin cover four different types of buyer behaviour:

. routine response behaviour

. limited decision making

. extensive decision making

. impulse buying.

Routine response behaviour is associated with the purchase of cheap

products that you need to buy regularly, such as toothpaste, coffee and pet

food. Because most people probably regularly buy these items, they tend

not to devote much time to the task. Limited decision making applies when

more time is needed to make the decision, perhaps because the item is not

routinely purchased or because it is unfamiliar to the buyer. Extensive

decision making involves considerably more time and effort, perhaps

because a purchase is very expensive or risky, such as a new house or

car. An impulse purchase is one which was not planned, for example a

packet of mints at a garage after fuelling your car, or a newspaper while

waiting to get on the train.

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Black plate (4,1)

Task C

What are the five stages in the consumer buying decision process? Are all

these stages used in all consumer purchase decisions?

Feedback

The five stages of the consumer buying decision process are as follows:

1 problem recognition

2 information search

3 evaluation of alternatives

4 purchase

5 post-purchase evaluation.

Not all of these stages are involved in all purchases. After all, the consumer

buying decision process is simply a model of consumer buying designed to

broadly reflect what happens. Inevitably, there will be times when

consumers do not proceed through each of the stages or in the order in

which the model portrays them. The following are some of the ways in

which the buying process can vary:

. Consumers may begin the buying process, perhaps recognising a

problem and beginning the search process, but ultimately decide not to

make the purchase.

. The process through the buying stages is not always iterative, with

certain steps sometimes being repeated. For example, after evaluating

the alternatives people may go back and undertake an additional

information search.

. It is possible for consumers to skip some stages altogether or to spend

more time on others, depending on the type of product or service being

bought. (The Dibb and Simkin textbook explains this in more detail on

p. 110.)

You might have noticed that models such as this have some particular

features. They make generalisations about consumers, about the types of

products being bought and where those products are bought.

Task D

If consumers are dissatisfied with a particular purchase, what actions are

open to them? What can marketers do to respond to these actions?

Feedback

This question relates to material on pp. 113–4 of Dibb and Simkin, with a

comprehensive list provided in Figure 4.3. For the purposes of this course it

is not essential that you remember all of these, but knowing some of them

is useful. This is because the type and range of complaints that customers

can make is not usually a topic that has much emphasis in marketing

courses.

Though Dibb and Simkin do not explicitly cover this issue, there are a

number of actions that marketers could take in response. You can use your

own experience of complaining about a product or service here, particularly

if the supplying organisation responded to your complaint. One solution

would be to offer customers full redress, including offering a complete


50

Black plate (5,1)

refund, to replace the product, or to provide discounts on future purchases.

Clearly the first of these options is more generous than the latter ones.

How generous a firm is prepared to be will depend on factors such as

industry practice, the extent to which the customer has been dissatisfied

and/or the extent of the loss they have suffered. The marketer will also take

into account the cost to the business in offering redress. So in most

instances where customers have simply made the wrong decision and the

product itself has no faults, the marketer will just offer to refund the cost of

the purchase.

Activity 32.2: The impact of personal and

psychological factors on consumer buyingAllow 25 minutes for the reading in Task A and 10 minutes for Task B.

The following reading covers personal and psychological factors influencing

the buying decision process.

Task A


‘Personal factors influencing the buying decision process’ up to but not

including the section entitled ‘Social factors influencing the buying decision

process’.


Task B

How does a consumer’s level of involvement affect his or her purchase

behaviour?

Feedback

Dibb and Simkin (p. 115) define ‘level of involvement’ as the ‘level of

interest, emotional commitment and time spent searching for a product in a

particular situation’. So a high level of involvement would mean that the

consumer will spend more time and effort undertaking information search

and evaluating alternatives (extensive decision making). On the other hand,

a low level of involvement means that the consumer’s decision making is

undertaken on impulse.

Activity 32.3: How social factors influence

consumer buyingAllow 20 minutes for the reading in Task A and 15 minutes for Task B.

The following reading covers social factors influencing the buying decision

process and an understanding of the factors influencing consumer

behaviour.

51


Black plate (6,1)

Task A


‘Social factors influencing the buying decision process’ up to the end of the

section entitled ‘Summary’.

After having read the passage do the following task.

Task B

Describe the sub-cultures to which you belong. Identify buying behaviour

that is unique to your sub-culture.

Feedback

This topic is covered on pp. 127–8 of Dibb and Simkin. You may have

identified the sub-culture to which you belong on the basis of geographic

region, or personal characteristics such as age or ethnic background. A

teenager may describe their sub-culture in terms of their age, and this

could relate to their taste in music, clothes and electronic products. The

purchase of these products may not necessarily be unique to this age

group, but the quantities and combinations bought may well be. Someone

from a particular ethnic group may buy certain types of ethnic foods.

Although other ethnic groups may buy the same foodstuffs, the extent and

frequency with which they do so may well be different.

Activity 32.4: What influences buyers of

weekend breaksAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A


case.

Task B

Then do the following task:

InterContinental Hotels Group is interested in finding out more about the

factors that influence people buying weekend breaks at hotels in the

UK. Relating your answer to this example, review the different personal,

psychological and social influences that might impact upon someone

seeking to make this kind of purchase.


52

Black plate (7,1)

Feedback

There are many ways in which personal, psychological and social

influences might impact upon someone buying hotel weekend breaks. The

personal influences could include demographic factors, situational factors

and the level of involvement. In terms of demographic factors, age would

play a role since people under the age of 18 and those who are in their

nineties may be less interested in such an offering. The life cycle stage of

the consumer would also be important, with young couples having different

accommodation requirements from those of families with young children.

Another factor to consider would be the income levels of potential

purchasers, as this would shape the appropriate pricing levels. It is also

possible that the occupations and socio-economic groups of consumers will

have some bearing, as these factors could relate to how they like to spend

their leisure time. This might affect whether they prefer to stay in hotels

located near to historic buildings, say, or close to popular sporting venues.

Situational factors would be relatively unpredictable, but in the case of

holiday breaks a prolonged period of bad weather may mean that breaks

are cancelled. On the other hand, factors such as strikes at airports may

mean that people who would otherwise go overseas for a holiday may

prefer to stay closer to home. By paying attention to issues such as these,

an organisation like InterContinental Hotels would be able to engage in

opportunistic advertising campaigns to attract customers.

The level of involvement associated with the purchase depends very much

on the expense of the weekend breaks and the purposes for which they are

used. Expensive breaks to celebrate wedding anniversaries and other

special occasions will have a higher level of involvement than those which

are set up on a whim to make the most of a sunny weekend. The level of

involvement will have implications for the type of promotion that

InterContinental Hotels undertakes. For low-involvement purchases, simple

banner advertising on the internet may be adequate to get people to sign

up. For more expensive and higher involvement purchases, it may be

necessary to mail out high-quality brochures.

Psychological factors include perception, motives, learning, attitudes and

personality. Perception will include factors such as selective exposure,

selective distortion and selective retention. For example, advertising

weekend breaks using posters in places such as underground (metro)

stations may be effective in gaining the attention of commuters who want to

think about something other than their journey to or from work. Since

people may be more willing to pay attention to InterContinental’s advertising

in this context, this would be an example of selective exposure. Whitbread

also needs to be aware of the possibility of selective distortion which

occurs when people change or twist the meaning of information to make it

fit with their existing beliefs and experiences. Selective retention refers to

people remembering things that support their feelings. So, if you had a

relaxing and entertaining weekend break in Paris, you are more likely to

remember media reports which praise Paris as a tourism destination.

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Black plate (8,1)

Activity 32.5: How consumers buy furniture and

what factors influence their choiceAllow 30 minutes for this activity.

Task

In an earlier activity you reviewed some of furniture retailer IKEA’s

marketing. Retailers such as IKEA recognise that the needs of furniture

buyers, like the buyers themselves, can be quite diverse. To compete

effectively in this market, furniture retailers need to understand the buying

process of such consumers. They also need to know who is involved in

making these buying decisions and what influences their choices. With this

in mind, answer the following questions:

1 How do families go about purchasing a new item of furniture? Who

influences and who is involved in the buying decision process?

2 What factors influence the way in which a newly married couple buy

furniture?

Feedback

1 For families buying expensive furniture suites (as opposed to smaller,

cheaper items) the purchase is likely to involve extensive decision

making (p. 108). Such purchases take place relatively infrequently, and

because of their expense may be considered high-risk. Buyers use a

number of different criteria when making such purchases. These may

include considering the size and style of different items and comparing

a number of different brands. All of this means that the purchase

decision is likely to take some time.

Those influencing the process will vary according to the family and the

purchase involved. In some families the responsibility for buying

furniture rests firmly with one individual. In others, such purchases are

much more of a ‘team’ effort: perhaps one partner determines the

budget, while the other decides which product features are important.

Even the children may offer opinions about the required style and

colour.

In terms of the buying process, a family may recognise that they need

new furniture when they agree that the old items need replacing. This

may be triggered by a special event, such as a wedding; or other

significant event, such as moving home. This may be viewed as

problem recognition. Then an information search may involve thinking

about products and brands which they have seen and liked elsewhere.

People may also remember memorable television advertising which

could stimulate them to search for particular brands or stores. They

might also look at catalogues, search online, ask friends and relatives,

and visit a number of different stores. As a result of the search process,

the family may find themselves focusing on a number of product

alternatives. These alternatives are sometimes referred to as the evoked

set.

The next stage of the process will involve evaluating the different

alternatives in the evoked set. Each buyer will have their own criteria for

comparing these products or services. In a family situation this part of

the process might be made more complicated because some members

are interested in price, while others are driven by comfort or a desire for


54

Black plate (9,1)

the latest styles. So in a family buying context the salience (or

importance) of features becomes even more complex than if a buyer is

buying for him or herself as an individual.

For many families, the purchase decision can be a compromise between

the tastes of different family members. However, other product-based

factors may also play a role, for example the availability of stock and the

proximity of stores.

The final stage of the buying process will involve an evaluation of the

purchase against the family’s initial expectations. It is likely that

everyone in the family will help shape the overall evaluation. Almost

inevitably, not everyone will be entirely happy with the purchase.

2 Various social and cultural factors will influence this process. If the

couple were previously living together, the fact that they are newly

married may not make much difference to their purchasing behaviour.

On the other hand, if they are setting up home together for the first time,

the buying process may be much more protracted, with each trying to

understand the preferences of the other. In such circumstances, these

purchases have a particular significance because they are part of the

couple’s process of learning to live their lives together. There are many

personal factors relating to demographics, situational factors and levels

of involvement that you might feel likely to impact upon the purchase.

Here are just two. The preferred furniture style is likely to be influenced

by the couple’s age (demographics); and the circumstances (situational)

in which they are buying the items, particularly if they are under

pressure to furnish their new home quickly.

Figure 32.1 brings together some of the different ideas covered in this

session so far. The figure shows that the individual has various personal

characteristics which influence their behaviour, such as their cultural

background. These factors can influence the buyer’s decision process,

which ultimately affects the buyer’s decisions. Firms seeking to influence

the buying process have at their disposal a range of marketing tools, such

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Black plate (10,1)

as their advertising and pricing approaches. However, the macro and micro

environments also have a bearing on purchase decisions.

It is important for marketers to understand the links between social,

psychological and personal influences on consumer behaviour and the

elements of the marketing mix. The linkages are important because

marketers need an in-depth understanding of the possible impact of all of

these factors on the products and services that they sell. One example is

that marketers must consider cultural factors when deciding on their

distribution strategy, because in some countries these factors may influence

where people do their shopping. In some parts of the world supermarkets

are not associated with the sale of fresh produce and people prefer to buy

these goods from open-air markets. Another example is that personal

factors such as lifestyle are changing the types of items that consumers

buy, with an increase in demand for convenience products and ready

meals. Pricing and promotion strategies must also take these social,

psychological and personal influences into consideration. For example,

prestigious products such as designer jewellery are priced and promoted to

convey the status that they bring to those who own them.

Activity 32.6: How Dove is breaking down

beauty stereotypesAllow 35 minutes for this activity.

The aim of this activity is to get you thinking about the process which

consumers go through when buying products or services. In this case, you

will learn about the novel approach which Unilever, a multinational

household and personal products company, has adopted in the marketing

of Dove, its global toiletries brand.

Task

Now go to ‘Dove's new beauty’ (Dibb, 2006).

The material on this link was written to accompany an episode of the BBC

Money Programme (‘The Beauty Backlash’, BBC 2, broadcast on Friday 23

June 2006) which featured the Dove campaign. Using the information in the

piece and drawing on your own experience of shopping for cosmetics and

toiletries, write down what you think are the most significant factors in

influencing consumers as they buy products such as these. Which of these

factors do you think are the most important?

You might want to read more about Dove’s Campaign for Real Beauty. This

is not compulsory, but will help to develop your understanding of what

Unilever is trying to achieve. In your view, how likely is it that Unilever will

change the way consumers think about beauty?

Feedback

Now that you have read the ‘Dove’s new beauty’ article and, if you had

time, visited the Campaign for Real Beauty website, think about your own

experiences of buying similar products. Perhaps you recently bought a new

bottle of shampoo, a container of liquid soap or some sun cream for your

holiday. To some extent the process that you went through is unique to you

and may be different from those of other individuals studying B203. This

reflects the rich diversity of consumers, their needs, wants and

characteristics. All of these issues affect how individuals go through the

buying process, which steps they take, the products and brands that they

consider, who they consult, and which factors influence them as they do so.


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Some of the factors commonly influencing buyers of cosmetics and

toiletries are:

. Psychological factors, including attitudes towards the products and

motives for buying them, as these give an impression of the importance

of these products to consumers.

. Social influences, such as the views of reference groups (friends, family

and peers), especially if the desire to ‘fit in with the crowd’ is as

important as implied in the ‘Dove’s new beauty’ article.

. Personal influences, including demographic factors such as age and

gender. Situational factors, such as the amount of time available to

make the purchase, will have an effect too.

You have already read about these factors earlier in this session. When it

comes to answering the question in relation to Dove, there are no right or

wrong answers about which factors are the most influential. Your views are

likely to be influenced by your own experiences. Whether or not you believe

that Unilever will change how consumers regard beauty is also a matter of

personal opinion. The writer of the ‘Dove’s new beauty’ article expresses

some doubts – but you might be more optimistic about Unilever’s chances

of success.



Session 32 summaryIn this first session looking at buying behaviour, the emphasis has been on

understanding the consumer buying decision process and the factors which

influence it. As a consumer, you will probably have been able to readily

relate to the material which has been covered. You will almost certainly

have related some of the activities to your own experiences as a consumer.

In the next session the focus will shift towards business markets and the

buying behaviour of organisations.

Now go to Session 33: Buying behaviour (consumer and business) 2 or


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Glossary

business market

Individuals or groups that purchase a specific kind of product to resell, use

directly in producing other products or use in general daily operations

buying behaviour

The decision processes and actions of people involved in buying and using

products

consumer buying decision process

A five-stage process that includes problem recognition, information search,

evaluation of alternatives, purchase and post-purchase evaluation

extensive decision making

Behaviour that occurs when a purchase involves unfamiliar, expensive,

high-risk or infrequently bought products for which the buyer spends much

time seeking information and comparing brands before deciding on the

purchase

impulse buying

Behaviour that involves no conscious planning but results from a powerful,

persistent urge to buy something immediately

level of involvement

The level of interest, emotion and activity the consumer is prepared to

expend on a particular purchase

limited decision making

Behaviour that occurs when buying products purchased only occasionally,

for which a moderate amount of information gathering and deliberation is

needed

personal influencing factors

Factors unique to a particular individual

psychological factors

Factors that influence consumer behaviour, including perception, motives,

learning, attitudes and personality

routine response behaviour

Behaviour that occurs when buying frequently purchased, low-cost, low-risk

items that need little search and decision effort

selective distortion

The changing or twisting of currently received information

selective exposure

The selection of inputs that people expose to their awareness

selective retention

The process of remembering information inputs that support personal

feelings and beliefs, and of forgetting those that do not


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social factors

The forces other people exert on buying behaviour

sub-culture

Sub-division of culture according to geographic regions or human

characteristics, such as age or ethnic background

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Session 33: Buying behaviour

(consumer and business) 2Prepared by Haider Ali and Sally Dibb

Session 33 62


Activity 33.1: Defining business markets and understanding the

dimensions of business buying 62

Activity 33.2: Marketing to business markets and business buying

decisions 62

Activity 33.3: Buying behaviour in a public sector organisation 63

Activity 33.4: Who buys bitumen and the buying process they

follow 64


Glossary 66

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Session 33

Introduction to Session 33Previous: Session 32: Buying behaviour (consumer and business) 1




Activity 33.1: Defining business markets and

understanding the dimensions of business

buyingAllow 25 minutes for the reading in Task A and 10 minutes for Task B..

In the first reading from Chapter 5 you will learn about different types of

business market and consider the dimensions of business buying.

Task A


the chapter up to but not including the section entitled ‘Business buying

decisions’.


Task B

Why are business buyers generally considered to be more rational in

regard to their purchasing behaviour than ultimate customers?

Feedback

It is argued (on p. 141) that business buyers may be better informed than

consumer buyers about the purchases that they make, because they do

this for a living. The job of a professional buyer may revolve around

knowledge of specifications and prices. However, business buyers are still

influenced to some extent by personal and psychological factors. In

practice, organisations sometimes try to limit the impact of these individual

factors, perhaps by using buying processes that involve a number of

different individuals or by having periodic supplier reviews.

Activity 33.2: Marketing to business markets

and business buying decisionsAllow 25 minutes for the reading in Task A and 15 minutes for Task B.

In the next reading you will learn about business buying decisions and the

characteristics of marketing in business markets.


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Task A

Now go to Dibb and Simkin, Chapter 5, pp. 146–162. Read from the

section ‘Business buying decisions’ up to the end of the section entitled

‘Summary’. You do not need to read the section entitled ‘Selection and

analysis of business markets’ (pp. 154–8).


Task B

Why has relationship management attracted so much interest in business

markets?

Feedback

Dibb and Simkin (p. 149) define relationship management as the ‘process

of encouraging a match between the seller’s competitive advantage and the

buyer’s requirements over an item’s life cycle’. This means that the seller

will try to adapt their offering to the customer’s needs and influence the

customer’s requirements, such that the final offering is one where the seller

enjoys a competitive advantage over others. You should note that

relationship management and relationship marketing are two distinct (but

related) concepts.

Relationship management is focused on achieving ‘share of wallet’ over a

prolonged period, rather than simply seeking a one-off transaction. This

involves keeping the marketing proposition fresh and in line with the

customer’s changing needs and expectations, so that they keep coming

back to purchase. Customer retention is the key focus, rather than simply

customer attraction and acquisition.

Activity 33.3: Buying behaviour in a public

sector organisationAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A

Now go to Dibb and Simkin, Chapter 5, pp. 163–4 and read the applied

mini case.

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Task B

Then answer the following question:

As the marketing director of such an organisation, what aspects of

customer buying behaviour would you identify as priorities to

understand?

Feedback

The relevant aspects of buyer behaviour will include the fact that the

customers are primarily public sector markets. Given their need for

accountability, the buying processes will necessarily be complex. There will

be a variety of influencing factors. Environmental factors will be very

significant (as illustrated in Figure 5.4, on p. 151). The hospital will also

have to take into account shifts in the political environment that may have

an impact on purchasing, such as changes in budgets and spending

priorities. The organisational buying structure too will be an important and

complex factor to understand. The hospital will need to determine which

individuals are responsible for sales of services and the nature of their

roles. At the time of sales meetings, the hospital sales team will need to

take into account individual factors such as age and education level.

Activity 33.4: Who buys bitumen and the

buying process they followAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘Nynas: in the black and leading’.

Task B


1 Who are Nynas’s customers?

2 What types of business markets – as classified in Chapter 5 – purchase

the products made by Nynas?

3 Would most purchases of Nynas’s products be new task purchase,

modified rebuy purchase or straight rebuy purchase?

Feedback

1 Nynas has a diverse mix of customers, ranging from firms which make

carpet tiles to those which make sealants for dams.

2 The types of business markets served by Nynas include those in the

public sector (such as local authorities) who buy products for surfacing

roads, and private sector firms which serve as contractors to

government departments. Producer markets include firms which use


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Nynas’s raw materials in order to create new products. Reseller markets

are made up of intermediaries who buy from Nynas.

3 Most purchases of Nynas’s products would be straight rebuys: new

orders placed by organisations which have bought the products before.

The case does also mention new applications which could result in

some modified rebuys being made. And occasionally, when a totally

new use is developed for its products, Nynas will become involved in

selling for new tasks.



Session 33 summaryIn this second session introducing buying behaviour, you have learned

about business markets and the buying behaviour of organisations. As you

will have discovered from the activities, organisations making buying

decisions are affected by a wide range of external and internal factors.

Perhaps you have witnessed these factors for yourself in an organisation in

which you work or one with which you are familiar. In a lot of markets, there

are many different types of consumer and business customers, often with

diverse needs and expectations. This can be very challenging for marketers

who have to develop ways to manage this diversity. In the next two

sessions (34 and 35) you will be introduced to the concept of market

segmentation and will learn more about how marketers go about handling

this diversity.

Now go to Session 34: Segmenting markets, targeting and positioning 1 or


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Glossary

business market

Individuals or groups that purchase a specific kind of product to resell, use

directly in producing other products or use in general daily operations

modified rebuy purchase

A new task purchase that is changed when it is reordered or when the

requirements associated with a straight rebuy purchase are modified

new task purchase

An organisation’s initial purchase of an item to be used to perform a new

job or to solve a new problem

relationship management

The process of encouraging a match between the seller’s competitive

advantage and the buyer’s requirements over an item’s life cycle

relationship marketing

All of the activities an organisation uses to build, maintain and develop

customer relations

straight rebuy purchase

The routine repurchase of the same products under approximately the

same terms of sale


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Session 34: Segmenting markets,

targeting and positioning 1Prepared by Haider Ali and Sally Dibb

Session 34 68


Activity 34.1: Explaining the nature of markets and introducing

market segmentation 69

Activity 34.2: When to use a total market approach and when to

use market segmentation 70

Activity 34.3: Introducing the concepts of segmentation, targeting

and positioning 71


Glossary 73

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Session 34

Introduction to Sessions 34 and 35Previous: Session 33: Buying behaviour (consumer and business) 2

Can you think of a product or service where only one version is on sale? In

all probability, the answer is ‘no’. Even a relatively simple product such as

salt is offered for sale in various forms, in different packaging and under a

variety of brands. The reason for such product variety is that customers are

diverse. They vary in their personalities, needs and preferences, and in

their expectations about how these needs and wants will be satisfied. This

makes things pretty challenging for marketers, as they endeavour to satisfy

these needs within the constraints of available resources. Thus the process

of market segmentation is widely used by organisations from all sectors in

order to manage these challenges. Market segmentation involves three

stages:

1 segmenting: grouping similar customers into market segments

2 targeting: identifying the segments on which marketing effort will be

focused

3 positioning: creating an appropriate image for the product.

As you can probably imagine, a single firm will rarely have the required

resources and capabilities to satisfy all of the customer needs in a

particular market. Market segmentation enables organisations to make

effective choices about where to focus their marketing efforts. Segmenting

customers involves grouping those with similar needs and characteristics

into segments. Marketers are then able to make targeting decisions,

working out which of these customer groups they can serve most profitably.

These decisions will take many factors into consideration, including the

capabilities of the organisation and of its competitors.

When customers are faced with a product choice, they tend to mentally

position the alternatives according to various attributes. For example, a

German car brand may be considered particularly reliable, whereas an

Italian brand may be regarded as more stylish. Marketers use positioning

techniques to influence the images which customers have of different

products and brands. Thus Swedish car manufacturer Volvo has developed

a positioning for its models based around safety. Positioning is important to

marketers because customers base their purchase decisions on the images

that they have of the available products and services.

In Sessions 34 and 35 you will learn about the nature and rational for

market segmentation. You will also be introduced to the segmenting,

targeting and positioning stages of the process. The material is divided into

Session 34, in which you are introduced to the market segmentation

concept and process, and Session 35, which focuses on targeting

strategies and positioning. The sessions will involve reviewing the following

topics:

. the definitions of markets and of the market segmentation concept

(Session 34)

. explanations of the segmentation, targeting and positioning process

(Session 34)

. different segmentation variables and the circumstances in which they

are used (Session 34)

. different types of targeting strategies and their advantages and

disadvantages (Session 35)

Business functions in context - Session 34: Segmenting markets, targeting and positioning 1

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. how to develop the positioning of a product in the minds of customers

(Session 35)

. methods for evaluating markets and forecasting sales (Session 35).

Sessions 34 and 35 relate to Chapter 6 ‘Segmenting Markets, Targeting

and Positioning’ of Dibb and Simkin (pp. 166–202).

Activity 34.1: Explaining the nature of markets

and introducing market segmentationAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

The first reading will introduce you to the nature of markets and will explain

the concept of market segmentation.

Task A


the chapter up to but not including the section entitled ‘Segmenting,

targeting and positioning’.


Task B

In the area where you live, is there a group of people with unsatisfied

product needs who represent a market? Could this market be reached by a

business organisation? Why, or why not?

Feedback

This question aims to capture the fact that markets (and therefore the

opportunities for marketing) change all the time. At any point in time there

will always be groups of people who have unsatisfied needs.

In many areas of the UK local councils are in the process of implementing

recycling schemes. One consequence is that there is increasing demand

among consumers for additional containers and bins in their kitchens,

garages and gardens to help them sort their rubbish. Existing product

solutions are unlikely to be able to satisfy these needs. There is now a

demand for gadgets that help consumers to flatten rubbish, for clever

storage solutions, and even for products which deal with the extra vermin

that may be attracted now that rubbish is being collected less frequently.

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Activity 34.2: When to use a total market

approach and when to use market

segmentationAllow 15 minutes for Task A and 20 minutes for Task B.

Task A

What is the total market approach? Under what conditions is it most useful?

Describe a current situation in which a company is using a total market

approach. Is this business successful? Why, or why not?

Feedback

The total market approach is also referred to as an ‘undifferentiated’

approach (undifferentiated market approach). It assumes that all the

customers being targeted have broadly the same needs. As long as this

assumption is actually true, then an undifferentiated approach, where one

product or services is offered to all customers, will be effective. To be

successful, marketers adopting this approach must be able to develop and

maintain a marketing mix that addresses all customers’ needs. For

example, in late 2007 Apple introduced its iPhone, a single phone for the

entire mobile phone market. There are no variations in terms of price or

specifications. This is effective at this stage of the product’s life cycle

because the company does not yet need to generate mass market sales.

Instead, the firm has picked out the highest spending customers and has

devised a model that will satisfy them. In the long term this approach is

unlikely to be sustainable, as the market expands with new customers with

different needs to service.

This concept is introduced on p. 169 and the relevant details are provided

on p. 188. As you can see from the example of Apple above, marketing

strategies can be effective at particular points in time but may be

unsuccessful on other occasions. This illustrates that marketers must

constantly evaluate the suitability of their existing strategies as the

marketing environment changes.

Task B

What is the market segmentation approach? Describe the basic conditions

required for effective segmentation. Identify several companies that use the

segmentation approach.

Feedback

The market segmentation approach assumes that all customers within a

single segment have similar needs, and that these requirements are

different from those in other segments. A segment of teenagers buying

music for their MP3 players is likely to prefer different bands and music

compared with a segment containing consumers aged 50 plus. Of course,

this is rather a simplistic example. Not all teenagers or all of the over-50s

like the same music, so there are likely to be a number of different


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segments in each of these age groups. Furthermore, there may be some

teenagers and over-50s who do share the same taste in music.

For market segmentation to be used, a basic requirement is that there are

heterogeneous groups of customers whose needs are more similar to those

of each other than they are to those of other groups. The segments also

need to be viable in different ways. Academic experts suggest that

segments must be measurable, substantial, accessible, stable and useful.

You can learn more about this in the section you have just read in Dibb and

Simkin, but here is an example. It could be argued that the market for

sports shoes can be divided into segments for people interested in different

sports. For example, the footwear needs of footballers will be different from

those of athletes. Because of their differences, these customer groups will

require different products; they may need to be reached by different

advertising media and possibly through different retail outlets. To assess

the commercial potential for each type of shoe, sportswear manufacturers

need to measure the numbers of consumers who are sufficiently serious

about their sport to consider buying a specific shoe. This means the

numbers must be measurable. They must also be substantial enough to

ensure commercial viability.

Based on the above explanation, examples of firms that follow the market

segmentation approach are Nike, who make sports and leisurewear, and

their competitors Adidas and Reebok. In other industries, firms that follow

the segmentation approach include the fast food firm McDonald’s, which

has different offerings for different segments, and Pepsi, which has

developed its product range over the years in order to appeal to different

segments. For example, as well as the sugary carbonated soft drinks Pepsi

has always sold, the firm now also sells Tropicana fruit juices to the large

and growing segment of the market that wants a more healthy offering.

Activity 34.3: Introducing the concepts of

segmentation, targeting and positioningAllow 40 minutes for the reading in Task A and 25 minutes for Task B.

In the next reading you will cover the explanations of segmentation,

targeting and positioning. You will then review the different segmentation

variables available to marketers.

Task A


section ‘Segmenting, targeting and positioning’ up to but not including the

section entitled ‘Segmentation effectiveness’.

Task B

Identify and describe four major categories of segmentation variables or

bases that can be used to segment consumer markets. Give examples of

product markets that are segmented by variables in each category.

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Feedback

The different bases for segmenting markets enable marketers to group

together existing and potential customers in terms of different criteria. The

four major categories of base variables are:

. demographic

. geographic

. psychographic

. behaviouristic.

Demographic variables include observable measures that describe the

population, such as age and ethnicity. Geographic variables are related to

where people live, while psychographic variables refer to consumer

characteristics such as their personality, motives and lifestyle. Whereas

demographic variables tend to be easier to observe, and use fixed criteria

such as age and gender to determine which people fall into a particular

segment, psychographic variables are more concerned with understanding

what people believe and how they think. Finally, behaviouristic variables

relate to how customers ‘behave’ in terms of what they buy, where they buy

it and how they choose to pay.

Here are some examples of each of these segmentation criteria in use. The

market for clothing can be segmented demographically on the basis of

consumer age, with different ranges for babies, children, teens, young

adults and older people. Psychographic variables are relevant in markets

where the choice of product is partly driven by the personality or

aspirations of customers – the car market is one such instance. Finally,

some firms use behaviouristic variables such as volume usage to segment

their customer base. Perhaps you are a member of a large family which

buys multi-packs or ‘family’ packs of foodstuffs or household products.

Different pack sizes are one of the ways in which firms respond to different

volume usage. Geographic segmentation is used by firms which believe

that buyer behaviour for their products or services varies by geographic

region or country. This could be due to a number of factors including

political, economic and social and cultural factors. For example, cars sold in

the UK have the steering wheel on the right hand side of the car, while in

most other countries it is on the left. This arrangement makes it easier to

drive in the UK where people drive on the right hand side of the road. This

material is covered on pp. 175–84 in Dibb and Simkin.



Session 34 summaryIn this first session on market segmentation you have found out how

marketers use segmentation to help manage diverse customer needs and

types. You have also been introduced to the segmentation process and

have learned about different kinds of segmentation variables and the

circumstances in which they can be used. In the next session you will build

on this knowledge by learning more about segmentation effectiveness,

targeting strategies and the positioning process.

Now go to Session 35: Segmenting markets, targeting and positioning 2 or



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Glossary

market segmentation

The process of grouping customers in markets with some heterogeneity

into smaller, more similar or homogeneous segments. The identification of

target customer groups in which customers are aggregated into groups with

similar requirements and buying characteristics

positioning

The process of creating an image for a product in the minds of target

customers

segmentation variables or bases

The dimensions or characteristics of individuals, groups or businesses that

are used for dividing a total market into segments

targeting

The decision about which market segment(s) a business prioritises for its

sales and marketing efforts

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Session 35: Segmenting markets,

targeting and positioning 2Prepared by Haider Ali and Sally Dibb

Session 35 76


Activity 35.1: Understanding more about how segmentation,

targeting and positioning work 76

Activity 35.2: Brand positioning first direct’s way 77

Activity 35.3: Segmenting ethnic markets 78

Activity 35.4: Finding out more about targeting 79


Glossary 80

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Session 35

Introduction to Session 35Previous: Session 34: Segmenting markets, targeting and positioning 1




Activity 35.1: Understanding more about how

segmentation, targeting and positioning workAllow 30 minutes for the reading in Task A and 40 minutes for Tasks B

and C.

The next reading introduces you to segmentation effectiveness, the process

of profiling market segments, targeting strategies and positioning.

Task A


‘Segmentation effectiveness’ up to the end of the section entitled

‘Summary’.

After having read the passage do the tasks in Tasks B and C.

Task B

List the differences between a concentration strategy and a differentiated

strategy. Describe the advantages and disadvantages of each strategy.

Feedback

A concentration strategy describes where ‘a business directs its marketing

efforts towards a single market segment by creating and maintaining one

marketing mix’ (Dibb and Simkin, p. 188). The advantage of this approach

is that it enables a firm to develop a great deal of knowledge about a

particular segment and its needs. This makes it more difficult for

competitors to win customers in that segment. A disadvantage of this

approach is that it can be risky. If problems with demand in that segment

arise, the firm does not have alternative segments from which it can make

money.

In a differentiated strategy, ‘a business directs its marketing efforts at two or

more market segments by developing a marketing mix for each segment

selected’ (Dibb and Simkin, p. 191). A firm using this approach is market-

orientated in the sense that it is modifying its marketing efforts to cater for

the needs of customers in different segments, although it may not

necessarily have such detailed knowledge of its customers as a firm

pursuing a concentrated approach. Balancing this disadvantage is the fact

that the company will be spreading its exposure to a wider range of


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markets. If demand suffers in one segment, the company may be able to

make up the shortfall in others.

Task C

Choose a product and discuss how it could best be positioned in the

market. Determine a suitable positioning statement.

Feedback

You can choose any product or service that you like to answer this

question. For example, assume that you chose a well-specified mobile

telephone with a variety of functions for displaying photographs and playing

music. Maybe this product is different from others in the market since it has

no keyboard and the whole unit serves as a display screen. One option

would be to position this product at the high-priced, upper end of the mobile

phone market, since its functionality is far superior to that of competing

products.

A suitable positioning statement could be: ‘Now you can forget your

camera, MP3 player and web browser’.

Activity 35.2: Brand positioning first direct’s

wayAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A

Now go to Dibb and Simkin, Chapter 6, pp. 200–1 and read the applied

mini case.

Task B


1 What is the brand positioning proposition at the heart of first direct’s

marketing strategy?

2 To what extent does this differentiate first direct from the other principal

banking groups?

Feedback

1 The brand positioning at the heart of first direct’s marketing strategy is

that the offering is centred on the customer. This manifests itself in the

customer service offering, particularly in how the firm communicates

with and responds to customers. The proposition is that the bank’s

services are available to customers whenever and wherever they need

it.

2 In particular, first direct is differentiated from other banking groups

because it offers customer contact with a real person at any time of day

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or night, 365 days a year. The implication is that first direct is much

more concerned with the quality of the customer experience.

Activity 35.3: Segmenting ethnic marketsAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘Ethnic marketing’s challenge to mainstream marketers’.

Task B


1 Why are mainstream marketers increasingly interested in targeting

ethnic markets?

2 Are certain mainstream brands or products more likely to be marketed

along these lines? If so, which and why?

3 For a product as ubiquitous as Coca-Cola, does the notion of ethnic

marketing present any benefits or potential? Why or why not?

Feedback

1 Ethnic markets are increasingly targeted because of increasing

recognition of their current and potential size and growth rates. There is

also recognition that cultural difference impacts upon product needs and

buying behaviour. This implies that different products and marketing mix

strategies might be appropriate for ethnic markets.

2 Products and brands which are more likely to be marketed along these

lines are those where consumer buying behaviour depends on an ethnic

or cultural dimension. This may lead to the existence of distinct,

identifiable segments whose needs are so different from other segments

that it makes commercial sense to develop a different marketing mix in

order to reach them.

3 Although a product such as Coca-Cola may be ubiquitous, this does not

necessarily mean that ethnic marketing will have no potential. After all,

Coca-Cola has already successfully launched variants of its core

offering, such as Diet Coke, which targets people concerned about their

calorie intake. The appropriateness of ethnic marketing will depend on

whether one or more ethnic groups has a specific requirement related to

the product or its image. Some years ago, such circumstances were

seen in infamous cases of tobacco brands being created specifically to

cater for the African-American market. For Coca-Cola, a similar example

might be if the company decided to launch Spicy Coke aimed at ethnic

groups which have a preference for spicy flavours and foods.


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Activity 35.4: Finding out more about targetingAllow 20 minutes for this activity.

In this activity you will hear some insights about the role and use of

targeting.

This activity involves viewing a video clip that highlights the importance of

segmenting markets and targeting specific groups of customers.

Task

Now go to ‘Targeting Your Market’ (Fu, 2008). You may want to open this

in a new window. You can also access a transcript for ‘Targeting Your

Market’.

Feedback

Every company wants to grow their business, and many take a shotgun

approach to reaching as many potential customers as possible. Ping Fu (of

Geomagic – Geomagic, Inc., 2008) points out the dangers to this approach,

and lays out a much more effective plan for establishing markets. Her main

argument is that not all customers are created equal. Some customers

require lots of time and give relatively little in return, while others prove to

be of much higher value. It is critical for companies to focus on the

customers that can provide the highest return. With a shotgun approach,

reaching out to all potential customers, sales costs may spiral out of control

and the resources spent on R&D may be wasted.



Session 35 summaryIn this second session on market segmentation you have discovered that

market segmentation effectiveness is influenced by a range of different

issues. You have also found out more about the process of targeting and

the kinds of targeting strategies which marketers can pursue. No doubt you

also know much more about the circumstances in which these targeting

approaches are used. The concept of positioning has been introduced and

the process through which it is achieved has been explained. Marketers

can only use market segmentation effectively when they have an excellent

understanding of their customer base. Often they must carry out marketing

research to gain these insights. In the next session you will find out about

the process of marketing research and how it can be used by

organisations.

Now go to Session 36: Marketing research or take a break before

continuing.

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Glossary

brand positioning

The creation of a desirable, distinctive and plausible image for a brand in

the minds of targeted customers

concentration strategy

Strategy by which a business directs its marketing effort towards a single

market segment through one marketing mix

differentiated strategy

Strategy by which a business directs its marketing efforts towards two or

more market segments by developing a marketing mix for each

positioning statement

A plausible, memorable, image-enhancing written summation of a product’s

or brand’s desired stature

profiling

The task of building up a fuller picture of the target segments


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Session 36: Marketing researchPrepared by Haider Ali and Sally Dibb

Session 36 82


Activity 36.1: Why marketing research is important to organisations 83

Activity 36.2: Introducing quantitative and qualitative marketing

research 84

Activity 36.3: Steps 1 and 2 of the marketing research process –

locating the problem and designing the research 84

Activity 36.4: Collecting data, different data types, and introducing

sampling 86

Activity 36.5: BrainJuicer demonstration 88

Activity 36.6: How research is used and practising ethical

marketing research 89

Activity 36.7: Focus group research and when it works 90


Glossary 92

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Session 36

Introduction to Session 36Previous: Session 35: Segmenting markets, targeting and positioning 2

Satisfying customers is central to the marketing concept. Such satisfaction

can be achieved only when firms supply their customers with products and

services that meet their needs. These offerings must have a suitable mix of

the desired features, be offered for sale at an appropriate price, and be

made available through accessible and convenient outlets. The marketing

communications tools which are used must be appropriate and appealing to

the target market.

Marketers can satisfy these expectations only if they have an excellent

understanding of their customers and the market in which they are

operating. When this understanding is missing, mistakes can be made. The

wrong group of customers may be targeted, unsuitable products developed,

inappropriate advertising strategies devised, or unsuitable distribution

channels adopted. The right marketing research can reduce the chances of

such mistakes being made.

Marketers use marketing research to collect all kinds of information about

their customers, the general trading environment, and the competitive

context in which they are operating. The following examples are just some

of the ways in which marketing research can be used: a mobile phone

operator surveying customers who switch to another supplier; a property

developer collecting information about the state of the economy; a furniture

retailer visiting competitors’ stores to investigate pricing levels. No doubt

you can think of other ways in which organisations can use marketing

research to gain a better understand of the situation in which they are

operating. Remember that non-commercial organisations carry out

marketing research too. For example, local government departments often

survey opinion about issues among the public they serve.

Staying in touch with customers’ needs, understanding their characteristics

and buying behaviour, is equally important in both consumer and business

markets. In this session you will learn more about why marketing research

is important to practising marketers in both areas. You will find out about

the circumstances in which research is needed and about the process and

methods that firms use to learn about their customers and their markets.

The following topics will be covered:

. the importance of marketing research and the reasons why firms use it

. the steps which make up the marketing research process

. how research problems are defined and the way in which marketing

research is designed

. different types of secondary data available to the marketer

. the advantages and disadvantages of different methods of primary data

collection

. the analysis and reporting of research findings.

The session is based on Chapter 7 (Marketing Research) of Dibb and

Simkin (pp. 203–4).In the first reading you will learn about the importance

of marketing research.

Business functions in context - Session 36: Marketing research

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Activity 36.1: Why marketing research is

important to organisationsAllow 15 minutes for the reading in Task A and 10 minutes for Task B.

Task A


the chapter up to but not including the section entitled ‘The marketing

research process’.


Task B

How do the benefits of decisions guided by marketing research compare

with those of intuition based decision making? How do marketing decision

makers know when it will be worthwhile to conduct research?

Feedback

Marketing research involves a process for specifying a research problem

and then gathering information to address that problem. The more

extensive the process, the greater the likelihood that the information gained

will address the marketing problem faced by the company. However,

marketing research is costly in terms of both time and money. In contrast,

intuitive decision making does not require information to be gathered,

depending instead on the experience and knowledge of the manager

making the decision. Sometimes this approach can be effective, particularly

when the decisions to be taken are within the knowledge and experience of

the manager. On other occasions, however, the manager may lack the

appropriate knowledge and in such instances is in danger of making

mistakes.

Going through the marketing research process ensures that an organisation

will specify the nature of the marketing problem it faces and clarify the

information needed to resolve it. Quite often managers will already have the

required information, either in their minds or readily to hand. This makes it

possible to use intuition to resolve the problem, rather than engaging in an

expensive programme of marketing research. In other circumstances it will

become clear that the firm does not have the information needed. By

carefully specifying the nature of the problem to be resolved, managers will

shed light on the data requirements. A suitable programme of marketing

research can then be instigated.

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Activity 36.2: Introducing quantitative and

qualitative marketing researchAllow 10 minutes for this activity.

Task

What are the differences between quantitative research and qualitative

research?

Feedback

Quantitative research provides answers to questions such as ‘how much,

how many and how often’? Qualitative research answers questions which

are concerned with ‘what, why and how?’ Because qualitative research

takes such a detailed view of complex problems and situations, it is often

not feasible to quantify the findings. Quantitative research deals with

measuring things across larger groups of people, such as how much

certain individuals prefer one type of soap to another. Qualitative research

can show these preferences too, but will also be able to tell marketers

more about the underlying causes. Thus qualitative research might show

that when people compare brands of soap they take into account price,

fragrance and texture, but it will not provide large-scale data that can be

statistically analysed. Marketers can reap the benefits of both types by

using qualitative research to achieve an in-depth understanding of a

problem, and then using quantitative research to measure what has been

learned across a larger sample.

Activity 36.3: Steps 1 and 2 of the marketing

research process – locating the problem and

designing the researchAllow 10 minutes for the reading in Task A and 10 minutes for Task B.

The next reading introduces you to the first two steps of the marketing

research process.

Task A


‘The marketing research process’ up to but not including the section entitled

‘Step 3: Collecting data’.



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Task B

What are the differences between:

1 exploratory research

2 descriptive research

3 causal research

Feedback

1 Exploratory research is designed to identify the decision problem (the

decision that the manager has to make), and as a result bring about a

better understanding of the research problem. Its main purpose is to

obtain initial insights to help the researcher clarify the problem and

define it more precisely.

Defining the problem requires the marketer to have some idea about the

decision that is being faced, the available alternatives and the criteria to

be used when evaluating the alternatives. Exploratory research

generates a number of ideas or hypotheses and gives a sense of

direction to the analyst in identifying the research problem. Secondary

data sources, surveys of experts, pilot studies and qualitative research

are used in this type of research design.

2 As the term suggests, firms use descriptive research to describe the

characteristics of the market that are of interest to them. For example, a

retailer may want to know the proportion and characteristics of

customers that would buy more of a particular product if offered a

discount. Descriptive research is much more structured than exploratory

research. It is often undertaken using surveys that involve a structured

questionnaire given to a sample target audience from whom the

required information is gathered. Methods of gathering survey data

include personal, telephone and mail interviews.

3 Causal research, also known as experimental research, is used in

problem situations where the researcher is interested in establishing,

beyond reasonable doubt, a cause-and-effect relationship between

variables. In such situations, descriptive research would not be good

enough because it can only show that two variables are related or

associated. Causal research offers reasonable proof that one variable

causes a change in another and that no other causal factors could have

accounted for the relationship.

Typically, causal research is undertaken in a well-controlled environment

where the independent variables are manipulated or changed in order to

observe the effect on a dependent variable. For example, some

advertising effectiveness research is carried out in a laboratory setting.

Individuals are exposed to marketing communications, such as

television or internet advertisements, away from outside disturbances.

Their reaction to the material is then assessed by asking questions and

by measuring physical factors such as changes in eye movements and

pulse rates.

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Activity 36.4: Collecting data, different data

types, and introducing samplingAllow 30 minutes for the reading in Task A and 30 minutes for Tasks B

and C.

In the next reading you will learn about the third step of the marketing

research process.

Task A


‘Step 3: collecting data’ up to but not including the section entitled ‘Step 4:

Analysing and interpreting research findings’.


Task B

What is secondary data? What are the major limitations of using secondary

data to solve marketing problems and what are some of its advantages?

Feedback

Any data that is not collected by an organisation specifically to solve a

particular marketing problem is referred to as secondary data. This

information may have been collected by the organisation or external

sources for other reasons. It can include both qualitative and quantitative

data. Examples of secondary data include published research studies,

business reports, syndicated data services and data published by the

government. By contrast, primary data is collected by the organisation itself

for a specific purpose. The benefits of primary data are that it will be

tailored specifically to the marketing problem, will be up-to-date and is more

likely to be reliable.

Secondary data has the advantages of being much cheaper and faster to

collect than primary data. Sometimes the inferences drawn through

secondary data can totally eliminate the need to conduct conclusive

research. However, although secondary information is relatively easy and

cheap to obtain, marketers must also be aware of its limitations. This

involves asking critical questions about the provenance and relevance of

the data. A good starting point is to make an assessment of the

organisation authoring or sponsoring the study. Is it competent (does it

have the ability and resources to undertake this type of study)? What is its

motivation (does the organisation have an agenda that it wishes to pursue,

and how might this bias the data)?

Users of secondary data need to be aware of how the data was gathered

too. This helps to identify any possible biases or errors. The age of the

information may also have an important impact on its usefulness. All too

often organisations put too much emphasis on old data which no longer

accurately reflects the situation it was designed to measure. Sometimes

there can be ‘problems of fit’ because the classifications used in the data

may not fit the classifications of interest to the marketer. For example, the


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marketer may be interested in the buying habits of children aged 10–12,

while available data may only cover age ranges 7–10 and 11–15.

Task C

In which situations would it be best to use:

1 random sampling

2 stratified sampling

3 area sampling

4 quota sampling

Feedback

1 In a simple random approach, every unit in the population has the same

probability of being selected. This is similar to the numbers being

chosen in a lottery draw. Assume that you work for a bank which is

collecting data on perceived service quality from its savings account

customers. Your starting point should be to prepare the sampling frame

for the study. This could be achieved by going through the bank’s

records to obtain a complete list of savings account holders. This would

be your sampling frame.

Assume that the sampling frame contains 400 account holders and that

you want to select 40 of these customers to interview. One approach

would be to prepare 400 small paper slips, each recording an account

holder’s name and account number. You could shuffle these slips in a

container and randomly select 40 for your interviews. A better way might

be to generate random numbers using a package such as Microsoft

Excel. You could then allocate these random numbers to the different

account holders and the people with, say, the 40 highest random

numbers could be selected. This approach would be effective where the

population you are looking at does not have strata (or groups) which are

distinct from each other. As a result as long as the sample is chosen on

a random basis it will likely be representative of the underlying

population.

2 Stratified sampling involves dividing the population up according to

particular characteristics and then using probability sampling within each

of these stratifications. The aim is to gain a representative sample of

each group. A government agency surveying public opinion about

changes to the gambling laws might use this approach because it wants

to be sure that the views of people with different demographic profiles

and from different cultural and social backgrounds are taken into

consideration. One of the major problems with stratified sampling is that

it can involve applying sampling procedures across a large geographic

area. In such a situation, you might have to cover a great deal of

distance to access the units in the sample.

3 Area sampling is a modification of stratified sampling designed to help

overcome these problems. This kind of sampling involves limiting the

selection of sampling units to certain geographic locations. The first step

is to choose particular geographic areas, such as particular

neighbourhoods. Then random sampling approaches are used to

choose sampling units from within them.

4 Quota sampling is a rather more arbitrary version of stratified sampling.

Once again, the researcher is involved in splitting the overall population

into groups based on particular criteria. However, it is then the

researcher’s job to select interviewees from each of these groups. For

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example, you may decide to apply a quota sampling approach in your

study of savings account holders, perhaps by dividing the population

according to age. You would then decide to select a certain number of

account holders (a quota) from each age group. The choice of account

holders would be up to you, as would the numbers that were to be

involved. This approach may be effective when undertaking qualitative

research, where the importance of having a representative sample will

not be as important as for quantitative research. A researcher collecting

qualitative data may prefer to access respondents who can offer specific

insights.

Activity 36.5: BrainJuicer demonstrationAllow 45 minutes for this activity.

This exercise offers a practical illustration of the approaches used to collect

data by one market research organisation. Brainjuicer.com is an innovative,

award-winning web-based company specialising in collecting quantitative

data.

Task A

This task asks you to go to the BrainJuicer website so you can learn about

what they do and try out one of the tools that they use.

First, select the ‘Why Us’ tab at the top of the home page and read the

‘Why We’re Different’ section to learn more about the company. Click on

the image called ‘Product Evaluation’ at the bottom of the page. Next, read

about ‘Product Evaluation’ then click on the link ‘Creative 6ers: 50 Creative

6ers to generate 50 unique and innovative ideas’. Now, read the page you

directed to, then at the bottom click on the ‘Creativity Test’ link, which is

under the ‘Find out more’ heading.

The Creativity Test will take you about 15 minutes to complete. By taking

part in this test you can see firsthand an example of a tool which

companies might use to find out about their customers.

Before you start the Creativity Test, you will probably already have some

ideas about how the company might tackle the task at hand. Spend a

couple of minutes thinking about this before you do the test. Perhaps you

have your own views about the kinds of research methods it might use, the

questions it might ask, or the way the questions might be formulated.

Now go to the BrainJuicer website (BrainJuicer Ltd, 2008).

Task B

Once you have completed the Creativity Test, think about whether these

views are consistent with what you have just seen. Were the question

areas in the Creativity Test as you expected? How did the way the

questions were asked differ from the way you might have asked them?

What kinds of questions were used (e.g., open-ended, dichotomous,

multiple choice, Likert scale)? Were there any particularly creative aspects

to the design of the questions which made them easier or more fun to

complete?


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Feedback

Perhaps your experience of the Creativity Test has given you some good

ideas you can use if you ever need to carry out some marketing research.

Remember, you can also spend extra time browsing the site if you want to

learn more about the tools that Brainjuicer uses.

Activity 36.6: How research is used and

practising ethical marketing researchAllow 20 minutes for the reading in Task A and 15 minutes for Task B.

The final reading in this session explains the final two steps of the

marketing research process. You will also explore the importance of ethical

marketing research.

Task A


‘Step 4: analysing and interpreting research findings’ up to the end of the

section entitled ‘Summary’. You do not need to read the section entitled

‘Using technology to improve marketing information gathering and analysis’

(pp. 225–7).

After having read the passage, do the following task.

Task B

Adopt the role of a retail analyst who is helping a large retail group to

organise its databases. You have been asked to help guide the process by

providing a list of the kind of information that is helpful to a business when

making decisions about marketing strategy.

Feedback

There are many different kinds of information that are helpful to businesses

making decisions about marketing strategy. Having an excellent

understanding of customers, their needs, desires, characteristics and

buying behaviour, is essential because this dictates the kinds of offerings

that are required. This might include any data on buying behaviour, such as

detailed sales data showing which products sell most, and in which stores,

and how long different types of stock stay on the shelves. Where the

company also has a loyalty card and can track purchases by individual

customers, there are likely to be insights into who is buying which products

and when.

An appreciation of the wider macro trading environment as well as the

competitive micro environment is also necessary. Macro issues include

information on the economy, social trends and the legislative framework in

which the group must operate. Micro issues are more directly related to the

specific organisation, concerning its suppliers, competitors, publics and

marketing intermediaries. By understanding these issues, the retail group

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will be in a much better position to assess the opportunities which are open

to it in the market in which it is operating.

Activity 36.7: Focus group research and when

it worksAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A

Now go to Dibb and Simkin, pp. 233–34 and read the case study, ‘Focus

Group Interviewing: In-depth View from Group Discussions’.

Task B


1 What are the strengths and benefits of focus group marketing research?

2 The retailer referred to in this case study chose to commission a

programme of focus groups. Given the aims of the company’s research,

what other research tools might the company have used? Explain your

selection.

Feedback

1 Focus group interviews (or focus group discussions) involve an

objective moderator who introduces the topic for discussion to the

participants and conducts the entire meeting in an unstructured and

natural fashion. Sessions normally last from one to two hours. Marketers

like to use focus groups because they are cheap, quick and easy to set

up. Sometimes a relatively small number of groups is sufficient to yield

the required data. All that is needed is a suitable moderator, six to ten

people from the target population, a breakdown of the topic to be

discussed, a suitable room and a two-way mirror or video equipment (so

that the client can watch the event). However, focus groups do not

always result in good quality data. People sometimes have problems

putting their thoughts, actions and emotions into words, especially in a

group setting. The skill of the moderator is very important in drawing out

appropriate and interesting information.

2 Other research tools that the company might have used to address its

research aims include face-to-face interviews with shoppers who met

the sampling criteria. The advantage of these interviews would have

been that shoppers’ views would not have been ‘contaminated’ by those

of other people. Such interviews could have been undertaken outside or

inside the company’s stores. However, shortages of resources might

make it difficult to adopt this approach. The company could also have

considered using a survey in conjunction with either the interviews or

the focus groups. This survey would have provided some quantitative

support for the findings. However, the costs of combining these types of

research might have been prohibitive.


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Session 36 summaryThrough this session on marketing research you have been introduced to

the kinds of data that marketers collect to help them in their activities. A

particular focus has been on the steps of the marketing research process,

so that you can understand the systematic route involved in gathering such

data. The emphasis of the block now shifts towards considering different

elements of the marketing programmes used by organisations to attract

customers. In the next three sessions you will look at the product element

of marketing programmes, focusing on products, services and branding.

Remember to keep in mind that you will need to submit TMA 02 at the end

of your work on this block.

Now go to Session 37: Products, services and branding 1 or take a break

before continuing.

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Glossary

area sampling

A sampling method that involves selecting a probability sample of

geographic areas and selecting units or individuals within the selected

areas for the sample

causal research

Data collection that assumes that a particular variable X causes a variable

Y

descriptive research

Data collection that focuses on providing an accurate description of the

variables in a situation

exploratory research

Deliberately flexible data gathering used to discover the general nature of a

problem and the factors that relate to it

intuition

The personal knowledge and past experience on which marketing

managers may base decisions

marketing research

The process of gathering, interpreting and reporting information to help

marketers solve specific marketing problems or take advantage of

marketing opportunities

primary data

Information gathered by observing phenomena or surveying respondents

qualitative research

Research that deals with information too difficult or expensive to quantify,

such as subjective opinions and value judgements, typically unearthed

during interviews or discussion groups

quantitative research

Research aimed at producing data that can be statistically analysed and

whose results can be expressed numerically

quota sampling

A sampling method in which the final choice of respondents is left to the

interviewers, who base their choices on two or three variables (such as

age, sex and education)

random sampling

A sampling method in which all the units in a population have an equal

chance of appearing in the sample

secondary data

Information compiled inside or outside the organisation for some purpose

other than the current investigation

stratified sampling

A sampling method in which the population of interest is divided according

to a common characteristic or attribute; a probability sampling is then

conducted within each group


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syndicated data services

Organisations that collect general information and sell it to clients

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Session 37: Products, services and

branding 1Prepared by Haider Ali and Sally Dibb

Session 37 96

Introduction to Sessions 37, 38 and 39 96

Activity 37.1: How products are defined and classified 97

Activity 37.2: Introducing the project life cycle and describing

product features 99

Activity 37.3: Thinking about the future for the Volkwagen Golf 100

Activity 37.4: Building a portfolio of beer brands 101

Activity 37.5: Understanding the convenience food market 102


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Session 37

Introduction to Sessions 37, 38 and 39Previous: Session 36: Marketing research

Marketing was initially developed to aid the sale of products and services.

During the 1960s most marketing activity centred around consumers,

focusing on the sale of products and services that individuals like you or

your families might buy. Before long, the concept of the marketing mix

emerged to describe the marketing tools available to organisations.

Sometimes referred to as the four Ps of marketing, the toolkit comprises the

product, price, promotion and place (marketing channels). A fifth ‘P’,

people, is now often included to reflect the important role which people can

play in service delivery. As you will find out later, this is particularly

important for organisations involved in supplying services of one sort or

another.

Whether they are MP3 players or machine tools, teabags or insurance

policies, the products and services which firms sell are at the heart of their

marketing activities. Considerable care must be taken by marketers to

ensure that they carefully manage the products for which they have

responsibility. When new products are developed, a systematic process

must be followed to ensure that the offerings are fit for purpose and

desirable in the eyes of customers. For example, a manufacturer of ready

meals will thoroughly test new recipes before introducing them to the

market, just as an insurance company will check that its offerings include

all of the features expected by customers.

Managing the overall portfolio of products and services is another area

where dedicated attention is needed. This involves knowing when the time

is right to introduce a new product, but also making difficult decisions to

discontinue offerings which have reached the end of their lives and which

are no longer deemed desirable by customers. Although these decisions

might not be popular with all customers, they often must be made in the

firm’s best interest. As a consumer, you will be aware of these kinds of

decisions through the changing mix of products on offer in your local

supermarket.

In Sessions 37, 38 and 39 you will find out about how organisations

manage their products and services. This will include learning about how

new products are developed and how the existing portfolio of offerings is

managed. The particular characteristics of service products will be

explained so that you understand the impact that these features have on

how services are managed. You will also find out more about brands and

the use of branding. The material is divided into Session 37, which

introduces products; Session 38, in which you learn about managing

products and portfolios; and Session 39, which focuses on services and

branding. The following specific areas are covered in the session:

. understanding what a product is, the various levels which make it up,

and different types of products (Session 37)

. how products can be classified, and the nature of the product line and

product mix (Session 37)

. the process and different steps involved in developing new products

(Session 38)

. the nature of the product life cycle, how it is made up, and how products

can be managed during it (Session 38)

Business functions in context - Session 37: Products, services and branding 1

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. understanding the particular features of services as products and the

extended marketing mix for services (Session 39)

. introducing the concept of branding, exploring the benefits and

characteristics of brands and considering how they can be managed

(Session 39).

These sessions relate to Chapters 8 ‘Product Decisions’, 9 ‘Developing

Products and Managing Product Portfolios’, 10 ‘The Marketing of Services’

and 14 ‘Branding’ of Dibb and Simkin (pp. 245–321 and 406–38).

Activity 37.1: How products are defined and

classifiedAllow 15 minutes for the reading in Task A and 35 minutes for Tasks B, C

and D.

In the first reading you will learn about definitions and classifications of

products. You will also be introduced to the different levels of a product, the

product line and the product mix.

Task A


the chapter up to but not including the section entitled ‘Product life cycles’.


Task B

Is a roll of carpet in a shop a consumer product or a business product?

Defend your answer.

Feedback

If the roll of carpet is purchased by a consumer to use in their home it will

be classified as a consumer product. On the other hand, if the carpet is

bought by a business (either to sell on to others, to be used in the

manufacture of other goods, or for the business premises) then it is

classified as a business product. In practice, large firms are unlikely to visit

a carpet shop to purchase their floor coverings, but small businesses may

well do so. In your answer you should point out that when a roll of carpet is

first produced, it can be regarded as a business product. This is because

the customers at this stage will be either very large end-users (businesses)

or resellers, such as the carpet shop. Carpet manufacturers are unlikely to

deal directly with consumers because of the quantities and order values

they are interested in selling. However, even where large orders are

concerned, sales direct to consumers are not totally out of the question. For

example, the Airbus A380 aircraft, which costs millions of dollars, is

obviously being purchased by airlines, but at least two have been sold to

very wealthy individuals for their own personal use.

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Task C

Would a music system that sells for £500 be a convenience product,

shopping product or speciality product?

Feedback

The best place to start with a question like this is to remind yourself how

these different terms are defined in the textbook (p. 248). Once you have

located the relevant definitions for convenience, shopping and speciality

products, the answer to the question should become clear. You need to

think about the key characteristics of the consumer buying process for

these types of products, and make a comparison with the buying process

for the music system.

Convenience products are relatively cheap, bought frequently and rapidly

consumed. Little attention is paid to their price or features, or to alternative

offerings. They are typically associated with low levels of involvement from

customers. Although customers may have a preferred brand, they will

normally be prepared to choose an alternative if their usual brand is not

available.

Shopping products are bought less frequently. They are associated with

higher levels of involvement on the part of customers, who generally

engage in information search prior to purchase. Appliances and furniture

are listed in Dibb and Simkin as shopping products.

Speciality products have one or more unique characteristic and are so

important to customers that they are willing to make a special effort in order

to find and buy the product that they are looking for.

The question here asks what type of consumer behaviour you would

associate with a £500 music system. There are, of course, music systems

that are available for a few hundred pounds and those which are sold for

thousands. This price seems to fall towards the cheaper end of the scale.

For most people this would not be a convenience purchase, but neither

would it be a speciality purchase. The latter category is likely to apply to a

very high-end brand which makes use of handmade components. Therefore

the music system would be classified as a shopping product.

Task D

Why is the augmented product increasingly important when determining a

differential advantage?

Feedback

This question refers to ‘The three levels of product’ on p. 251 of Dibb and

Simkin. The augmented product is defined as ‘[s]upport aspects of a

product, including customer service, warranty, delivery and credit,

personnel, installation and after-sales support’.

Product augmentation concerns additional aspects over and above the core

benefit or service and the actual product (including branding, features and

so on) being offered to customers. Augmenting the product is important

when offering the core product alone may not be enough to fully satisfy

customers’ needs. For example, computer users need much more than just

hardware and software components. They also expect that their machine

will be fully functioning, and they will need access to online service and


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support in case it fails. Another issue to consider is that some products

which are designed to address a core benefit may be generic to many

manufacturers. For example, most PC manufacturers use microchips made

by Intel. Because the technology is the same, it is more difficult for these

manufacturers to differentiate their offerings from each other. Using the

augmented product is one solution. Thus some firms will offer customers

the opportunity to have their machines set up by an engineer. This may be

attractive to customers who are worried that installing a computer might be

complicated or problematic.

Activity 37.2: Introducing the project life cycle

and describing product featuresAllow 15 minutes for the reading in Task A and 35 minutes for Tasks B

and C.

The next reading introduces the concept of product life cycles, considers

why some products fail and others succeed, and examines tangible and

intangible product characteristics.

Task A


‘Product life cycles’ up to the end of the section entitled ‘Summary’.

After having read the passage, do Tasks B and C.

Task B

List the tangible and intangible attributes of a spiral notebook. Compare the

benefits of the spiral notebook with those of an intangible product such as

life insurance.

Feedback

The tangible characteristics of a spiral notebook are those features that can

be touched or seen before purchase. This might include the strength of the

metal spiral, the weight of the book, the texture of the cover and the quality

of the paper. Of course, if the notebook is heavily wrapped, these elements

may not be visible and will therefore become intangible. This is because

the customer will be unable at the time of purchase to judge the spiral

notebook’s features.

Life insurance is similarly intangible because at the point of purchase the

customer does not actually know whether the company will pay out when it

is supposed to. The customer is buying a ‘promise’, which may or may not

be fulfilled.

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Task C

What is the relationship between the concepts of the product mix and the

product life cycle?

Feedback

The product mix is defined as the ‘composite group of products that a

company makes available to customers’ (p. 252). The example given in

Dibb and Simkin relates to Procter & Gamble’s product mix for personal

care products and laundry detergents. The product life cycle shows how

products go through a cycle that starts off with the introduction of a product,

moves to a growth in sales, and progresses through maturity where sales

and profits plateau and then reduce, before finally entering a decline stage.

As a product progresses through these stages, there are marketing and

financial implications for the organisation. For example, the introduction

stage is associated with relatively high levels of investment during which

time the firm is often making losses. On the other hand, products in the

later stages of growth are generally maximising their profits. As you will

probably realise, this process has clear implications for firms. Organisations

with all of their products in the introduction stage face a severe drain on

their financial resources. Those with all of their products in the growth stage

may be enjoying the profits now, but will not have a pipeline of products to

replace these offerings when they begin to decline. You have probably

already realised that a good solution is for firms to have a mix of products

at different stages of the product life cycle. This allows products needing

investment to achieve their future potential to be funded by those which are

currently profitable.

Activity 37.3: Thinking about the future for the

Volkwagen GolfAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A


case.

Task B

Then do the following task:

Several years from now you have secured a job as brand manager for the

Golf. Assume that Volkswagen is about to make a decision about whether

to launch a new generation of the Golf or replace it with a new model with

a new name. Prepare a short report arguing in support of one of these

options. You should explore the arguments for and against each option.

This question considers different options for launching a new car model.

There are arguments for and against either launching a new product under

an existing brand, or using a new brand name. Although the question asks


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for a report to be prepared, for the purposes of this session a short answer

will suffice.

Feedback

There are many different ways in which you could answer this question.

The suggested answer below considers one set of reasons why the

company might decide to launch a new model with a new name. You might

decide instead to consider the launch of a new generation of the Golf.

Whichever approach you choose, make sure that you think carefully about

the relative advantages and disadvantages.

In answering this question you need to consider the circumstances in which

it might be appropriate to launch a new model with a new name. In a few

years’ time it is possible that the Golf will enter the decline stage of its life

cycle. This might be precipitated by increasing petrol prices, so that cars

with a sporty image and relatively large engines become too expensive to

drive. In such circumstances, it is obvious that changing the styling and

making modifications to the existing Golf would not be an acceptable

solution. As a result, car manufacturers such as Volkswagen may decide to

change their product development priorities to convey values related to

energy efficiency and economic use. Volkswagen might decide this could

best be achieved by launching new brands whose image can be more

easily linked to these values.

Activity 37.4: Building a portfolio of beer brandsAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘Heineken’s portfolio of brands’.

Task B


1 Why was the UK’s version of Heineken lager weaker than its

counterpart in the rest of Europe? What problems has this product

variation caused Heineken?

2 Why does Heineken opt for a mix of internationally known brands

marketed alongside local beers?

3 In what ways is Heineken continually updating its product portfolio and

its marketing mix?

Feedback

1 The UK’s version of Heineken lager is weaker than its counterpart in the

rest of Europe because it was introduced in the 1960s when UK

drinkers were unused to the lager taste. The weaker variant proved

more acceptable to the palates of drinkers at this time. Once this

product version had gained popularity, it became risky for Heineken to

contemplate a change. The firm did not want to run the risk of alienating

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its existing customers. However, when British drinkers subsequently

developed a taste for stronger lager, perhaps as a result of encountering

these drinks while travelling abroad, the firm was able to respond by

launching its export strength product. This enables Heineken to bridge

the gap between its offerings in the UK and elsewhere in a low risk way.

2 The company follows this strategy in order to achieve a ‘successful level

of distribution’ and adequate ‘economies of scale’. The former refers to

the firm being able to distribute a mix of products that will meet the

needs of different segments in each country and reduce the space

available to competitors. The reference to economies of scale means

that the company must also ensure that its distribution supports the sale

of sufficiently large volumes of products to make economic sense.

Clearly, achieving both goals is a difficult challenge.

3 Heineken is continually updating its product portfolio and its marketing

mix by taking a share in over 60 brewing companies around the world.

The company is also developing new products such as iced beers and

non-alcoholic brews.

Activity 37.5: Understanding the convenience

food marketAllow 45 minutes for this activity.

Task A


‘The Money Programme: Convenient cuisine’. This is an episode of the

BBC 2 series The Money Programme, first broadcast on Friday 6

October 2006. There is also a transcript of ‘The Money programme:

Convenient cuisine’.

Task B

After you have watched the entire programme, answer the following

questions:

1 What have been the macro-environmental reasons for the growth of

convenience foods?

2 Identify the criticisms levelled at convenience foods. What have been

the implications of these on the marketing strategies of Bird’s Eye,

Sainsbury’s and Marks & Spencer?

3 Describe convenience foods in terms of three-level product analysis.

Feedback

1 Changing lifestyles mean that people have less time to prepare meals,

while changes in technology mean that ready meals have been

improved in terms of taste and variety. A range of food from all over the

world is available, and meals can be cooked with little effort. At the

same time, the development of the microwave means that chilled foods

can be even more easily reheated. Finally, rising living standards mean

that people are happy to pay extra for ready meals.


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2 Criticisms of ready meals include the following:

◦ They provide a diet of industrial processed food.

◦ The meals have a poor taste and also provide poor

nutrition because they contain additives, preservatives

and salt.

◦ The mark-up on ready meals can be as much as 40 per

cent.

◦ Frozen foods are often mistakenly thought to be less

healthy than chilled foods.

Bird’s Eye has highlighted the non-use of preservatives in its frozen

foods, in contrast with chilled foods, which do contain additives. Marks &

Spencer has promoted its range of meals that have luxurious

ingredients – the company has opened a chain of stores that sell only

these upmarket, chilled, pre-cooked foods. Sainsbury’s has emphasised

that there has been a progressive reduction of salt, hydrogenated fats

and preservatives used in its pre-cooked meals.

3 The core benefits associated with convenience foods are: convenience

in terms of purchasing (you do not have to buy different ingredients),

ease of preparation (you do not need to know lots of different recipes)

and speed of cooking (the food can generally be microwaved).

The actual product comprises the branding and product features. The

features may include the use of exotic ingredients in international

recipes, together with low levels of salt and artificial preservatives.

Another important aspect of the actual product is the packaging, which

shows images of the food after it has been cooked. Over the years the

packaging and features have changed as methods of cooking have

evolved from oven cooking, to boil-in-the-bag, to microwaving.

The augmented product is defined as ‘[s]upport aspects of a product,

including customer service, warranty, delivery and credit, personnel,

installation and after-sales support’ (Dibb and Simkin, p. 251). In this

context marketers appear to be making little use of the augmented

product, with the major emphasis on the actual product instead. If there

is any after-sales support this is likely to take the form of a helpline for

customers to call, in case they have any concerns about the ingredients,

for example whether or not they may conflict with a consumer’s

allergies. Warranties and the like in this product category would take the

form of customers being able to return the food if they have a valid

reason for not being satisfied with it.



Session 37 summaryIn this first session looking at products you have found out about what a

product is and the levels which make it up. You have also learned about

different ways to classify products. The nature of the product line and

product mix have also been explained. In the second of the product

sessions you will delve deeper into the product area, focusing on product

management and the analysis of product portfolios.


before continuing.

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Glossary

actual product

A composite of the features and capabilities offered in a product, quality

and durability, design and product styling, packaging and brand name

augmented product

Support aspects of a product, including customer service, warranty, delivery

and credit, personnel, installation and after-sales support

business product

Item bought for use in a company’s operations or to make other products

consumer product

Item purchased to satisfy personal or family needs

convenience product

Inexpensive, frequently purchased and rapidly consumed item that

demands only minimal purchasing effort

product life cycle

The four major stages through which products move: introduction, growth,

maturity and decline

product line

A group of closely related product items that are considered a unit because

of marketing, technical or end-use considerations

product mix

The composite group of products that a company makes available to

customers

products

Goods, services or ideas

services

Intangible products involving a deed, a performance or an effort that cannot

physically be possessed

shopping product

Item chosen more carefully than a convenience product; consumers will

expend effort in planning and purchasing these items

speciality product

Item that possesses one or more unique characteristic; consumers of

speciality products plan their purchases and will expend considerable effort

to obtain them


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Session 38 106


Activity 38.1: How marketers manage product and introducing the

new product development process 106

Activity 38.2: Understanding the product adoption process and

learning more about product life cycle management 107

Activity 38.3: Tools marketers use to manage product portfolios 109


Glossary 111

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Session 38

Introduction to Session 38Previous: Session 37: Products, services and branding 1



Introduction to Session 37, 38 and 39.

Activity 38.1: How marketers manage product

and introducing the new product development

processAllow 20 minutes for the reading in Task A and 40 minutes for Tasks B, C

and D.

In the next reading you will learn about how managing products is

organised and be introduced to the new product development process

(NPD).

Task A


the chapter up to the end of the section entitled ‘Line extensions’.


Task B

When is it more important to use a product manager than a marketing

manager?

Feedback

Marketing managers are used in circumstances where an organisation has

different types of customer groups which can best be served by allocating a

different manager to each. Product managers have responsibility for a

specific product or product line. Using product managers tends to work best

where there is greater variety in the range of products being sold than in

the types of customers being dealt with. For example, manufacturers of

construction equipment often have different product managers for different

product lines. Using a marketing manager in such a role may be an

unattractive option, because one individual would have to have expertise

on too many different products.


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Task C

Do small companies that manufacture one or two products need to be

concerned about developing and managing products? Why, or why not?

Feedback

Small companies need to be just as concerned about developing and

managing new products as other firms. Although a small company might

have a relatively smaller portfolio of products to manage, these products

will still be going through a product life cycle and over time will mature and

die. The firm must ensure it is ready and able to develop replacement

products or services. The fact that these organisations often have small

product portfolios can make them even more vulnerable than their larger

competitors to rapid loss of market share.

Task D

What are the advantages and disadvantages of test marketing?

Feedback

Test marketing refers to the limited introduction of a product in geographic

areas chosen to represent the intended market. The advantages of this

approach are that a firm can engage in a cost-effective ‘test’ of most

aspects of its marketing strategy for the national launch of the product. For

example, the customer reaction to the product itself can be examined.

Pricing levels, the suitability of promotional campaigns and distribution

strategies can also be tested. Marketers can learn many useful lessons

from this process which can be used to improve the effectiveness of the

national launch.

However, test marketing also has some disadvantages. The first is that

competitors gain a preview of what the firm has to offer. This advance

warning can be used as the basis for a quick response when the product is

launched nationally. Some organisations, particularly those dealing with

innovative products, see test marketing as too risky to contemplate.

Second, some doubts have been raised about the extent to which test

marketing can usefully be used as the basis for a national roll-out of a

product. For example, the results of a national advertising campaign cannot

be fully assessed using this approach. Finally, sometimes the market in the

test area may not fully reflect the national market.

Activity 38.2: Understanding the product

adoption process and learning more about

product life cycle managementAllow 15 minutes for the reading in Task A and 35 minutes for Tasks B

and C.

In the next reading you will be looking at the product adoption process and

learn more about product life cycle management.

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Task A


‘Product adoption process’ up to the end of the section ‘Deleting products’.

After having read the passage answer the questions in Tasks B and C.

Task B

What are the stages of the product adoption process, and how do they

affect the commercialisation phase?

Feedback

The product adoption process involves awareness, interest, evaluation, trial

and adoption. The stages of this process affect the commercialisation

phase of a product because they highlight the different actions marketers

need to take in order to appeal to customers at different stages of the

buying process. For example, marketers will need to develop awareness

among target customers who may not even know that the product exists.

Marketers of items which are early in their product life cycle are more likely

to face this challenge than those dealing with products in the decline stage.

However, simply raising awareness of a product is rarely enough to drive

customers through the adoption process. Just because someone knows

that a product exists, does not mean that they will buy it. Their interest

needs to be captured by convincing them that the product’s benefits are

worthwhile. The marketer of a new product will need to provide potential

customers with the means to evaluate the offering, perhaps by trying it out.

‘Trialling’ is particularly valuable for such items, because it offers just such

an opportunity. Maybe you can think of an occasion when you were able to

trial a product before you bought it. For example, car firms often offer test

drives and some department stores feature demonstrations of consumer

goods such as coffee machines, so that potential customers can see them

in action. Deciding to ‘adopt’ the product is one possible outcome of the

trial stage.

Task C

How can a company prolong the life of a mature product? What actions

should be undertaken to stem the product’s decline?

Feedback

There are a number of ways in which marketing mix strategies can be used

to prolong the life of a mature product. One of the most obvious

approaches is to modify the product, so that its features more closely

match the needs of customers. This might involve improving the product

quality or adding extra features. Functional or style modifications can also

be made. The former require redesigning the product and the latter involve

making changes to its sensory appeal.

Marketers can also use other elements of the marketing mix to prolong the

life of a mature product. Pricing can be manipulated to counter the efforts of


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competitors and to increase the perceived value of a particular item. This

might include running price promotions where customers are offered

discounts or incentives for buying in bulk. Promotional tools also have an

important role to play, particularly as products in late maturity are typically

facing heavy competition. Next time you visit a supermarket to do your food

shopping, take a look at which brands are on promotion. You will find that

many of these products are in the late maturity phase of their life cycles.

Activity 38.3: Tools marketers use to manage

product portfoliosAllow 20 minutes for the reading in Task A and 20 minutes for Task B.

In the next reading you will be introduced to tools for managing product

portfolios.

Task A


‘Tools for managing product portfolios’ to the end of the section entitled

‘Summary’.


Task B

In what ways do the stages of the product life cycle impact on a company’s

management of its product portfolio?

Feedback

The stages of the product life cycle affect a company’s management of its

product portfolio because each stage corresponds to a certain level of

revenue, costs and profit. For example, a product at the introduction stage

of the cycle will generally be making losses and consequently is a drain on

the company’s financial resources. Yet new products are usually launched

on the assumption that they will generate sales and profits in the future.

The Boston Consulting Group (BCG) product portfolio analysis classifies a

product of this type as a ‘problem child’ (problem children). The suggested

policies for handling a problem child are to invest heavily and/or to buy

existing market share.



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Session 38 summaryIn this second session devoted to products, you have considered product

management and the analysis of product portfolios. In particular, you have

found out about the different stages in the new product development

process. You should now know much more about what is involved in

creating and launching new products. Perhaps this is a much more

systematic or complex process than you expected. Finally, the tools which

marketers use for analysing product portfolios have been considered. In the

final product session you will learn about services and be introduced to the

concept of branding.


before continuing.


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Glossary

commercialisation

The process of refining and settling plans for full-scale manufacturing and

marketing

marketing manager

The person responsible for managing the marketing activities that serve a

particular group or class of customers

market share

The company’s sales of a product stated as a percentage of industry sales

of that product

new product development

The process a product goes through before introduction, involving seven

phases: idea generation, ideas screening, concept testing, business

analysis, product development, test marketing and commercialisation

problem children

Products that have a small share of a growing market, generally requiring a

large amount of cash to build share

product adoption process

A series of five stages in the acceptance of a product: awareness, interest,

evaluation, trial and adoption

product life cycle

The four major stages through which products move: introduction, growth,

maturity and decline

product manager

The person responsible for a product, a product line or several distinct

products that make up an interrelated group within a multiproduct

organisation

product portfolio analysis

A strategic planning tool that takes a product’s market growth rate and its

relative market share into consideration in determining a marketing strategy

test marketing

The limited introduction of a product in geographic areas chosen to

represent the intended market

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Session 39 114


Activity 39.1: Defining services and explaining their special

characteristics 115

Activity 39.2: Classifying services and developing suitable

marketing strategies 117

Activity 39.3: Defining brands and introducing branding 118

Activity 39.4: Branding types, choosing brand names and

introducing branding policies 119

Activity 39.5: Brand equity and what it means to marketers 120

Activity 39.6: Why new brand identities are sometimes needed 121

Activity 39.7: Building brand awareness 121


Glossary 123

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Session 39

Introduction to Session 39Previous: Session 38: Products, services and branding 2



Introduction to Session 37, 38 and 39.

Characteristics of services

A service is any activity, benefit or experience that one party can offer to

another that is essentially intangible and does not result in the ownership of

anything. In this section you will look more closely at the features of

services that distinguish them from products: intangibility, inseparability,

perishability and heterogeneity. You will also consider the impact of these

characteristics on how services are managed. Table 39.1 presents a

summary of these issues.

Table 39.1: Characteristics of services and the attendant issues in

managing services

Differentiation Quality Productivity

Intangibility Because it is not

possible to see,

touch or taste

services, it is

more difficult to

differentiate one

firm’s offering

from those of

competitors.

The intangibility of

services makes it

harder to

consistently

deliver the same

quality.

Intangibility

makes it harder to

measure and

control

productivity.

Inseparability Services are

produced and

consumed

simultaneously,

making it more

difficult for

customers to

compare them.

The lack of

separation

between

production and

consumption of

services requires

quality

assessment to be

undertaken more

often than in the

production of

many products.

The inseparability

of service delivery

from employees

affects the

amount of

services which

can be delivered

per employee, or

at any one time.

Perishability Because services

cannot be stored,

they must be

produced when

needed, making

quality

assessment more

expensive and

difficult.

The productivity

of organisations

providing services

is limited because

those services

cannot be stored.


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Heterogeneity One firm’s service

offering can be

more readily

differentiated

when a

consistent,

homogeneous

service is

provided. When

this is not the

case,

comparisons are

more difficult to

make.

Quality is difficult

to maintain

because different

employees from

the same

organisation and

even the same

employee may

offer different

service quality at

different times.

Because the

delivery of service

quality varies

among staff

members, their

productivity levels

can vary.

For example, because services are relatively intangible, it is more difficult

to differentiate them from competitors’ offerings. And because services are

heterogeneous they can be variable, which can lead to problems in

delivering consistent service quality. Once the machine tools in a factory

have been set to create a product of a certain quality they will consistently

do so. The same does not necessarily apply to members of staff working in

a restaurant, who may not all deliver consistent standards of service.

Finally, the inseparability of production and consumption for services can

make it difficult to deliver high levels of productivity. These issues are

considered in more detail below.

Activity 39.1: Defining services and explaining

their special characteristicsAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

In the first reading on services you will learn about how services are

defined and classified.

Task A

Now go to Dibb and Simkin, Chapter 10, pp. 295–302. Read from the start

of the chapter up to but not including the section entitled ‘Classification of

services’.


Task B

Identify and discuss the distinguishing characteristics of services. What

problems do these characteristics present to marketers?

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Feedback

There are four characteristics of services which distinguish them from

products:

. intangibility

. inseparability

. perishability

. heterogeneity.

Because they are intangible, services cannot be touched, tasted or tried

prior to purchase. As a result of their inseparability, services cannot be

divorced from the person who produces them. If you visit the hairdresser

for a trim, you have to remain in the salon or barbers’ shop for the duration

of the experience. The perishability of services means that they cannot be

stored and that unused capacity is often wasted. A theatre which fails to

sell some of its seats for a production cannot recoup that missed

opportunity once the performance is finished. The heterogeneity of services

arises because each time a service is delivered there is potential for

variability, which can lead to disappointment.

These characteristics may create problems for marketers. The intangibility

of services means that people are sometimes unsure about what it is they

are actually buying. This can increase the level of risk that potential

customers associate with a purchase. To counter this, marketers have to

generate trust among their customers or use other methods to overcome

this perception. Offering people a free trial period is one approach that is

sometimes used. The only way for marketers to counter the perishability of

services is to take steps to minimise unused capacity, such as by using

price reductions or special promotions. For instance, many airlines reduce

the price of tickets shortly before a particular flight is due to take off.

The inseparability of production and consumption means that a service

provider is limited in terms of the capacity it can provide. This is linked to

the notion of perishability and explains why some organisations often run

promotions in off-peak periods. For example, many health clubs offer off-

peak rates to members who are able to attend during less busy times of

day. Inseparability is also linked to heterogeneity because the delivery of

the service is influenced by the ability of the person producing the service

to provide consistent quality. The heterogeneity of service quality means

that marketers can find it difficult to build up brand equity. After all, brand

equity is established where a firm establishes a positive reputation for its

offerings. Careful staff training is one way to reduce the degree of service

heterogeneity. Automation of some aspect of the delivery can also increase

consistency. For example, fast-food restaurants use machines to a far

greater extent than traditional restaurants in order to ensure a consistent

product delivery. Another method is to simplify and standardise the service

to such an extent that it becomes easier for staff to deliver the same quality

over time.


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Activity 39.2: Classifying services and

developing suitable marketing strategiesAllow 10 minutes for the reading in Task A, 15 minutes for Task B, and 15

minutes for the reading in Task C.

The next reading explains how services can be classified and looks at the

development of marketing strategies for services.

Task A


‘Classification of services’ up to but not including the section entitled

‘Service quality’.


Task B

How do search qualities, experience qualities and credence qualities affect

the way consumers view and evaluate services? You will find it useful also

to refer back to the material on pp. 298–9 to help you with this question.

Feedback

Consumers often find it difficult to search for and evaluate services

because of their intangibility. Choosing products is much easier for

consumers because they have tangible cues such as size, style and

appearance which can be used as the basis for evaluation. When you shop

for a new pair of jeans, you can feel the fabric, try them on for size and

assess the colour. Because services generally lack these tangible cues,

consumers have to rely on experience and credence qualities instead. An

experience quality is one which can be judged once the service has

actually been used. In the case of a visit to the hairdresser, an example

might be the appearance of your haircut or the smell of the shampoo.

These qualities can be used in the future by consumers to decide whether

they will go back to the same hairdresser. Credence qualities are even

more difficult to judge because most individuals are unable to evaluate

them even after a service has been purchased and consumed. This is

because consumers often do not understand enough about a service and

its delivery to judge whether what they are receiving is good quality.

Sometimes all consumers can do is to put their trust in the service provider.

Some examples of credence qualities can be found on p. 298 of your

textbook, but perhaps you can think of others.

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Task C

In the next reading you will learn more about service quality.


section ‘Service quality’ up to but not including the section entitled ‘Non-

profit marketing’.

Activity 39.3: Defining brands and introducing

brandingAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

In the next reading you will find out about what brands are and what

benefits they provide.

Task A


of the chapter up to but not including the section entitled ‘Brand equity’.


Task B

How does branding benefit customers and organisations?

Feedback

Branding helps buyers to recognise specific products and allows them to go

back to products whose performance they liked the last time they made a

purchase. For these reasons branding can reduce customers’ perceived

risk in making a purchase. For example, an individual who has recently

experienced the failure of several electrical goods might regard the level of

risk associated with buying these items to be high. This individual might

decide to purchase brands which they trust and which have previously

been reliable because doing so reduces the perceived risk. In behaving this

way, the consumer can have greater confidence in the quality of the item

they are buying. This even seems to be the case when an individual is

choosing a new kind of product which carries a brand that they recognise.

Branding can also reduce the time that customers spend searching for a

product, because they can quickly identify a preferred offering. Finally,

people gain psychological benefits from buying certain brands. For

example, brands can be used to reflect personality. Perhaps you own a

Breitling watch because you feel it portrays your strong, rugged personality.

Sellers also gain benefits from branding. These benefits arise principally

because customers can readily recognise their products and distinguish

them from those of competitors. This means it is easier for customers to

return to buy in the future. This is crucial for marketers who want to

establish long-term relationships with their customers. It is impossible to

establish a relationship if people cannot recognise who you are.

Brands also enable firms to capitalise on the trust that they have built up

with their customers and encourage the sales of new products. It is very


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much easier for a trusted and well-known brand to extend its product range

than for those which are lesser known. Popular brands also attract greater

loyalty, resulting in greater stability in sales.

Activity 39.4: Branding types, choosing brand

names and introducing branding policiesAllow 20 minutes for the reading in Task A and 30 minutes for Tasks B

and C.

The next reading explores the different types of brand and considers how

marketers go about choosing a brand name. You will then learn about

branding policies and how brands can be protected, licensed and managed.

Task A


section ‘Types of brand’ up to but not including the section entitled

‘Corporate branding’.


Task B

Given the competition between own-label brands and manufacturer brands,

should manufacturers be concerned about the popularity of own-label

brands? How should manufacturers fight back in the brand battle?

Feedback

An own-label brand is a product sold under the brand of the shop that is

selling it. For example, the UK supermarket chain Tesco and the French

chain Carrefour sell many products using their own brands. Many of these

products are made by the same manufacturers who produce the

manufacturer brands. In other cases the manufacturers make products only

for the store brands and do not produce their own manufacturer brands.

Generally, own-label products are a cheaper equivalent to the manufacturer

brand. Often they differ in terms of specification and will obviously have

different packaging. Consumers who are motivated more by price than by

performance are among those attracted to such products.

There are a number of concerns for manufacturers in the own-label sector.

These centre on the increasing market share taken by own-label brands in

some sectors. Although those producing manufacturer brands may decide

to increase sales by making products for own-label brands, there is always

the risk that their brands will suffer as a result. However, it seems that

many manufacturers are prepared to take this risk, not least because other

manufacturers’ own-label products may have the same effect anyway.

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Task C

What are the major advantages and disadvantages of licensing?

Feedback

Licensing involves a company permitting ‘approved manufacturers to use its

trademark on other products for a licensing fee’ (Dibb and Simkin, p. 421).

The advantages of licensing are that the licensee is responsible for all

manufacturing and marketing activities and it bears the costs (and risks) if

the proposition fails. The licensor gains benefits if the licensed product is

successful in the market but does not bear the risk, other than any damage

to the brand name as a result of failure. This type of arrangement can be

very effective where the licensor has limited financial resources to launch

new products. It can also be beneficial when the licensor lacks the

necessary expertise or resources to launch products in different product

classes. Such arrangements can allow brand owners to leverage their

brand assets very effectively. A potential drawback is that when a licence

has been granted, the terms of that licence often mean that the brand

owner loses some control over the use of its brand. The danger is that the

brand may be used in ways which damage the overall ‘brand equity’. For

this reason, firms which grant licences must take care to ensure that

appropriate controls are in place.

Activity 39.5: Brand equity and what it means

to marketersAllow 5 minutes for the reading in Task A and 10 minutes for Task B.

In the next reading you will be introduced to the concept of brand equity.

Task A

Now go to Dibb and Simkin, Chapter 14, pp. 411–12, and read the section

on ‘Brand equity’. Do not read the section entitled ‘Brand personality,

values and attributes’.


Task B

What is brand equity, and why is this notion increasingly important?

Feedback

Brand equity is the marketing and financial value of a brand to an

organisation. It is increasingly important to marketers and is often a

significant element of organisational value. This is because the products

that firms sell are often similar to those of their competitors. Brand equity

signifies the reputation of an organisation in the marketplace. This is the

value attached to the trust that customers have in the organisation and

determines the extent to which they are willing to come back to buy from


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the organisation in the future. Another way of looking at brand equity is that

it indicates the potential to generate future income streams from that brand

in the marketplace.

Activity 39.6: Why new brand identities are

sometimes neededAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A

Now go to Dibb and Simkin, p. 434 and read the applied mini case.

Task B


Why did Asda and Marks & Spencer both opt to launch clothing ranges

with new brand identities that were different from the host retailers’ brands?

Feedback

The advantage of existing brands is that customers know what to expect

when they buy them. As a result, these brands enjoy a certain level of

customers’ trust. However, there can also be disadvantages to existing

brands, because all brands are associated with a certain set of brand

values. In some instances these values may not be appropriate for the

current marketing environment. One option open to marketers is to try to

modify the brand, but this can be expensive and may alienate existing

customers. An alternative is to launch a totally new brand or sub-brand. For

example, in 2001 Marks & Spencer launched its Per Una clothing range as

a more fashionable alternative to its traditional lines. This approach has the

advantage of enabling a new or modified set of brand values to be

communicated. Firms often take this approach when they want to enter new

product classes or attract new customers. Similarly Asda used the George

branded line of clothing in order to stress the stylish nature of the range,

something which could not have been communicated if they had used the

Asda brand name.

Activity 39.7: Building brand awarenessAllow 25 minutes for this activity.

In the first part of this activity you will hear some insights into how one low-

cost airline went about building brand awareness even though its

advertising spend was relatively low. In the second part you will learn more

about the use of brand extension when moving into new markets.

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Task A

Now go to ‘Building Brand Awareness’ (Haji-Ioannou, 2008). You can also

access a transcript for ‘Building Brand Awareness’.

Feedback

In this video clip, Sir Stelios Haji-Ioannou discusses how his low-cost

airline, easyJet, built brand awareness and recognition without spending a

huge amount on advertising. Indeed, advertising does not have to be the

answer to brand building, as PR opportunities can also be effective.

Stelios also describes how, in developing the easyJet brand, he used brand

extension as a tool to cross-promote between products and services from

the same stable.

Task B

Now go to ‘Brand Extension’ (Haji-Ioannou, 2008). You can also access a

transcript for ‘Brand Extension’.

Feedback

Brand extension can be a powerful means of moving into new markets

without the need to build up the name each time. However, a brand’s

overall success is dependent upon the sum of its parts, so each extension

must be nurtured to ensure it does not under-perform, and autonomous

control should be retained over each one.



Session 39 summaryThis final session of the three examining products has introduced you to

services and branding. You have learned about how services are defined

and classified, and have considered the special features of the services

product. You should now also understand the impact these features have

on the marketing of these offerings. The focus of the session has then

shifted to branding, providing you with an introduction to the concept, and

an explanation of different kinds of brands and how they are made up. The

notion of brand equity has been explained and you have also learned about

the important of brand identity and brand awareness. The next two

sessions continue the emphasis on marketing programmes, examining

marketing channels and pricing.

Now go to Session 40: Marketing channels and pricing 1 or take a break

before continuing.


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Glossary

brand equity

The marketing and financial value associated with a brand’s strength in a

market

brand extension

A company’s use of one of its existing brand names as part of an improved

or new product, usually in the same product category as the existing brand

brand name

That part of a brand that can be spoken, including letters, words and

numbers

brand values

The emotional benefits and less tangible identifiers attached to the brand,

providing reassurance and credibility for targeted consumers,

supplementing the specific brand attributes in making the brand attractive

credence qualities

Attributes that cannot be assessed even after purchase and consumption

experience qualities

Attributes that can be assessed only after purchase and consumption,

including satisfaction and courtesy

heterogeneity

Variability in the quality of service because services are provided by

people, and people perform inconsistently

inseparability

In relation to production and consumption, a characteristic of services that

means they are produced at the same time as they are consumed

intangibility

A characteristic of services, which lack physical attributes and cannot be

perceived by the senses

licensing

System in which a licensee pays commissions or royalties on sales or

supplies used in manufacturing

manufacturer brands

Brands initiated by producers to ensure that they are identified with their

products at the point of purchase

non-profit marketing

Activities conducted by individuals and organisations to achieve some goal

other than the ordinary business goals of profit, market share or return on

investment

own-label brands

Brands initiated and owned by resellers – wholesalers or retailers

perishability

A characteristic of services whereby unused capacity on one occasion

cannot be stockpiled or inventoried for future occasions

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search qualities

Tangible attributes of a service that can be viewed prior to purchase

service quality

Customers’ perception of how well a service meets or exceeds their

expectations

trademark

Legal designation indicating that the owner has exclusive use of a brand


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Session 40: Marketing channels and

pricing 1Prepared by Haider Ali and Sally Dibb

Session 40 126


Activity 40.1: Defining market channels and introducing supply

chain management 127

Activity 40.2: Considering different channel choices 128

Activity 40.3: Introducing channel integration and considering

different distribution methods 130

Activity 40.4: The selection of distribution channels and the role of

channel members 131

Activity 40.5: Music store operators face e-download competition 132

Activity 40.6: Innovation in banking channels 133

Activity 40.7: The distribution challenges faced when diversifying 134


Glossary 135

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Session 40

Introduction to Sessions 40 and 41Previous: Session 39: Products, services and branding 3

This part of the block deals with the marketing channels and pricing

elements of the marketing mix. Selecting appropriate marketing channels is

vital, as it is through these routes that products and services are made

available to customers. Most individuals take for granted that the products

they want to buy will be easy to obtain. Consumers increasingly expect to

shop from a variety of different marketing channels and outlets. Many

products which were previously only available on the high street can now

be purchased from an array of different outlets. The growth in the internet

as a shopping channel is one of the factors behind this trend, with many

traditional ‘bricks and mortar’ retailers now forced to distribute their

offerings through a range of channels. One clothing retailer now sells its

products through high-street and out-of-town retailers, over the internet, via

the telephone and through its own catalogue. This is known as multi-

channel retailing.

Firms need to use marketing channels which fit their customers’ needs and

expectations. For example, banking customers expect to be able to contact

their bank so that they can make the financial transactions needed to run

their lives. The same situation applies to business markets. A firm

supplying hotels and restaurants with crockery and cutlery must ensure that

its products can be quickly and easily supplied to its customers. In this

case, this may involve selling and supplying these products direct.

Setting appropriate prices is essential for any organisation because it

affects the level of revenue that will be generated. When prices are too

high, customers will be deterred from buying and overall revenue will fall.

Set the price too low and margins will suffer. In order to manage this

delicate balance, marketers need to systematically take into account a

range of factors before deciding on pricing levels. For example, a

confectionery manufacturer launching a new chocolate bar will need to

consider how much it costs to produce the bar, the costs associated with

distribution and promotion, and the prices of competing offerings.

In Sessions 40 and 41 you will be introduced to different types of marketing

channels and learn about the circumstances in which they are used. You

will also find out how marketers make pricing decisions and examine the

factors which they must consider when doing so. The material is divided

into Session 40, which examines marketing channels, and Session 41,

which introduces pricing. Specifically, the following topics will be covered:

. the nature, types and functions of marketing channels (Session 40)

. the role and use of supply chain management (Session 40)

. different types of channel integration and levels of market coverage

(Session 40)

. how distribution channels are chosen, and the roles of channel

members within them (Session 40)

. the characteristics and roles of price, and price competition and non-

price competition (Session 41)

. the factors affecting pricing decisions (Session 41)

. how pricing is managed in business markets (Session 41).

These sessions are based on Chapter 11 ‘Marketing Channels’ and

Chapter 12 ‘Pricing Concepts’ of Dibb and Simkin (pp. 322–76).

Business functions in context - Session 40: Marketing channels and pricing 1

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Activity 40.1: Defining market channels and

introducing supply chain managementAllow 25 minutes for the reading in Task A and 35 minutes for Tasks B

and C.

The first reading deals with the nature of marketing channels and supply

chain management. You will also find out about the functions of marketing

channels and be introduced to different channel types.

Task A


of the chapter up to but not including the section entitled ‘Channel

integration’.


Task B

This task asks you to follow the link below to take a short quiz. This quiz is

not marked and you can take it as many times as you like. You are the only

person who can see your score.

Now go to the market channels quiz. You may want to open this in a new

window or tab to keep your place in this session.

Feedback

This topic is covered on pp. 330–3 of Dibb and Simkin. You should note

that the four different types of marketing channel are generic, which means

that the technology used to implement them can change over time. For

example, hundreds of years ago artisans sold their products direct to the

public: an example of Channel A. Nowadays, a manufacturer with its own

website is able to do something similar.

Task C

Consider the following statement about distribution channels:

‘Shorter channels are usually a more direct means of distribution and

therefore are more efficient.’

Comment on whether or not you agree with this statement and explain your

reasons.

Feedback

Shorter channels are those where the producer sells direct to the consumer

or where there are as few intermediaries as possible, as in Channel B. If

there are no intermediaries, then the charges made by these channel

members are not incurred, which may mean lower prices for the consumer.

However, the issue is less straightforward than this explanation implies.

Take the example of the ‘cut-your-own Christmas trees’ in the quiz in Task

B. This business has no intermediaries and consumers may be able to buy

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their trees more cheaply than if they were to go to local stores and buy

ready-cut trees. However, in the ‘cut-your own’ situation the consumer has

to do a lot more work and it may be inconvenient for them to visit the farm.

The cost of petrol involved may also be higher. This shows that there is a

trade-off to be made with simple channels. They may be more efficient and

cheaper, but they may incur a greater cost to the customer.

Simpler channels can also be less efficient than more complex ones. If you

had to visit a number of different manufacturers’ warehouses to buy your

food, it is likely you would find this much less efficient than shopping at one

supermarket. On the other hand, this may be much less of a problem if you

are shopping on the internet, as visiting a number of different sites to make

purchases is relatively easy to do.

This shows that the issue of efficiency is more complex than it may at first

seem. Whether or not a shorter channel is more efficient will depend on

what is being sold and the channel that is being used. Another point to

bear in mind is that efficiency is not always the most important criterion for

customers or manufacturers.

This issue is discussed in the paragraph starting ‘Benefits of a long

channel’ on p. 332 of Dibb and Simkin.

Activity 40.2: Considering different channel

choicesAllow 35 minutes for Tasks A, B, and C.

The three tasks in this activity also relate to the reading you did in

Activity 34.1

Task A

Under what conditions is a producer more likely to use more than one

marketing channel?

Feedback

There are a number of reasons for using more than one marketing channel.

In some circumstances a firm must use different channels in order to

maximise sales. Perhaps products or services are being supplied to

different segments which must be served by different channels. Even the

same customers may not always use the same channels on all occasions.

Perhaps you can think of examples where this applies to you or your family.

Maybe you sometimes buy your books from a local retailer, but at other

times it is more convenient to shop online at Amazon.

This material is covered in the section entitled ‘Multiple marketing

channels’, on p. 333 of Dibb and Simkin.


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Task B

How does the number of intermediaries in the channel relate to the

assortments that retailers need?

Feedback

According to Dibb and Simkin (p. 328), assorting ‘is the process of

combining products into collections or assortments that buyers want to

have available in one place’. Retailers need to provide suitable

combinations of goods for consumers. These assortments must reflect the

kinds of products that consumers want to buy together. For example, if a

retailer sells pasta it may also be appropriate to stock pasta sauces,

parmesan cheese and garlic bread.

The greater the assortments needed, the more likely it is that retailers will

need to source products from a larger number of intermediaries. In some

cases, these sources may be relatively small and specialist.

Task C

What impact has the growing popularity of e-commerce had on marketing

channels?

Feedback

The growth of e-commerce has meant that more firms are using the internet

as a distribution channel. This has resulted in an increase in Channel A

marketing: direct to the consumer. There has also been an increase in

agency-type relationships. For example, it is possible to buy a range of

goods from amazon.com, not all of which are stocked by the company. This

is because the Amazon site allows consumers to place orders which are

actually fulfilled by third parties, even though the ordering process is

undertaken via Amazon.

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Activity 40.3: Introducing channel integration

and considering different distribution methodsAllow 10 minutes for the reading in Task A and 30 minutes for Tasks B

and C.

In the next reading you will be introduced to channel integration and find

out about different levels of market coverage.

Task A


‘Channel integration’ up to the end of the section ‘Exclusive distribution’.


Task B

Name and describe some companies that use (1) vertical channel

integration and (2) horizontal channel integration in their marketing

channels.

Feedback

1 There are plenty of examples of vertical integration that you could use

in your answer. Vertically integrated firms are those which own a

number of stages in the value chain. IT company Dell, which

manufactures computers and sells them direct to end users, is one

example. The firm also handles the customer support function. Global

fuel giant Shell also falls into this category, with ownership of the

production, refining, distribution and retailing of petrol and diesel.

Similarly, McDonald’s retails the food that it processes itself, although

the farmers who grow the potatoes and rear the livestock belong to

independent firms.

2 Examples of horizontal integration include Virgin Active in the UK, which

in 2007 bought out the Holmes Place chain of health clubs and

rebranded them under the Virgin name. Another example is the Spanish

bank Santander, which acquired British bank Abbey in 2006. However,

in this case Santander has chosen not to rebrand the bank. In contrast,

following financial difficulties, in 1994 the Midland Bank in the UK was

taken over by the Hong Kong and Shanghai Banking Corporation and

rebranded as HSBC.


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Task C

Explain the differences between intensive (intensive distribution), selective

(selective distribution) and exclusive (exclusive distribution) methods of

distribution.

Feedback

The key difference between the three types of distribution is the number of

outlets that are used. Exclusive distribution involves just one outlet type,

while selective distribution involves several outlets, with intensive

distribution using all those which are available. The appropriateness of

these distribution methods varies according to the type of product,

frequency of purchase, and speed of turnover. Convenience products such

as perishable foodstuffs are typically most suited to intensive distribution,

as they need to be readily available to shoppers and must be replenished

often. Customers are usually prepared to travel further for products which

are less frequently purchased, or where the level of service required from

sales staff is greater. In this case, selective distribution can be appropriate.

Speciality products can be made available through exclusive distribution,

because customers see a limited number of stockists as part of the image

they are buying into.

You can test your understanding of these concepts by thinking of some

examples of your own.

Activity 40.4: The selection of distribution

channels and the role of channel membersAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

The next reading deals with choosing distribution channels and the

behaviour of channel members.

Task A


including the section entitled ‘Legal issues in channel management’.

After having read the passage, do Task B.

Task B

Consider the following statement about the relationships between

distribution channel members:

‘Channel cooperation requires that members support the overall channel

goals.’

Explain the extent to which you agree or disagree with this statement,

giving your reasons.

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Feedback

Channel cooperation involves channel members such as manufacturers

and retailers working together in relation to issues such as the prices

charged and the way in which services are fulfilled. This is not always easy

to achieve, particularly if the overall goals are subject to dispute. Some

channel members may be seeking short-term profits, while others might be

prepared to sacrifice current profits for a longer-term growth in market

share. Even when two or more channel members are in agreement about

maximising profits or sales, they may disagree about how the returns

should be shared. Given that such channel members are independent

firms, it is no surprise that ‘[e]ach channel member wants to maximise its

own profits while maintaining as much autonomy as possible’ (Dibb and

Simkin, p. 341).

One of the reasons for integrating marketing channels is precisely to avoid

such channel conflict. In circumstances where there is no channel

integration, there are steps that firms can take in order to minimise or

manage conflict. For example, Dibb and Simkin explain how retailer Marks

& Spencer uses its power in the marketing channel in order to exert

influence over other channel members.

Activity 40.5: Music store operators face e-

download competitionAllow 5 minutes for the reading in Task A and 25 minutes for Task B.

Task A


case.

Task B


How can music store operators such as HMV and Virgin strive to maintain a

strong customer base in the face of competition from e-downloads, and

even from non-music stores providing music downloads?

Feedback

This is a difficult question, so you should not worry if you cannot

immediately think of an obvious solution. Although the material in Dibb and

Simkin does not directly answer the question, you can use what you have

learned so far to help you. The question clearly raises some important and

topical issues that are currently affecting traditional retailers. No doubt you

have read about or are already aware of some of these trends. In arriving

at an answer, it might help to think about your own behaviour or that of

other people you know. Despite being able to download music, have you

recently made a purchase at a music store? If so, in what circumstances

and for what reasons have you continued to use the traditional retail outlet?

Stores such as HMV and Virgin need to be realistic about the fact that the

delivery of music can take place through a number of different sources.


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They need to understand what makes them different from other delivery

channels and to focus on this. For example, having a physical presence on

the high street allows customers to experience aspects of music delivery

and consumption that they cannot enjoy elsewhere. Being physically

present enables customers to look at and buy artwork related to their

chosen CDs. The atmosphere in these retail outlets is also distinctive, and

many customers enjoy the process of walking into the store and perusing

the offerings in a manner that cannot readily be replicated by downloading

music from the internet.

Activity 40.6: Innovation in banking channelsAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘first direct’s innovative banking channels’.

Task B


1 Why is innovation in marketing channels generally difficult to achieve?

2 Why was first direct different from its rivals? What gave it differentiation

when it first launched?

3 Why might some potential customers of first direct have reservations

about the innovative nature of the service?

Feedback

1 In most product areas, consumers or business customers grow used to

interacting with companies or brands in ‘normal’ ways: innovative

departures may be outside this comfort zone and take a while to

become accepted, as the first telephone insurer Direct Line found in its

initial two years of operation in the 1990s. Moreover, contractual

arrangements with existing channel members may preclude changes in

distribution, as Ford discovered when it sought to direct sell the Ford

Think! electric car, ignoring its dealerships. In the case of first direct, the

necessary technology was costly and needed a while to gain customer

acceptance, especially because of the security fears connected with

banking: many people find face-to-face contact over a counter in a

branch reassuring. If innovation is quickly feasible, often rivals will be

quick to emulate the proposition. Although this has happened to first

direct, its well-targeted proposition has remained the envy of its now

numerous telephone and online banking rivals.

2 first direct is different from its rivals because it does not have a branch

network, instead offering contact via non-traditional means such as the

telephone and now the internet. When the bank first launched in 1989, it

was unique in offering a telephone-only service. In addition, the 24-hour,

365-days-a-year access to real people providing its banking services,

along with its competitive rates and novel accounts, have proved

irresistible to the clients who are now happy to endorse the company

and recommend it to their peers.

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3 For some customers there are huge benefits in being able to access

banking services through non-traditional means. However, others have

reservations about first direct’s innovative service because they like the

traditional physical aspects of banking provision. These include being

able to visit a bank’s premises and carry out transactions on a face-to-

face basis with the counter staff. Some of these customers apparently

gain reassurance from being dealt with personally by bank employees.

For some people, innovation can be viewed as a ‘step too far’, which is

why first direct’s owner, HSBC, operates other brands and branch

networks.

Activity 40.7: The distribution challenges faced

when diversifyingAllow 20 minutes for this activity.

In this activity you will learn about some of the problems which

organisations face when diversifying, with a particular focus on the impact

on distribution.

Task

Now go to ‘Difficulties of Diversifying’ (Roddick, 2008). You can also

access a transcript for ‘Difficulties of Diversifying’.

Feedback

In this video clip, the late Dame Anita Roddick, founder of The Body Shop

(The Body Shop International plc., 2008), discusses the difficulties of

diversifying and the challenges of a marketer changing its distribution

channel and not understanding the different challenges associated with it:

It might seem logical that big brands can easily diversify, but that is not

always the case. Brand extensions need careful thought and research in

order to properly assess their viability.



Session 40 summaryThis session has introduced you to the nature, types and functions of

marketing channels. You have learned about the role that channels play in

the market place and have found out about supply chain management. The

concepts of channel integration and market coverage have also been

introduced. Finally, you have considered how marketers select distribution

channels and what roles channels members play. In the next session the

pricing element of marketing programmes will be examined.

Now go to Session 41: Marketing channels and pricing 2 or take a break

before continuing.


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Glossary

assorting

The grouping of products that buyers want to have available in one place

exclusive distribution

Market coverage in which only one outlet is used in a geographic area

horizontal channel integration

The combination of institutions at the same level of channel operation

under one management

intensive distribution

The use of all available outlets for distributing a product

non-price competition

A policy in which a seller elects not to focus on price but to emphasise

other factors instead

price competition

A policy whereby a marketer emphasises price as an issue, and matches

or beats the prices of competitors

selective distribution

The use of only some available outlets in an area to distribute a product

supply chain management

The orchestration of the channel of distribution from sourcing supplies,

manufacture to delivery to the customer

vertical channel integration

The combination of two or more stages of the channel under one

management

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Session 41: Marketing channels and

pricing 2Prepared by Haider Ali and Sally Dibb

Session 41 138


Activity 41.1: Understanding price and non-price competition 138

Activity 41.2: Different factors which affect decisions about price 139

Activity 41.3: Pricing in business markets 140

Activity 41.4: Factors affecting pricing decisions in the luxury pen

market 141

Activity 41.5: Pricing policies and their relevance to the perfume

market 142


Glossary 144

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Session 41

Introduction to Session 41Previous: Session 40: Marketing channels and pricing 1




Activity 41.1: Understanding price and non-

price competitionAllow 15 minutes for the reading in Task A and 15 minutes for Task B.

Task A

The first reading helps you to learn about the characteristics and role of

price, and find out about price and non-price competition.


the chapter up to but not including the section entitled ‘Factors affecting

pricing decisions’.

After having read the passage, do the following tasks.

Task B

Compare and contrast price and non-price competition. Describe the

conditions under which each form works best.

Feedback

Under price competition, marketers highlight the price of their product as

the basis for selecting their offering in preference to those of competitors. In

non-price competition, the features and other benefits of the product are

emphasised more than the price. Price-based competition works best for

products and services which enjoy cost advantages over competitors and

where customers are price-sensitive. Non-price-based competition is more

appropriate where customers are less price-sensitive, where offerings are

high quality, and where products have advantages which are difficult to

copy. Customers must also desire these advantages and be able to

distinguish the product on offer from those of competitors. For example,

consumers often shop around for the best electricity and gas prices in a

market which is characterised by price competition. For consumers buying

luxury household goods, price is likely to play a less important role in the

decision.


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Activity 41.2: Different factors which affect

decisions about priceAllow 15 minutes for the reading in Task A and 25 minutes for Tasks B

and C.

Task A

The next reading introduces you to a range of factors which affect pricing

decisions.


section ‘Factors affecting pricing decisions’ up to but not including the

section entitled ‘Pricing for business markets’.


Task B

Why is it crucial to consider both marketing objectives (marketing objective)

and pricing objectives when making pricing decisions?

Feedback

Marketing objectives are set in terms of the goals the marketer would like

to achieve in the marketplace. They tend to be wide-ranging, encompassing

a mix of financial objectives (such as market share, sales volumes and

revenue) and non-financial objectives (such as improvements in customer

satisfaction, and awareness of the company’s products). Marketing

objectives are attained by using all elements of the marketing mix: product,

place, price and promotion. Pricing objectives are specifically achieved by

using the pricing element of the marketing mix. As such, they tend to more

directly impact upon financial measures of success, such as profit or return

on investment.

Clearly, both sets of objectives need to work in harmony. For example, the

car manufacturer Kia has an entry strategy that is price-led, which fits the

company’s selected brand positioning and target market strategy in Europe.

BMW or Mercedes would never adopt such a pricing strategy, as it would

contradict their over-arching marketing strategy and overall marketing

objectives.

Task C

Why must marketers consider consumers’ perceptions of value for money

when setting prices?

Feedback

Some customers can be regarded as value-conscious because they are

concerned about both the ‘price and quality of a product’ (Dibb and Simkin,

p. 363). These customers will consider what they receive from the marketer

in relation to what they have to give up in order to do so. What they receive

will include the features and benefits of the product, any advantages and

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disadvantages, and any status associated with its use (Dibb and Simkin,

p. 362). If the product is considered to be good value for money, these

customers will buy it.

When assessing the value of a purchase, customers take into account their

‘internal reference price’. This is the price an individual expects to pay for a

product based on previous experience. Where customers lack previous

experience, they will use an ‘external reference price’ which relates to the

prices they see charged for similar products. Financial constraints and

expectations about future prices also influence perceived value for money.

For example, in periods of house price inflation buyers may have more

positive perceptions of the value of property than when prices are falling.

Activity 41.3: Pricing in business marketsAllow 20 minutes for the reading in Task A and 15 minutes for Task B.

The final reading in this session considers pricing in business markets.

Task A


section ‘Pricing for business markets’ up to the end of the section entitled

‘Summary’.


Task B

Why is the concept of EVC (economic value to the customer) important

when setting prices in business-to-business markets?

Feedback

Economic value to the customer reflects the idea that a premium price can

be charged, while still offering the customer better value than the

competition (Dibb and Simkin, p. 367). In business-to-business markets,

sellers must demonstrate to their customers that there is a tangible or

measurable benefit associated with buying their goods. Such benefits might

arise when buying a particular product results in improvements in business

efficiency by reducing running, servicing or maintenance costs.


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Activity 41.4: Factors affecting pricing decisions

in the luxury pen marketAllow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A


case.

Task B


A company competing in the same sector as Montblanc (the German luxury

pen manufacturer) has asked you to prepare a short report explaining the

factors that influence the pricing decisions it should make for a new range

of pens. What areas should your report cover?

Feedback

Your report should explore a range of factors which might influence the

firm’s pricing decisions. Figure 12.3 (Dibb and Simkin, p. 358) provides a

useful summary of the factors to include. In reviewing these factors, a key

consideration will be to determine the basis on which the new range of

pens should compete. You will need to think about the advantages and

disadvantages of both price- and non-price-based competition. Given that

the company is said to be competing in the same market sector as

Montblanc, you might reasonably assume that non-price bases are more

likely.

Your review of factors influencing the pricing decisions should include the

marketing and pricing objectives that the firm might like to achieve, since

these will determine the pricing strategy. The firm’s own costs will also be a

key factor, as these will affect the minimum price that can be set. It will be

important to consider how the other marketing mix variables should fit

around the pricing decisions. For example, an exclusive, high-priced

product will need to be distributed through outlets and advertised in media

that reflect this positioning.

The report should take into account the other members of the

microenvironment. The prices being charged by key competitors will need

to be taken into consideration, particularly as these will influence buyers’

perceptions of prices. You should also mention the other channel members’

expectations of prices and think about how these might influence the final

prices.

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Activity 41.5: Pricing policies and their

relevance to the perfume marketAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘Perfume discounting – pricing policies to rattle the leading brands’.

Task B


1 What were the pricing objectives of perfume manufacturers such as

Chanel and Givenchy? Explain.

2 What impact could a price war have on brand loyalty in this market?

Why?

3 On what criteria had competition in this market previously been based?

Was the new focus on price a sensible development?

Feedback

1 Chanel and Givenchy’s pricing objectives were to maintain a prestige

position in the market. This was supported by a distribution strategy

which restricted the sales of their product lines to stores which could

support this image.

2 A price war could damage the prestige associated with the brand, thus

reducing its attractiveness to potential customers. If customers begin to

shop around for these perfumes on the basis of price, the extent to

which they are regarded as prestigious is likely to decline.

3 Previously, competition in this market had been strongly based around

the image of different brands. Perfume manufacturers have used

advertising and distribution to establish brand images and positions for

their products in the marketplace. They have done this because they

know that consumers often buy this product category with their ‘heart’

(that is, relying on their feelings and emotions) rather than with their

‘head’ (that is, making decisions based on logical deduction and

thinking). In other words, this is a product category which is linked to

how consumers feel about themselves and how they wish to be

portrayed. Focusing on price could negatively impact upon the images

which manufacturers have built around their products, with the

consequence that this previous investment could be wasted. For the

manufacturers, this would not be a sensible development.




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Session 41 summaryIn this session you have been introduced to the pricing element of

marketing programmes. You have found out about the characteristics of

prices and considered the factors that affect the pricing decisions which

organisations make. How pricing is managed in business markets has also

been discussed. In the next session, the marketing communications

element of the marketing programmes is introduced and explored.

Now go to Session 42: Marketing communications 1 or take a break before

continuing.

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Glossary

EVC (economic value to the customer)

The underlying principle that a premium price can be charged while still

offering the customer better value than the competition

external reference price

A comparison price provided by others

internal reference price

A price developed in the buyer’s mind through experience with the product

marketing objective

A statement of what is to be accomplished through marketing activities –

the results expected from marketing efforts

pricing objectives

Overall goals that describe what a company wants to achieve through its

pricing efforts


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Session 42: Marketing

communications 1Prepared by Haider Ali and Sally Dibb

Session 42 146


Activity 42.1: Explaining the role of promotion and introducing the

communication process 147

Activity 42.2: Introduction to the aims of promotion and the product

adoption process 148

Activity 42.3: Different promotional tools and how they are used 149

Activity 42.4: Marketing communications the BMW Mini way 151

Activity 42.5: How the promotional mix is influenced by product 152


Glossary 154

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Session 42

Introduction to Sessions 42 and 43Previous: Session 41: Marketing channels and pricing 2

Marketing communications is one of the most visible aspects of marketing,

involving the use of a mix of promotional tools. The billboard

advertisements you see when travelling to the shops, the leaflets that are

delivered with your post, any sales calls that you receive while at work, and

publicity material that you find on an organisation’s websites are all

examples of marketing communications. Each of these promotional tools is

designed to share information about a product, service, brand or

organisation with a particular target audience.

The promotional tools which firms use to communicate with customers are

vital in educating the market about their offerings and in encouraging

product adoption. For example, an organisation promoting a carpet cleaning

service must inform local householders and businesses about its existence

and its offering. Without this awareness, potential customers are unable to

consider whether or not they are interested in using the service. There are

many ways in which the organisation can inform potential customers,

including distributing leaflets to houses in the area, advertising in the local

paper, or sending sales staff to visit local businesses and offices.

Designing appropriate marketing communications can be challenging.

Marketers must carefully consider what they aim to achieve. Educating

customers about a new product, creating awareness of a new brand, or

encouraging positive views about a particular offering are some of the

possibilities. The next step is to consider which promotional tools are

appropriate to achieve the objectives, taking into account the nature of the

target audience. Sometimes a single type of promotion is appropriate, but

more often a combination of methods is chosen which will work in harmony.

The use of promotional tools is not confined to commercial businesses.

Many not-for-profit organisations use the same promotional tools. For

example, libraries and hospitals promote their services on the internet and

run stories about their activities in the local press. Perhaps you can think of

other ways in which not-for-profit organisations use marketing

communications tools.

In Sessions 42 and 43 you will look at some of the conceptual aspects of

marketing communications. You will be introduced to the role of promotion

within the overall marketing mix and will consider the process of

communication in more detail. There will also be an overview of the major

marketing communications methods, including advertising, public relations,

sponsorship, personal selling and direct marketing. The more tactical

issues associated with using different communications tools will not be

considered in depth. The material is divided into Session 42, which

examines the communication process, considers the aims of promotion and

different communication effects, and Session 43, which considers how the

elements of the promotional mix can be integrated.

Business functions in context - Session 42: Marketing communications 1

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During the sessions you will cover the following topics:

. the role of promotion and the steps involved in the communication

process (Session 42)

. how promotion can influence the product adoption process (Session 42)

. different aims of promotion and the five communication effects

(Session 42)

. the elements of the promotional mix and how these elements can be

integrated (Session 43)

. how ‘push’ and ‘pull’ approaches to marketing communications are used

(Session 43).

These sessions are based on Chapter 13 ‘An Overview of Marketing

Communications’ of Dibb and Simkin (pp. 377–404).

Activity 42.1: Explaining the role of promotion

and introducing the communication processAllow 15 minutes for the reading in Task A and 10 minutes for Task B.

In the first reading you will focus on the role of promotion and the

communication process.

Task A

Now go to Dibb and Simkin, Channel 13, pp. 377–83. Read from the start

of the chapter up to but not including the section entitled ‘Promotion and

the product adoption process’.


Task B

Identify several causes of noise (in marketing terms). How can a source

reduce noise?

Feedback

Noise (in marketing terms) occurs when communications from the sender

(the marketer) are not understood by the receiver (the potential customer).

Sources of noise might include the two not speaking the same language,

having different cultural backgrounds, or not having the same level of

technical expertise. Perhaps you have thought of some others.

A source can reduce noise by learning about the intended target audience

so that they understand them better. This may involve getting to know their

cultural background, their level of education, the language they speak and

so on. The point about language is an important one, which does not

simply refer to the national language spoken by the sender and receiver.

The complexity of language used in a communication can also be a source

of noise. For example, the sender and receiver may both speak English,

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but the sender may be using complex sentence structures and words which

are poorly understood if the audience has low levels of literacy.

Activity 42.2: Introduction to the aims of

promotion and the product adoption processAllow 10 minutes for the reading in Task A and 35 minutes for Tasks B

and C.

In the next reading you will read about promotion and its aims and the

product adoption process.

Task A

Now go to Dibb and Simkin, Chapter 13, pp.384–8. Read from the section

‘Promotion and the product adoption process’ up to but not including the

section entitled ‘The promotional mix’.


Task B

Describe the product adoption process. In certain circumstances, is it

possible for a person to omit one or more of the stages in adopting a new

product? Explain your answer.

Feedback

The product adoption process involves customers going through a number

of different stages. This entails moving from becoming aware of the

existence of a product, to taking an interest in the benefits that the product

has to offer, to evaluating the product (compared with alternatives), to trying

it out, to finally adopting it for their own use.

Like any model dealing with different stages of a process, it is possible for

people to omit one or more of the steps. For example, some customers

may move from interest to trial without really gaining the opinions of their

friends and relatives, which would be part of the evaluation stage. This is

sometimes the case when an individual is buying an innovative product that

others may not know much about.

You should note that the steps identified in this process model apply

particularly to the sale of new products where trial is an important stage.

For products where the customer has prior usage experience, trial is less

likely to be as important. You can relate this to your own situation. Perhaps

when you bought your first mobile phone you were keen to seek the views

of others with experience of the technology. After owning and using your

mobile for a while, you may not need advice from friends and family when

replacing your phone.

You will now read about the different elements of the promotional mix:

integrated marketing communications, selecting promotional mix

ingredients, and push policy versus pull policy.


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Task C

What is category need? Illustrate your answer with examples.

Feedback

Category need refers to a ‘consumer’s perception of his or her need for a

product in a certain category’ (Dibb and Simkin, p. 388). For example, the

MP3 player category is one that contains a number of different brands and

models. The Apple iPod falls into this category, as well as the Sony

Walkman and offerings by Creative technologies. This category of music

player is distinct from the CD player category that preceded it. Prior to that,

the Walkman category developed by Sony which used audio cassettes was

associated with listening to music on the move.

As you will have realised from your reading, category need is one of the

five ‘aims of promotion’. Understanding these aims is central to the study of

promotion. What marketers are trying to achieve with a particular

promotional campaign (the aims) will determine the promotional tools that

are suitable and how these should be used.

Activity 42.3: Different promotional tools and

how they are usedAllow 25 minutes for the reading in Task A and 25 minutes for Task B.

In the next reading you will learn more about the mix of promotional tools

available to marketers as they try to achieve their aims.

Task A


section ‘The promotional mix’ up to but not including the section entitled

‘Selecting promotional mix ingredients’.


Task B

Identify and describe the major promotional methods that can be included

in an organisation’s promotional mix. How does publicity differ from

advertising?

Feedback

The major promotional methods are advertising, sponsorship, sales

promotion, direct mail, personal selling, and publicity.

Advertising refers to forms of promotion which are paid-for and non-

personal. These two characteristics are important. Because the placing of

advertisements is paid for, this distinguishes it from publicity. And the non-

personal nature of advertising means that it is different from personal

selling. Sales promotion is distinct from advertising because it gives

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customers an incentive to make a purchase. You can probably think of

many examples of such sales promotions. Perhaps you have recently used

money-off coupons in the supermarket or taken advantage of a discount

offer for a local restaurant. Direct mail is different from all of these methods

because it involves making a non-personal, direct approach to the

customer, whereas many other forms of promotion are generally undertaken

on a mass basis. Although personal selling also involves communicating

directly with customers, it does so in a much more personal way. It entails

personal two-way communication, so sellers are able to handle consumers’

concerns much more directly. This gives personal selling an advantage

over other elements of the communication mix. Even so, this method is

financially expensive and only really worthwhile when high-value products

are being sold, for example cars.

Finally, publicity is defined as ‘[n]on-personal communication in news-story

form about an organisation and/or its products that is transmitted through a

mass medium at no charge’ (Dibb and Simkin, p. 392). The difference

between publicity and advertising is that the placing of advertisements is

paid for, whereas publicity pieces are published free of charge by a

newspaper, television, radio station or website. These media are often

prepared to carry such publicity on a free basis because they believe that

the story has news value. In other words, there is something intrinsically

interesting about the story which might make it appeal to readers, viewers

or listeners. For example, a story about the launch of a face cream may

have no news value at all. But if the cream is based on a radically new

technology that provides benefits which no other product can offer, the

media may be willing to give it free coverage.

Consumers tend to view publicity and advertising differently, often seeing

the former as more credible. This is probably due to a belief that publicity

items are carried because of their newsworthiness and not because media

owners have been paid to do so.

In recent years, some of the traditional distinctions between the different

elements of the promotional mix have become blurred. For example,

because consumers are more likely to trust editorial coverage than

advertising, some marketers try to negotiate editorial coverage for their

products in return for placing advertising. This raises questions about

whether such practices are ethical. In the long run, media owners need to

be careful not to compromise the credibility of the publications that do this.

Perhaps you have noticed that some publications deal with this issue by

running promotional features which look like editorial articles but which

have been paid for. The term ‘promotional feature’ is used to indicate to

readers that the coverage is not strictly editorial.

An example that demonstrates the blurring of advertising and sales

promotion occurs when a newspaper advertisement carries a coupon

offering readers 10 per cent off a product. Is this an advertisement or is it

sales promotion? The answer is probably that it is both. What is important

is that the marketer is making use of the positive aspects of both tools in

order to generate sales. The advertisement is being used to raise

awareness of the product’s benefits, while the money-off coupon is offering

customers an incentive to make a purchase more quickly than they

otherwise might.

The internet is sometimes treated separately to other elements of the

promotion mix, even though it tends to be used in comparable ways. For

example, advertising on the internet can have a similar impact to

advertising in other media. However, the ability to click on an

advertisement, connect to the advertiser’s own website and perhaps place

an order means that the promotion takes on characteristics of sales

promotion and direct mail.

When you are learning about the different elements of the promotional mix,

make sure that you think about the kinds of circumstances in which each


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tends to be used. You will find that some approaches are more helpful than

others in achieving different promotional aims. Sometimes a number of

elements need to be used in combination to achieve the desired effect. You

can maximise your learning from this session by relating the material to

your own experiences as a consumer. Next time you visit the supermarket

you could keep a lookout for examples of sales promotion – maybe you will

even save some money!

Activity 42.4: Marketing communications the

BMW Mini wayAllow 45 minutes for this activity.

In this activity you will find out more about how one organisation uses

marketing communications to promote its products. The aim of the exercise

is to witness the wide range of communications methods that car

manufacturer BMW uses to promote its iconic Mini brand and to think about

how these tools help to achieve the five communication effects.

Task A

This task asks you to go the website for the Mini car.

You will quickly recognise that this is an extensive and sophisticated

website which you could spend a good deal of time navigating. Click on the

‘About us’ tab at the top of the home page. Find the ‘Mini education’

section in the drop-down menu that appears, then go into the ‘Mini

marketing’ part of this section. The first thing you will encounter is a

reminder about some important marketing terms and what they mean.

There are also links to three other parts of the site dealing with ‘National

advertising’, ‘Direct marketing’ and the ‘Mini internet’. These give you a real

flavour of the variety of marketing communications tools that are used to

promote the Mini range.

Now go to the home page of the Mini website (BMW AG, 2008)

There is no feedback for this task.

Task B

Now answer the following questions:

Why do you think that the marketers at Mini use such a wide range of

marketing communications tools? How well do you think these tools reflect

the Mini brand personality?

Feedback

The car industry is extremely competitive, with manufacturers having to

communicate loudly and clearly in order to be heard by consumers. Like

other manufacturers, the marketers at Mini achieve this through a mix of

national advertising, direct marketing and internet communications. While

browsing the website you will have noticed the diverse mix of tools which

are used, ranging from outdoor billboards, online flash banners, print and

television advertising, through to the Mini internet site and stands at motor

shows. The company also makes extensive use of publicity, as the website

section entitled ‘Mini news’ illustrates.

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The intention is that these marketing communications tools will work

together to achieve the five basic communications aims described on pp.

387–8 of the Dibb and Simkin text. You will probably now know enough

about these aims to be able to link some of the examples of marketing

communications on the Mini website to one or more of these aims. For

example, national television advertisements are often designed to create

‘brand awareness’ and ‘brand attitude’, whereas the ‘Finance’ part of the

Mini website aims to facilitate purchase.

The Mini is described as an iconic brand and its personality is captured on

the website as ‘energetic, cheeky, stylish, self-confident, reliable and

exciting’. Elsewhere on the website the brand is described as ‘stylish’ and

‘racy’. The extent to which it is ‘individual’ and can be ‘individualised’ is

also emphasised. These personality traits are reflected in various ways in

the marketing communications designed for the model range. Here are just

a couple of examples for you to consider. The ‘exciting’ aspects of the Mini

personality are demonstrated by some of the dramatic television and

cinema advertising which has been created. Visitors to the site can also

download Mini computer games which embrace the sense of excitement

and fun surrounding the brand. The ‘individual’ character of the brand is

reinforced by the fact that consumers can design a bespoke Mini for

themselves. This involves selecting the colour and design of the paintwork

and interior space, and by deciding precisely which accessories are to be

included. If you click on the ‘Model range’ tab on the website home page

and then select ‘Design your Mini’ from the drop-down menu, you can try

this out for yourself. Although you will have your own views about whether

the marketers at Mini have done a good job, the brand has been the

recipient of many awards since its inception.

Activity 42.5: How the promotional mix is

influenced by productAllow 20 minutes for this activity.

Task

How can a product’s characteristics affect the composition of its

promotional mix?

Feedback

One important characteristic is whether the product being promoted is a

business or consumer good. The promotional mix for business products is

much more likely to rely on personal selling than consumer goods, which

are often heavily promoted using mass media advertising. However, both

types of products are often marketed through sales promotion. Of course,

as you probably realise, these are generalisations and there are many

examples which might not fit such a stereotypical view. For example, you

can probably think of some consumer products, such as houses and

insurance, which are marketed using personal selling. Similarly, advertising

is widely used in certain business markets, although the media selected

can be quite different from those targeting consumers.

Another important factor is the price of the goods being sold. Where prices

are high, there tends to be a greater reliance on personal selling, because

greater effort may be needed to convince customers to make a purchase.

This can be particularly important when customers have objections that

need to be overcome and questions which can only be answered on a one-


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to-one basis. From the seller’s point of view, it becomes more economically

viable to use personal selling as the price of products increases.

The stage that an item is at in its product life cycle can also have a bearing

on the marketing methods used. For example, during the introduction stage

a high level of promotion may be needed and a firm may use both

advertising and personal selling. On the other hand, during the decline

stage a greater reliance may be placed on sales promotion. The choice of

distribution channel can also be an important factor. Clearly, intensive

distribution is not usually associated with personal selling, but the use of

exclusive distribution is. This aspect also links to the point above about the

price of goods. Generally, intensive distribution is used for cheaper goods

and exclusive distribution is used for more expensive ones.



Session 42 summaryIn this session you have been introduced to the marketing communications

element of marketing programmes. This has involved explaining the nature

and role of marketing communications, describing the communications

process, and introducing the various marketing communications tools. As a

consumer you will already be familiar with many of these tools and you

may also have experienced them in your working environment. In the next

session, you will undertake a range of activities which help you to consider

in more detail the integration of different promotional mix elements.

Now go to Session 43: Marketing communications 2 or take a break before

continuing.

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Glossary

advertising

A paid-for form of non-personal communication about an organisation and

its products that is transmitted to a target audience through a mass medium

brand attitude

A consumer’s particular impression of a brand, formed by emotions and

logic or cognitive beliefs

brand awareness

The consumer’s ability to identify a manufacturer’s or retailer’s brand in

sufficient detail to distinguish it from other brands

brand personality

The psychological cues and less tangible desirable facets of a well-

presented brand

category need

The consumer’s perception of his or her need for a product in a certain

category

communication

A sharing of meaning through the transmission of information

direct marketing

The use of non-personal media, the internet or telesales to introduce

products to consumers, who then purchase the products by mail, telephone

or the internet

integrated marketing communications

The coordination and integration of all marketing communication tools,

avenues and sources within a company into a seamless programme that

maximises the impact on consumers and other end users, at minimal cost

marketing communications

The transmission of persuasive information about a good, service or an

idea, targeted at key stakeholders and consumers within the target market

segment

noise

A condition that exists when the decoded message is different from that

which was encoded

personal selling

The task of informing and persuading customers to purchase through

personal communication

product adoption process

The stages buyers go through in accepting a product: awareness, interest,

evaluation, trial, and adoption

promotional mix

The specific combination of ingredients an organisation uses to promote a

product, traditionally including four ingredients: advertising, personal selling,

publicity and public relations, and sales promotion


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public relations

A planned and sustained effort to establish and maintain goodwill and

mutual understanding between an organisation and its target publics

pull policy

A promotional policy in which a business promotes directly to consumers in

order to develop a strong consumer demand for its products

push policy

A promotional policy in which the producer promotes the product only to the

next institution down the marketing channel

receiver

An individual, group or organisation that decodes a coded message

sender

An individual, group or organisation that converts meaning into a series of

signs that represent concepts or ideas

source

A person, group or organisation that has an intended meaning it attempts

to share with an audience

sponsorship

The financial or material support of an event, activity, person, organisation

or product by an unrelated organisation or donor

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Session 43: Marketing

communications 2Prepared by Haider Ali and Sally Dibb

Session 43 158


Activity 43.1: Explaining pull and push policies and the

circumstances in which they are used 158

Activity 43.2: Barclaycard Merchant Services and the introduction

of ‘chip and pin’ 159

Activity 43.3: Matching promotion to positioning in the adult ice-

cream market 160

Activity 43.4: The distribution challenges faced when diversifying 161

Activity 43.5: Changing times impact upon Avon’s marketing 161


Glossary 163

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Session 43

Introduction to Session 43Previous: Session 42: Marketing communications 1




Activity 43.1: Explaining pull and push policies

and the circumstances in which they are usedAllow 15 minutes for the reading in Task A and 10 minutes for Task B.

In the first reading in this session you will consider in more detail how

elements of the promotional mix are selected. You will also be introduced to

the factors which influence the selection and consider the way in which

different promotional elements are used.

Task A


section ‘Selecting promotional mix ingredients’ up to the section entitled

‘Summary’.


Task B

Explain the difference between a pull policy and a push policy. Under what

conditions should each be used?

Feedback

A pull policy focuses on getting consumers to buy a particular product. This

may involve advertising or offering consumers incentives in order to make

the purchase. In contrast, a push policy focuses on making sure that the

product is available for consumers to buy in the distribution channel. This

tends to involve using elements of the promotional mix that will influence

members of the distribution channel to stock the product.

The conditions under which each policy should be used are as follows. If a

firm feels that there are adequate supplies of a product in the distribution

channel and all that is needed is the stimulation of final demand, then the

focus should be on pull policies. On the other hand, if the firm feels that

product sales are being hindered by poor stock levels among channel

members, the focus should be on push policies.

You should note that both pull and push policies may involve using very

similar promotional tools. What really differentiates the two policies is that

each is aimed at different points in the distribution channel.


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Activity 43.2: Barclaycard Merchant Services

and the introduction of ‘chip and pin’

Allow 5 minutes for the reading in Task A and 30 minutes for Task B.

Task A


case.

Task B


As marketing manager for Barclaycard Merchant Services, how would you

have promoted the need for the chip and pin installations to your retail

clients? What would have been the core messages and what ways could

have been used to communicate these messages to these retailers?

Feedback

Retailers were initially slow to take up the new keypads, perhaps because

of the expense of installation and acquisition of the hardware, and also

perhaps because they were not sure about how the technology actually

worked. These problems could be overcome by demonstrating the workings

of chip and pin to key decision makers in the retailers or their main

suppliers. Emphasis should be placed on ease of use and on the risks

arising from not installing the technology, including the fact that liability for

fraud has switched from card issuers such as Barclays to the retailers.

These messages could be communicated to retailers using direct mail and

face-to-face personal selling.

Although there are still retailers which have not installed chip and pin, their

numbers have rapidly reduced. Perhaps there are shops near you that

have not yet done so.

There is no single right answer to a question such as this. Your answer will

probably have touched on some of the issues above. However, as long as

your recommendations are meaningful and consistent with the frameworks

and models in the textbook, they are likely to be acceptable.

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Activity 43.3: Matching promotion to positioning

in the adult ice-cream marketAllow 5 minutes for the reading in Task A and 35 minutes for Task B.

Task A


study, ‘Häagen-Dazs: promoting an adult ice-cream’.

Task B


1 Why did the London launch of Häagen-Dazs utilise more than just

advertising?

2 Why did Häagen-Dazs target the adult market rather than families or

children?

3 Was the ‘adult’ positioning and promotional execution risky? Why did

Häagen-Dazs deploy this positioning strategy?

Feedback

1 The London launch of Häagen-Dazs involved not only advertising but

also sales promotion activity. The sales promotion involved free cupfuls

of the product being handed out. This gave potential customers the

chance to taste and experience the product before buying it. Since

Häagen-Dazs differentiates its ice-cream by the quality and luxury of its

ingredients, the free tasting was needed so that people could really

appreciate the difference that the ingredients make. A further promotion

involved supplying branded freezers which store-owners could use to

stock the Häagen-Dazs products. The aim was to ensure that potential

customers, such as visitors to cafés, could see that Häagen-Dazs ice-

cream was special and different from other products.

2 The market for children and families was already well served by existing

players and brands. The potential for targeting adults had previously

been identified by the confectioner Mars, which had launched an ice-

cream bar that aimed to appeal to adults as well as to children. The

expense of the ingredients and the impact of this on the cost of the

product are other possible reasons for targeting the adult market, where

selling a premium price ice-cream product may be easier to justify.

3 The adult positioning was risky, since this would be the first time that

something such as this had been undertaken. There was a risk for

Häagen-Dazs that adults might not accept that this ice-cream was

aimed at them, regardless of the positioning. The promotional execution

also carried risks, since consumers might not have considered a mix of

ice-cream and adult themes to be appropriate. In spite of these risks,

Häagen-Dazs deployed the positioning strategy because it had the

potential to clearly differentiate its offering from that of competitors.


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Activity 43.4: The distribution challenges faced

when diversifyingAllow 30 minutes for this activity.

In this activity you will hear about some of the issues surrounding the use

of word-of-mouth communication.

Task

Now go to ‘Harnessing the Power of Word of Mouth’ (Balter, 2008). You

can also access a transcript for ‘Difficulties of Diversifying’.

In this video clip, David Balter of BzzAgent (Bzzagent UK Ltd., 2008) – a

leading word-of-mouth media network – discusses the importance of word-

of-mouth in communicating with consumers.

Feedback

The clip shows how an agency promotes word-of-mouth activity and the

techniques that it uses in order to encourage word-of-mouth without

compromising the characteristics of this activity that make it so effective.

Word-of-mouth is simply one person telling another their point of view about

a product. When used well, it can be a most effective tool. Word-of-mouth

is especially useful in connecting with consumers today, as they are

bombarded with thousands of marketing messages each day. Using word-

of-mouth, you can have ‘real people talking to real people’ in a way that the

consumer can understand and relate to. Consumers are more willing to

trust word-of-mouth from someone they can relate to. Word-of-mouth helps

create marketing energy and it also lends itself to gathering important

research about a product.

Activity 43.5: Changing times impact upon

Avon’s marketingAllow 45 minutes for this activity.

Task


‘The Money Programme: Avon’s still calling’. This is an episode of the BBC

2 series The Money Programme, first broadcast on Friday 3

November 2006. There is also a transcript of ‘The Money Programme:

Avon’s still calling’.

Watch the entire programme now and then answer the following questions:

1 What changes have been made to Avon’s marketing mix in recent

years?

2 Why have these changes been made?

Feedback

Avon is doubling its global advertising budget. The company has spent

£100 million on a new research and development laboratory in the USA

where it develops more than 1,000 new products a year. In the USA Avon

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has developed a range of products specifically aimed at 18- to 24-year-

olds. In the UK a new network marketing initiative has resulted in a revised

company motto. As one of the employees says, ‘Avon is now a company

for women with a few good men’. This new big money-making opportunity

has resulted in the Avon men making up 5 per cent of the total workforce.

Although the Avon lady and her brochure offer a unique personal service

direct to your home, in this age of instant gratification consumers ask

themselves, ‘why wait three weeks for my Avon lady’s return visit when I

can easily get similar products from a high-street store with more

razzmatazz?’ With a non-existent high-street presence and no sustained

advertising since the 1960s, Avon is struggling to tap into the youth market

that is so dominated by glamour and celebrity. While most cosmetic firms

are reinventing themselves every four or five years in terms of their

packaging design and their advertising, Avon has lost all that because it is

out of the ‘media arena’. Avon is at a stage when it has to ‘step it up a

level and really focus on the brand building pieces’. While one in three

women in the UK is a regular customer, Avon is keen to ‘spread the word

to the two in three that perhaps don’t know Avon that well’.



Session 43 summaryIn this session you have delved further into the marketing communications

element of marketing programmes. A particular focus has been on how

promotional mix elements are selected and the factors which influence the

choice. You have also learned more about the way in which organisations

use different elements of the promotional mix. This has included

considering the role of ‘push’ versus ‘pull’ approaches to marketing

communications. This session brings to completion the review of marketing

programme elements. The following section summarises the key areas

covered in this marketing block.

Now go to Block 3 summary or take a break before continuing.


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Glossary

pull policy

A promotional policy in which a business promotes directly to consumers in

order to develop a strong consumer demand for its products

push policy

A promotional policy in which the producer promotes the product only to the

next institution down the marketing channel

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Block 3 summaryPrepared by Haider Ali and Sally Dibb

Block 3 166

Block 3 summary 166

References 169

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Block 3

Block 3 summaryPrevious: Session 43: Marketing communications 2

Now that you have finished working through the marketing sessions it is a

good time to revisit the block objectives which were initially presented in

the introductory session. These were to:

. explain the role and purpose of the marketing function in an

organisation

. understand the impact marketing can have on organisational

strategyexplain the most important decisions that marketing managers

take, and describe some of the tools that can be used to inform these

decisionsunderstand the challenges inherent in undertaking

marketingappreciate the importance of marketers taking a customer-

focused perspective.

These objectives have been addressed through a range of sessions

presented in three sections:

. Section A, Marketing defined and in context, has introduced the

marketing concept, examining its origins and scope (Sessions 28 and

29); explained how marketing strategy is developed (Session 30); and

introduced the components of the marketing environment (Session 31).

. Section B, Understanding consumers and business customers, has

examined the concept of consumer and business buying behaviour

(Sessions 32 and 33); considered how markets can be segmented and

explained the principles of segmenting, targeting, and positioning

(Sessions 34 and 35); and looked at how marketing research is used by

organisations to learn about customers, competitors and the marketing

environment (Session 36).

. Section C, Marketing programmes, has introduced each of the elements

of the marketing mix, including products, services and branding

(Sessions 37–39); marketing channels (Session 40); pricing

(Session 41); and marketing communications (Sessions 42 and 43).

It is not the aim of this summary to review all of this material. Instead, the

intention is to put what you have learned into context by thinking about a

practical scenario and then considering how the block materials relate to it.

Put yourself in the position of a marketing manager working for a

confectionery manufacturer. As a result of a recent review of its product

range, the business is considering developing a new range of sweets

aimed at children’s parties. The idea is to create a candy product with a

party theme which will be sold in multi-pack format. Parents and other party

organisers will buy the sweets to include as take-home gifts for children

coming to the party. In your role as marketing manager you have been

tasked with assessing the feasibility of the new product launch and advising

on all aspects of the marketing programmes.

Now that you have reached the end of the block, you should have a good

idea of what this task will involve. You should immediately recognise the

need to analyse and understand the market situation. In the course of this

block you have learned about the importance of analysing the wider

marketing environment (Session 30), the competitive environment

(Session 31), and customers (Sessions 32–36). All of these areas will

impact upon the success of the product launch and the attractiveness of

the market in the short, medium and long term.

Business functions in context - Block 3 summary

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A clear appreciation of customer needs will be essential (Sessions 32

and 33). You will need to know what kinds of parties children attend, about

the format, what kinds of activities take place, and what role confectionery

plays within them. You should also find out what kinds of confectionery

children want to receive and which products they are likely to enjoy and

find exciting. In addition, you will need to know how those organising the

parties view the confectionery options. How diverse are the needs of

children and party organisers and are there any obvious segments in the

market (Session 34)? For example, perhaps the expectations of different

age groups vary sufficiently to warrant different offerings. There are then

important questions about the attractiveness of the market to address. For

example, are there any macro-environmental trends which are likely to

affect the attractiveness in the short, medium and long term (Session 30)?

What is known about the competitiveness of the market and which

manufacturers are operating within it (Session 31)? You have probably

already realised that a suitable programme of marketing research

(Session 36) can be used to gather any additional data that you need to

answer these questions.

The insights gained from the programme of marketing research, which

should include testing of the proposed product and branding (Sessions 37–

39), should help in the design of other aspects of the marketing

programme. This research will also provide insights which aid the process

of refining the product concept, its branding and packaging (Sessions 37–

39). You should also have gained information about appropriate pricing

levels (Session 41), perhaps by combining the insights gained from

customers with marketing intelligence about competitors’ pricing levels. In

addition, you will have a clearer idea about the most suitable distribution

channels for the new product range (Session 40). These might include

department and variety stores selling party tableware, toy stores selling

party bags and balloons, as well as the usual confectionery outlets. You

might also have discovered that many parents now buy party products

online from providers of party supplies. At this stage you will need to

consider the marketing communications offering. Perhaps your research

has revealed the importance of word-of-mouth communication in promoting

party products, or maybe you have gleaned other insights into how party

organisers find out about what is available. Given such an interesting

product (party confectionery) and a challenging audience (children and their

parents), there should be plenty of scope to develop an exciting advertising

programme.

Although this scenario relates to a commercial situation, as you have

discovered, marketing is widely used in the public sector and by non-profit

organisations. Charities such as Oxfam and the WWF, the global

conservation organisation, apply marketing principles to identify and target

potential donors. National and local governments routinely use marketing

programmes to provide the public with information about the services they

provide. Education providers like the Open University are also heavily

reliant on marketing to recruit students onto their programmes.

Organisations such as these, like commercial businesses, use a range of

marketing tools within their day-to-day activities. You can probably think of

many examples for yourself, but here are just a few. Charities use

marketing research to gauge public opinion about good causes and to

understand their views about different fund-raising approaches. National

governments must continually monitor the economic environment to keep in

touch with consumer spending and its impact upon the economy. Higher

education establishments need to carefully check the macro-marketing

environment to keep abreast of trends which might impact upon demand for

their courses. For example, in times of recession demand for some

postgraduate courses in management often rises, as managers who have

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been made redundant take the opportunity to retrain or to improve their

qualifications.

Many public sector and non-profit organisations also employ marketing

experts, whose role it is to develop marketing strategies and marketing

programmes. For example, in response to European recycling targets, local

councils in the UK have recently been introducing rubbish recycling

initiatives. This has required consumers and businesses to be informed and

educated about how to use the new schemes. Many councils have

achieved this by devising marketing strategies targeting different user

groups. Marketing programmes have been specifically developed to

educate and inform these users. Press advertising, leaflet drops and direct

mail are just a few of the marketing tools that have been used.

The overarching aim of this block has been to help you understand how

marketing works within organisations and to introduce the most important

topics within the marketing subject. Now that you have reached the end of

the sessions, it is hoped that you have a much better appreciation of the

scope of marketing in modern organisations and of the diverse context in

which it is practised.

Your work on Block 3 should have helped you to answer TMA 02.

Now go to Block 4 introduction or take a break before continuing.


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References

Balter, D. (2008) ‘Harnessing the Power of Word of Mouth’, London: Fifty Lessons,

Ltd. [online], http://openuniversity.fiftylessons.com.libezproxy.open.ac.uk/viewlesson.

asp?l=715 (accessed 8 January 2009).

BMW AG (2008) Mini web pages [online], http://www.mini.co.uk/ (accessed 8

January 2009).

The Body Shop International plc. (2008) The Body Shop web pages [online], http://

www.thebodyshop.co.uk/ (accessed 8 January 2009).

The Boston Consulting Group, Inc. (2008) BCG – The Boston Consulting Group

web pages [online] http://www.bcg.com/ (accessed 8 January 2009).

BrainJuicer Ltd (2008) BrainJuicer web pages [online], http://www.brainjuicer.com/

(accessed 8 January 2009).

Bzzagent UK Ltd. (2008) BzzAgent web pages [online], http://www.bzzagent.co.uk/


The Coca-Cola Company (2008) Coca-Cola Citizenship web pages [online], http://

www.coca-cola.co.uk/what_we_do/ (accessed 8 January 2009).

Dibb, S. (2006) ‘Dove’s new beauty’, Open2.net web pages [online], http://www.

open2.net/healtheducation/body_mind/money/briefs_230606beauty.html (accessed 8

January 2009).

Fu, P (2008) ‘Targeting Your Market’ London: Fifty Lessons, Ltd. [online], http://

openuniversity.fiftylessons.com.libezproxy.open.ac.uk/viewlesson.asp?l=568


Geomagic, Inc. (2008) Geomagic web pages[online], http://www.geomagic.com/en/


The Guide Dogs for the Blind Association (2000) guide dogs home web pages

[online], http://www.guidedogs.org.uk/ (accessed 8 January 2009).

Haji-Ioannou, S. (2008) ‘Building Brand Awareness’, London: Fifty Lessons, Ltd.

[online], http://openuniversity.fiftylessons.com.libezproxy.open.ac.uk/viewlesson.asp?

l=363 (accessed 8 January 2009).

Haji-Ioannou, S. (2008) ‘Brand Extension’, London: Fifty Lessons, Ltd. [online],

http://openuniversity.fiftylessons.com.libezproxy.open.ac.uk/viewlesson.asp?l=366


Houghton Mifflin International Inc. (2008) Dibb, Simkin, Pride and Ferrell web pages

[online], http://www.dibbmarketing.com/ (accessed 8 January 2009).

Porter, M. E. (1985) Competitive Advantage, New York: Free Press

Roddick, A. (2008) ‘Difficulties of Diversifying’, London: Fifty Lessons, Ltd. [online],

http://openuniversity.fiftylessons.com.libezproxy.open.ac.uk/viewlesson.asp?l=128


Unilever (2008) Dove web pages [online], http://www.campaignforrealbeauty.co.uk/


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