marketing & service management focus contents

Marketing & Service Management FOCUS

Copyright 1st Business Certificate I

ContentsContentsContentsContents CONTENTS................................................................................................................................................... I

TABLE OF CONTENTS............................................................................................................................... II

1 PRINCIPLES OF MARKETING ........................................................................................................... 1

1.1 DEFINING MARKETING ..................................................................................................................... 1 1.2 STRATEGIC VS. OPERATIVE MARKETING............................................................................................ 1 1.3 GENERAL ASPECTS OF MARKETING MANAGEMENT............................................................................. 2 1.4 GENERAL MARKETING CONCEPTS .................................................................................................... 4 1.5 THE MANAGERIAL IMPORTANCE OF MARKET ORIENTATION ................................................................. 9 1.6 MARKETING AS A SUBJECT AREA ...................................................................................................... 9 1.7 TEST QUESTIONS .......................................................................................................................... 10

2 UNDERSTANDING CONSUMER BEHAVIOUR ............................................................................... 11

2.1 DECISION MAKERS AND THEIR ROLES ............................................................................................. 11 2.2 A MODEL OF CONSUMER BEHAVIOUR .............................................................................................. 11 2.3 FACTORS INFLUENCING THE PURCHASE DECISION........................................................................... 13 2.4 THE BUYING DECISION PROCESS .................................................................................................... 19 2.5 TEST QUESTIONS .......................................................................................................................... 28

3 IDENTIFYING MARKET SEGMENTS AND SELECTING TARGET MARKETS.............................. 29

3.1 MARKET SEGMENTATION ............................................................................................................... 29 3.2 MARKET TARGETING ..................................................................................................................... 38 3.3 POSITIONING ................................................................................................................................ 42 3.4 TEST QUESTIONS .......................................................................................................................... 52

4 MARKET RESEARCH AS AN INFORMATION SOURCE................................................................ 54

4.1 OBJECTIVES OF MARKET RESEARCH............................................................................................... 54 4.2 MARKET RESEARCH – THE STATUS QUO ......................................................................................... 54 4.3 DIFFERENT TYPES OF MARKET RESEARCH ...................................................................................... 56 4.4 APPLICATIONS OF MARKET RESEARCH............................................................................................ 56 4.5 MARKET RESEARCH METHODS ....................................................................................................... 57 4.6 QUESTIONNAIRE DESIGN ............................................................................................................... 66 4.7 MARKET RESEARCH PROCESS ....................................................................................................... 71 4.8 CHARACTERISTICS OF GOOD MARKETING RESEARCH....................................................................... 73 4.9 TEST QUESTIONS .......................................................................................................................... 75

5 MARKETING TOOLS ........................................................................................................................ 76

5.1 PRODUCT POLICY AND PRODUCT ASSORTMENT POLICY ................................................................... 77 5.2 TERMS POLICY.............................................................................................................................. 87 5.3 DISTRIBUTION POLICY ................................................................................................................... 92 5.4 COMMUNICATIONS MIX .................................................................................................................. 96 5.5 SALES PROMOTION ..................................................................................................................... 105 5.6 MARKETING MIX .......................................................................................................................... 106 5.7 TEST QUESTIONS ........................................................................................................................ 107

6 MARKETING PLAN ......................................................................................................................... 109

6.1 CORPORATE PLAN....................................................................................................................... 109 6.2 ELEMENTS OF A MARKETING PLAN................................................................................................ 110

TABLE OF FIGURES............................................................................................................................... 117

BIBLIOGRAPHY ...................................................................................................................................... 118


Copyright 1st Business Certificate II

Table of contentsTable of contentsTable of contentsTable of contents CONTENTS................................................................................................................................................... I

TABLE OF CONTENTS............................................................................................................................... II

1 PRINCIPLES OF MARKETING ........................................................................................................... 1

1.1 DEFINING MARKETING ..................................................................................................................... 1 1.2 STRATEGIC VS. OPERATIVE MARKETING............................................................................................ 1 1.3 GENERAL ASPECTS OF MARKETING MANAGEMENT............................................................................. 2 1.4 GENERAL MARKETING CONCEPTS .................................................................................................... 4

1.4.1 Needs, wants and demands ................................................................................................. 5 1.4.2 Products................................................................................................................................ 5 1.4.3 Benefits, costs and satisfaction ............................................................................................ 6 1.4.4 Exchange and transactions .................................................................................................. 6 1.4.5 Relationships, networks and the supply chain ..................................................................... 7 1.4.6 Markets ................................................................................................................................. 8 1.4.7 Marketers and prospects ...................................................................................................... 9

1.5 THE MANAGERIAL IMPORTANCE OF MARKET ORIENTATION ................................................................. 9 1.6 MARKETING AS A SUBJECT AREA ...................................................................................................... 9 1.7 TEST QUESTIONS .......................................................................................................................... 10

2 UNDERSTANDING CONSUMER BEHAVIOUR ............................................................................... 11

2.1 DECISION MAKERS AND THEIR ROLES ............................................................................................. 11 2.2 A MODEL OF CONSUMER BEHAVIOUR .............................................................................................. 11 2.3 FACTORS INFLUENCING THE PURCHASE DECISION........................................................................... 13

2.3.1 Cultural factors.................................................................................................................... 14 2.3.2 Social factors ...................................................................................................................... 14 2.3.3 Personal factors.................................................................................................................. 15 2.3.4 Psychological factors .......................................................................................................... 17

2.4 THE BUYING DECISION PROCESS .................................................................................................... 19 2.4.1 Types of buying behaviour ................................................................................................. 19

2.4.1.1 Complex buying behaviour............................................................................................................ 20 2.4.1.2 Dissonance-reducing buying behaviour ........................................................................................ 20 2.4.1.3 Habitual buying behaviour............................................................................................................. 21 2.4.1.4 Variety-seeking buying behaviour ................................................................................................. 22

2.4.2 Stages of the buying decision process............................................................................... 22 2.4.2.1 Problem recognition ...................................................................................................................... 23 2.4.2.2 Information search ........................................................................................................................ 23 2.4.2.3 Evaluation of alternatives.............................................................................................................. 24 2.4.2.4 Purchase decision......................................................................................................................... 25 2.4.2.5 Post-purchase behaviour .............................................................................................................. 26

2.5 TEST QUESTIONS .......................................................................................................................... 28

3 IDENTIFYING MARKET SEGMENTS AND SELECTING TARGET MARKETS.............................. 29

3.1 MARKET SEGMENTATION ............................................................................................................... 29 3.1.1 Bases for segmentation...................................................................................................... 30

3.1.1.1 Geographic segmentation............................................................................................................. 30 3.1.1.2 Demographic segmentation .......................................................................................................... 31 3.1.1.3 Psychographic segmentation........................................................................................................ 33 3.1.1.4 Behavioural segmentation............................................................................................................. 34

3.1.2 Making a customer segment profile.................................................................................... 37 3.1.3 Effective segmentation ....................................................................................................... 37

3.2 MARKET TARGETING ..................................................................................................................... 38 3.2.1 Evaluating the market segments ........................................................................................ 38

3.2.1.1 Size and growth of the segment.................................................................................................... 38 3.2.1.2 Objectives and resources of the company .................................................................................... 38 3.2.1.3 Segment interrelationships............................................................................................................ 38

3.2.2 Selecting the market segments .......................................................................................... 39 3.2.2.1 Single-segment concentration....................................................................................................... 39


Copyright 1st Business Certificate III

3.2.2.2 Selective specialization................................................................................................................. 40 3.2.2.3 Product specialization ................................................................................................................... 40 3.2.2.4 Market specialization .................................................................................................................... 40 3.2.2.5 Full market coverage .................................................................................................................... 40

3.3 POSITIONING ................................................................................................................................ 42 3.3.1 Differentiation tools ............................................................................................................. 42 3.3.2 Differentiation and positioning as seen by buyers.............................................................. 43 3.3.3 Criteria for differentiation and positioning........................................................................... 44 3.3.4 Tools for competitive differentiation.................................................................................... 45

3.3.4.1 Product differentiation ................................................................................................................... 46 3.3.4.2 Differentiation with services .......................................................................................................... 49 3.3.4.3 Personnel differentiation ............................................................................................................... 50 3.3.4.4 Channel differentiation .................................................................................................................. 51 3.3.4.5 Image differentiation ..................................................................................................................... 51

3.3.5 Communicating the company's positioning ........................................................................ 52 3.4 TEST QUESTIONS .......................................................................................................................... 52

4 MARKET RESEARCH AS AN INFORMATION SOURCE................................................................ 54

4.1 OBJECTIVES OF MARKET RESEARCH............................................................................................... 54 4.2 MARKET RESEARCH – THE STATUS QUO ......................................................................................... 54 4.3 DIFFERENT TYPES OF MARKET RESEARCH ...................................................................................... 56 4.4 APPLICATIONS OF MARKET RESEARCH............................................................................................ 56 4.5 MARKET RESEARCH METHODS ....................................................................................................... 57

4.5.1 Primary research ................................................................................................................ 58 4.5.1.1 Surveys......................................................................................................................................... 59 4.5.1.2 Observation................................................................................................................................... 61 4.5.1.3 Experiments .................................................................................................................................. 62 4.5.1.4 Panels........................................................................................................................................... 63

4.5.2 Secondary research ........................................................................................................... 64 4.5.2.1 Internal data sources .................................................................................................................... 64 4.5.2.2 External data sources ................................................................................................................... 64 4.5.2.3 Offline data sources ...................................................................................................................... 65 4.5.2.4 Online data sources ...................................................................................................................... 65

4.6 QUESTIONNAIRE DESIGN ............................................................................................................... 66 4.6.1 Formatting the question...................................................................................................... 66 4.6.2 Question wording................................................................................................................ 68 4.6.3 Scaling forms ...................................................................................................................... 69 4.6.4 Questionnaire design in practice ........................................................................................ 71

4.7 MARKET RESEARCH PROCESS ....................................................................................................... 71 4.7.1 The ideal process ............................................................................................................... 71 4.7.2 Process phases .................................................................................................................. 72

4.8 CHARACTERISTICS OF GOOD MARKETING RESEARCH....................................................................... 73 4.8.1 Scientific method ................................................................................................................ 73 4.8.2 Research creativity ............................................................................................................. 73 4.8.3 Flexible research methods ................................................................................................. 74 4.8.4 Interdependence of models and data................................................................................. 74 4.8.5 A good cost-benefit ratio..................................................................................................... 74 4.8.6 Healthy scepticism.............................................................................................................. 74 4.8.7 Ethical marketing ................................................................................................................ 74

4.9 TEST QUESTIONS .......................................................................................................................... 75

5 MARKETING TOOLS ........................................................................................................................ 76

5.1 PRODUCT POLICY AND PRODUCT ASSORTMENT POLICY ................................................................... 77 5.1.1 What is a product?.............................................................................................................. 77 5.1.2 Product life cycles............................................................................................................... 78 5.1.3 Width and depth of a production programme (product assortment)................................... 79 5.1.4 Types of product policy....................................................................................................... 80

5.1.4.1 Product innovation ........................................................................................................................ 80 5.1.4.2 Product variation (product modification over time) ........................................................................ 81 5.1.4.3 Product abandonment................................................................................................................... 81 5.1.4.4 Support services as part of product design................................................................................... 81

5.1.5 Resource allocation with the aid of portfolio analysis......................................................... 82


Copyright 1st Business Certificate IV

5.1.5.1 Market growth and market share .................................................................................................. 82 5.1.5.2 Interpretation................................................................................................................................. 83 5.1.5.3 Generic strategies......................................................................................................................... 85 5.1.5.4 Possible undesirable developments.............................................................................................. 86

5.2 TERMS POLICY.............................................................................................................................. 87 5.2.1 Pricing policy....................................................................................................................... 88

5.2.1.1 Supply in proportion to demand .................................................................................................... 88 5.2.1.2 Level of information of market participants ................................................................................... 88 5.2.1.3 Preferences................................................................................................................................... 89 5.2.1.4 Price fixing .................................................................................................................................... 89 5.2.1.5 Price elasticity of demand ............................................................................................................. 89 5.2.1.6 Costs............................................................................................................................................. 90

5.2.2 Different types of pricing policy........................................................................................... 90 5.2.2.1 Cost-oriented pricing..................................................................................................................... 90 5.2.2.2 Competition-oriented pricing ......................................................................................................... 90 5.2.2.3 Demand-oriented pricing............................................................................................................... 90 5.2.2.4 Pricing as purchase preference policy .......................................................................................... 90 5.2.2.5 Special measures within pricing policy.......................................................................................... 90

5.2.3 General business terms policy ........................................................................................... 91 5.2.3.1 Sales financing.............................................................................................................................. 91 5.2.3.2 Discounts ...................................................................................................................................... 92

5.3 DISTRIBUTION POLICY ................................................................................................................... 92 5.3.1 Sales organisation .............................................................................................................. 93

5.3.1.1 Direct sales ................................................................................................................................... 94 5.3.1.2 Indirect sales................................................................................................................................. 94 5.3.1.3 Franchising ................................................................................................................................... 95

5.3.2 Physical distribution............................................................................................................ 95 5.4 COMMUNICATIONS MIX .................................................................................................................. 96

5.4.1 Advertising .......................................................................................................................... 98 5.4.1.1 Advertising objectives ................................................................................................................... 98 5.4.1.2 Advertising objects........................................................................................................................ 99 5.4.1.3 Advertising partners .................................................................................................................... 100 5.4.1.4 Advertising subjects .................................................................................................................... 101 5.4.1.5 Advertising message................................................................................................................... 101 5.4.1.6 Advertising media and media vehicles........................................................................................ 102 5.4.1.7 Media timing................................................................................................................................ 103 5.4.1.8 Advertising budgets .................................................................................................................... 104 5.4.1.9 Controlling advertising effectiveness........................................................................................... 104

5.5 SALES PROMOTION ..................................................................................................................... 105 5.5.1 Personal selling ................................................................................................................ 105

5.6 MARKETING MIX .......................................................................................................................... 106 5.7 TEST QUESTIONS ........................................................................................................................ 107

6 MARKETING PLAN ......................................................................................................................... 109

6.1 CORPORATE PLAN....................................................................................................................... 109 6.2 ELEMENTS OF A MARKETING PLAN................................................................................................ 110

6.2.1 Introduction to the marketing plan .................................................................................... 111 6.2.2 Market analyses................................................................................................................ 111 6.2.3 Methods of market segmentation/customer analysis ....................................................... 114 6.2.4 Marketing mix: strategies.................................................................................................. 114 6.2.5 Promotion mix................................................................................................................... 115 6.2.6 Marketing results and supportive documents................................................................... 115

TABLE OF FIGURES............................................................................................................................... 117

BIBLIOGRAPHY ...................................................................................................................................... 118


Copyright 1st Business Certificate 1

1111 Principles of marketingPrinciples of marketingPrinciples of marketingPrinciples of marketing

Marketing means that companies, organisations and other business units focus their attention on customers and markets (modern marketing concept). Through marketing, a company (an organisation) is systematically connected with its environment. Profit maximisation tends to be the main objective, but there are also others like sales maximisation, a good supply of specific target groups, or a quick distribution of products and services.

1.11.11.11.1 Defining marketingDefining marketingDefining marketingDefining marketing

There is no uniform definition of the term marketing in today's literature. According to Drucker the whole company – including segments like production, human resources management or accounting – has to be seen from a customer perspective. Kotler describes marketing as a social process by which individuals and groups obtain what they need and want by creating products and exchanging them with others. For Meffert marketing means planning, coordinating, and controlling all company activities directed towards present and potential markets. Company objectives in the macroeconomic process of goods supply can be achieved by satisfying consumer needs on a long-term basis.

Today, most people consider marketing as much more than advertising or mere sales promotion – two terms that are occasionally wrongly used as synonyms for marketing.1

1.21.21.21.2 Strategic vs. operatStrategic vs. operatStrategic vs. operatStrategic vs. operative marketingive marketingive marketingive marketing

We can distinguish between strategic and operative marketing:2

Strategic marketing

Strategic marketing deals with defining the company’s fundamental objectives directed towards markets, products, and competitors in order to find answers to the following questions:

� Which markets should be served?

� Which customer segments should be served?

� Which competitors can be expected?

� Which products should be offered?

� Which trends will influence our markets and products?

1 See Otte (2004), p 5 2 See Otte (2004), p 5



Operative marketing

Operative marketing deals with the implementation of strategic marketing concepts. Specific questions relating to the marketing programmes are formulated and mainly concern product and price policies, as well as communication and distribution (logistics):3

� How should the products and / or services from the range be designed?

� Which communication and distribution measures are best to optimally achieve the objectives?

� Which price policy should be adopted?

� What should be the response to a specific marketing measure of a competitor?

1.31.31.31.3 General aspects of marketing managementGeneral aspects of marketing managementGeneral aspects of marketing managementGeneral aspects of marketing management

For Meffert, marketing management involves the target-oriented design of all market-oriented company activities. Figure 1 gives an overview of the diversity of marketing management processes.

Marketing management has to accomplish three different sets task complexes:4 market-oriented, company-oriented, and society-oriented tasks.

1. Market-oriented tasks: Research on and satisfaction of existing needs, and creation of new needs.

2. Company-oriented tasks: The company should be organised in line with the market-oriented tasks. Its marketing concept has to be established in the company at the strategic, organisational, and personnel policy levels.

3. Society-oriented tasks: In the United States in the early 1960s there was criticism of the "affluent society"; consequently, companies must not concentrate on profit maximisation only, but also assume social responsibility.5

3 See also Chapter 5 Marketing Tools 4 See Otte (2004), p 7ff 5 Key word "Corporate Social Responsibility“



Figure 1: Meffert: The marketing management process Source: Otte (2004), p. 8

Within the scope of market and company-oriented tasks, the marketing management process takes place on three different levels: formulating company missions, formulating company and marketing strategies, and designing a marketing mix.



Figure 2: The levels of the marketing process Source: Otte (2004), p 9

The company mission defines the company's raison d’etre and its fundamental objectives. The mission is relatively short and expressed in general terms. The company and marketing strategies refer to the guidelines with which the company objectives are to be achieved in an uncertain and complex environment, and within these strategies the marketing mix is defined. The marketing mix is the set of marketing tools the company uses to pursue its company objectives and strategies on the target markets.

1.41.41.41.4 General marketing conceptsGeneral marketing conceptsGeneral marketing conceptsGeneral marketing concepts

As mentioned before, there is no single understanding of marketing. Manifold definitions depend on different views and purposes. A fairly broad definition of marketing is as follows:6

Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.

6See Kotler (2003), p 9



This approach to marketing is based on the following core concepts:7

▪ Needs, wants and demands

▪ Products

▪ Benefits, costs and satisfaction

▪ Exchange and transactions

▪ Relationships, networks and supply chain

▪ Markets

▪ Marketers and prospects

1.4.11.4.11.4.11.4.1 Needs, wants and demandsNeeds, wants and demandsNeeds, wants and demandsNeeds, wants and demands

Human needs and wants are the origin of all marketing thoughts. People need air, water, food, clothing and other things for survival. People also have strong needs for recreation, education and other services8, developing clear preferences for certain types of goods and services.

The terms needs, wants, and demands can be described in the following ways. Needs express a lack of satisfaction. Needs are not created by society or marketers.9 They are embedded in human nature.

Wants express the desire to obtain specific objects to satisfy the need. Somebody needs food and wants a hamburger. Someone needs a suit and wants one by Hugo Boss. Wants are continuously shaped and reshaped by society and institutions like the family, the church, schools and firms.

Demands are wants for specific products backed by an ability and willingness to buy. Many people may want a Mercedes, but only a few can actually buy one. Companies must analyse not only how many people want to buy their product but also how many are actually willing and able to buy it.

1.4.21.4.21.4.21.4.2 ProductsProductsProductsProducts

People satisfy their needs and wants through buying and consuming products. The term product in this context is to be understood as everything that can be offered to people to satisfy a need or want. It serves as a generic term for goods and services. Most products consist of several components. The product "dinner" in a restaurant, for example, is made up of at least three different components: physical goods (food and drinks), services (service in the restaurant), and non-material values.10 Physical goods generally satisfy wants. We do

7 See Kotler (2003), pp 11-14 8 For more details see Abraham Maslow's hierarchy of needs in the 1BC Human Resources Management FOCUS script. 9 A marketer looks for one or more prospects with whom to exchange something of value. A shoe manufacturer will look for buyers for his shoes. 10 See Kotler (1997) p 10



not buy a washing machine to marvel at it but to wash our laundry. Manufacturers may get into difficulties if they pay more attention to their products than the services those goods can actually provide.11

1.4.31.4.31.4.31.4.3 Benefits,Benefits,Benefits,Benefits, costs and satisfaction costs and satisfaction costs and satisfaction costs and satisfaction

How do consumers choose from a range of products that satisfy a specific need? Let's assume Colin Smith has to cover five kilometres to work every week from Monday to Friday. There are several ways he can do that: the range of options covers public transport, bicycle, motorbike, car, taxi, inline skates etc., and also walking.

Let's assume Colin Smith also wants to satisfy other needs: speed, safety, comfort and economy (range of needs). Each available product has different properties which satisfy the range of needs. A bicycle will be slower and less comfortable than a car but more economical. So how does Colin Smith decide which product is most likely to satisfy his needs?

This is where benefit comes into play. Benefit defines how consumers assess the ability of a product to satisfy their needs. If Colin Smith was mainly interested in speed and comfort, and if all products were offered freely, he would surely take the car. But all products go hand in hand with costs, so Colin is not very likely to opt for the car, as driving is considerably more expensive than taking public transport. For cost reasons he would have to give up a series of other things to afford the car. Therefore, he will carefully weigh benefits and costs before deciding on a product that offers the best cost-benefit combination for him. Or in general terms, he will only be satisfied if his choice leads to a net benefit i.e. the benefit has to be higher than the costs.

1.4.41.4.41.4.41.4.4 Exchange and transactionsExchange and transactionsExchange and transactionsExchange and transactions

We talk about marketing as soon as people decide to satisfy their needs and wants through exchange. They obtain a desirable product from someone by offering something in return. For exchange potential to exist, five conditions must be satisfied:12

1. There are at least two parties.

2. Each party has something that might be of value to the other party.

3. Each party is capable of communication and delivery.

4. Each party is free to accept or reject the exchange offer.

5. Each party believes it is appropriate or desirable to deal with the other party.

Whether exchange actually takes place depends on whether the two parties can agree on terms that will leave them both better off (or at least not worse off) than before. Exchange is a value-creating process because it normally leaves both parties better off.

11 Some manufacturers are fascinated by technical details and gadgetry which their customers do not really need and are not willing to pay for. 12 See Kotler (2003), p 12f



The exchange is more than a single event, rather a process. The two parties are engaged in this process if they negotiate and arrive at mutually agreeable terms. When an agreement is reached, we say that a transaction takes place. Money is normally an element of a transaction (goods for money), but barter transactions which involve trading goods or services for other goods or services can also take place .

To make successful exchanges, marketers analyse what each party expects from the transaction. They try to find out what the parties are willing to give and take. Simple exchange situations can be mapped by showing the two actors and the wants and offerings flowing between them.

Figure 3: Example of a two-party exchange, as illustrated by Caterpillar

Source: Kotler (2003), p 13

The process of agreeing on mutually acceptable terms is called negotiation. These negotiations lead to the decision to transact or not.

1.4.51.4.51.4.51.4.5 Relationships, networks and the supply chainRelationships, networks and the supply chainRelationships, networks and the supply chainRelationships, networks and the supply chain

In Chapter 1.4 we had a closer look at transaction marketing which is only part of a larger concept called relationship marketing. Clever marketers strive to build mutually satisfying, long-term relations with customers, distributors, retailers, and suppliers. They accomplish this by offering and delivering high-quality products and services at fair prices to the other parties over time. The concept of relationship marketing can help to cut down on transaction costs and time. The ultimate outcome of relationship marketing is a marketing network between the relationship partners.

The supply chain refers to all partners involved in the channel stretching from raw materials to components to final products. The simplified supply chain for women's purses starts with hides, and moves through tanning operations, cutting operations, manufacturing and the



marketing channels which bring the purses to customers. The supply chain represents a value delivery system. Each company captures only a certain percentage of the value generated by the supply chain.13

1.4.61.4.61.4.61.4.6 MarketsMarketsMarketsMarkets

Exchanges lead us to the core concept of a "market". A market consists of potential customers with certain needs or wants that are willing and able to satisfy their needs or wants through exchange. The size of a market therefore depends on the number of people with a specific need and exchangeable resources (mostly money) that are willing to exchange their resource for what they want. Originally, a market was a physical place – like the village square – where buyers and sellers met to exchange goods.

Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (the housing market or grain market); but marketers view the sellers as constituting the industry, and the buyers as constituting the market. Sellers and buyers are connected by four flows. The sellers send goods, services and communications to the market; in return they receive money and information. The inner loop of Figure 4 shows the exchange of money for goods and services; the outer loop illustrates the exchange of information.14

Figure 4: A simple marketing system Source: Kotler (2003), p 10

Businesspeople often use the term ‘market’ in everyday language to cover various groupings of customers. They talk about product markets (the shoe market), demographic markets (the senior citizen market), and geographic markets (the Austrian market).

Modern economies work on the principle of division of labour. People specialise in providing specific goods or services and receive money in return with which they buy the services or goods they need. Economies, therefore, abound in markets (raw-material markets, labour markets, money markets, etc.) which form a complex network that is linked by different exchange processes.15

13 See Kotler (2003), p 14 14 See Kotler (2003), p 9 15 For details see 1BC Economics FOCUS script.



1.4.71.4.71.4.71.4.7 Marketers and prospectsMarketers and prospectsMarketers and prospectsMarketers and prospects

Marketing means acting on those markets in order to bring about potential exchange processes aimed at satisfying the needs and wants of people. A marketer is someone seeking one or more prospects with whom to exchange something of value. A prospect refers to someone able and possibly willing to exchange.

1.51.51.51.5 The managerial importance of market orientationThe managerial importance of market orientationThe managerial importance of market orientationThe managerial importance of market orientation

The Anglo-Saxon term "marketing" has gained great importance in business terminology. Originally it was merely understood as the commercialisation of goods for which there was sufficient demand anyway. Marketing endeavours in the 1950s were largely limited to distributing goods (distribution concept). Due to sufficient demand as a result of unsaturated markets, all marketing strategies focused on production. Production, not sales, was considered the central bottleneck that companies had to overcome to be successful. 16

Progressive mechanization and automation in the 1960s brought about an increase in productivity. Saturated markets emerged for the first time in various fields. Not production, but increasingly sales became the fundamental bottleneck. In most sectors today, marketers have to make a greater effort than potential customers to have a presence on the market. There has been a shift from a seller's market to a buyer's market, and marketers try to address this development by increasing their sales activities (selling concept).17

Initially companies thought that it would be sufficient to increase their sales activities in order to maintain their competitiveness. They soon realized that the only way to be successful was to orient their strategies towards the customers and their needs. A large number of goods were offered on the markets; this allowed consumers to choose among a variety of different products and decide on those that best suited their needs and expectations. As a result customer orientation became a central concern in sales management. This steady orientation of all corporate activities towards the current and potential needs of customers marked the birth of classic marketing concept. Companies have to offer their customers solutions to their problems, and a problem can be anything of concern to people. Customer wants and needs have become the central concern of marketing management.18

In short, sales represent the most important phase in corporate activities. When the goods produced or services offered cannot be sold, a private business is bound to fail. Also non-profit enterprises (like sports clubs, public theatres, museums, schools) carry out marketing activities. They would lose their right to exist if their products or services were not bought. In business studies we talk about the necessity of market-orientated management or simply market orientation.19

1.61.61.61.6 Marketing as a subject areaMarketing as a subject areaMarketing as a subject areaMarketing as a subject area

We are all bombarded by marketing every day. A Philips clock radio or the alarm on our Nokia mobile phone wakes us in the morning. We have Danone yoghurt for breakfast and

16 See Nieschlag et al. (2002), p 3 17 See Nieschlag et al. (2002), p 3 18 See Nieschlag et al. (2002), p 4 19 See Schneider et al. (2003), p 42



brush our teeth with Colgate toothpaste. We use Nivea products for personal hygiene and wear Levi's jeans. At the post office we find an appeal for money by UNICEF, different ads by life assurance companies and book clubs, or leaflets from a discount supermarket. Then we get into our VW and drive to an IKEA furniture store20. There are innumerable other examples, but this is just to show how marketing has become part of practically every area of life today.

Studying marketing is a fascinating matter. Marketing makes us aware of how companies operate on different markets and in different competitive situations. Key factors are customer behaviour, market partners and all other people involved in some way. Marketing opens up new and more precise methods of observing players such as marketers, potential customers or partners in product, service and information exchange processes. Marketing deals with operations that offer consumers specific products and services.21

1.71.71.71.7 Test questionsTest questionsTest questionsTest questions

1. Give a definition of the term "marketing".

2. Describe the differences between strategic and operative marketing.

3. What are the three task complexes that marketing managers have to cope with today?

4. Define the term "benefit" and explain why it is of great importance in marketing.

5. Which conditions have to be fulfilled to enable an exchange between two parties?

6. What does "supply chain" mean?

7. Draw a simplified diagram of a marketing system and specify the individual components.

8. Why is "market orientation" of vital importance to a company?

20 See Kotler et al. (2003) p 42 21See Scheuch (1996), p 3



2222 Understanding consumer behaviourUnderstanding consumer behaviourUnderstanding consumer behaviourUnderstanding consumer behaviour

This chapter deals with the principles of customer orientation in marketing. Marketers must try to find out how market partners (customers and other interest groups) behave and make their decisions according to their findings.22 Their products and all other goods and services have to meet the needs and wants of the target group they are looking to address in order to ensure good sales results.23

2.12.12.12.1 Decision makers and their rolesDecision makers and their rolesDecision makers and their rolesDecision makers and their roles

People involved in the process of having needs and trying to find solutions to satisfy them can play one or more of the following roles:24

▪ Buyer: Person who makes the actual purchase.

▪ User: Person who actually uses an economic good or service.

▪ Decider: Person who actually makes the decision to purchase.

▪ Influencer: Person who exerts a strong influence on parts of the process of finding a solution to the problem.

Measures aimed at influencing the market greatly depend on the differentiation and identification of the role structure. Different roles and role combinations require different sales tools.

2.22.22.22.2 A model of consumer behaviourA model of consumer behaviourA model of consumer behaviourA model of consumer behaviour

In the past, marketers were able to understand consumers through the daily experience of selling to them, but the growth of companies and markets has removed many marketing managers from direct contact with customers. Increasingly managers have to rely on market research25. Market research answers the following key questions:26

22 See Scheuch (1996), p 61 23 See Nieschlag (2002), p 588 24 See Scheuch (1996), p 61 25 See Chapter 4 – Market research as an information source 26 See Kotler (1997), p 171



1. Who constitutes the market? Occupants

2. How does the market buy? Operations

3. When does the market buy? Occasions

4. Where does the market buy? Outlets

5. Why does the market buy? Objectives

The main focus is on how consumers respond to the different stimuli from marketers. Companies that know how consumers respond to product features, prices, advertising and so forth, gain a competitive advantage over their rivals.27 Therefore, companies and academics try to scrutinize the relationship between marketing stimuli and the response of the buyers. The starting point for understanding buying behaviour is the stimulus-response model. As shown in Figure 5 marketing and other stimuli enter the "black box" of the consumer and cause certain responses. It is essential for a company to find out which decision-making processes actually take place in this black box.

Figure 5: Stimulus-response model of consumer behaviour Source: Kotler et al. (2003), p 303

The four (comprehensive) marketing stimuli28 are as follows:

1. Product 2. Price

3. Place 4. Promotion

27 See Kotler (1997), p 171 28 See also Chapter 5 – Marketing Tools



Furthermore, there are other stimuli factors stemming from the economy, technology, politics, and culture within the environment of the buyer. All of these stimuli go into the black box of the buyer and cause observable and measurable responses.

2.32.32.32.3 Factors influencing the purchase decisionFactors influencing the purchase decisionFactors influencing the purchase decisionFactors influencing the purchase decision

The stimulus-response model in Figure 5 shows how purchase decisions are influenced by the consumer's individual cultural, social, personal, and psychological background (see Figure 6)

Figure 6: Detailed model of the factors influencing buying behaviour Source: Kotler (2003), pp 183-199

Even though most of these factors cannot be influenced by the marketers they still have to be taken into account.29

29 See Kotler (1997) p 171



2.3.12.3.12.3.12.3.1 Cultural factorsCultural factorsCultural factorsCultural factors

Cultural factors exert the broadest and deepest influence on a consumer's buying behaviour. These factors include:30

Culture

Culture is the fundamental determinant of a person's wants and behaviour. A child growing up within a specific culture acquires a set of fundamental values, perceptions, preferences and behaviours. The family and other institutions play a key role in this process of socialisation.

Subculture

Each culture consists of smaller subcultures that provide more specific identification and socialisation for their members. Four types of subculture can be identified: nationalities, religions, racial groups and geographical regions.

Social classes

Virtually all human societies exhibit social stratification. This can take the form of a caste system as found in India, but more frequently it takes the form of classes. Social classes are divisions in a society in relatively homogeneous, stable and hierarchically ordered groups. Their members share similar values, interests and behaviour. Social classes reflect not only income, but also other indicators like occupation, education and area of residence. Social classes differ in dress, speech patterns, leisure activities, and other characteristics. They display distinct product and brand preferences in many areas, including clothing, recreational preferences and automobiles.

2.3.22.3.22.3.22.3.2 Social factorsSocial factorsSocial factorsSocial factors

In addition to cultural factors, a consumer's behaviour is also influenced by social factors:31

Reference groups

Behaviour is influenced by numerous groups. Reference groups consist of all the groups that have a direct (face-to-face) or indirect influence on the person's attitudes or behaviour. These reference groups subdivide into primary groups, in which the members – family, friends, neighbours, colleagues – have frequent or continuous contact, and secondary groups, such as religious communities, professional groups and trade-unions.

Reference groups influence their members in at least three ways:

1. They have an innovative influence by exposing an individual to new behaviours and lifestyles.

2. Individuals want to "belong" to the group. Here the reference group has a formative influence by moulding their attitudes and self-concept.

3. They create pressures for conformity that affect actual product and brand choices.

30 System according to Kotler (2003), pp 183-184 31 System according to Kotler (2003), pp 184-190



Marketers try to identify the reference groups of their target customers. Hendon made the observation that the influence of reference groups changes with the different life cycles of a product.32 During the period of introduction, the groups have a strong influence on purchase decisions, whereas brand choices are not affected to the same degree. During the period of market growth, the influence of groups is high on both product and brand choices. During maturity, the influence on purchasing decisions decreases, while brand choices are highly influenced by reference groups. During the phase of decline, there is hardly any influence on either product or brand choices.

Family

The family as a household is the most important buying organisation in society. Family members constitute the primary reference group with the most influence on buying behaviour. We can distinguish between two families in a buyer's life: the family of origin - parents, brothers and sisters – with a great influence on religious, political, and economic attitudes, and the consumer’s own family – spouse and children – with a more direct influence on buying behaviour. The time men and women spend on buying a product depends on the type of product.

Roles and statuses

A person participates in several groups – family, clubs, organizations. The person's position in each group can be defined in terms of role and status. Each role carries a status that reflects its standing in society. Consumers choose those products that best signal their role and status in society. Presidents of a company often drive Mercedes and not Ford; they wear expensive tailor-made rather than off-the-peg suits. Marketers know that certain products and brands have the potential to become status symbols. These status symbols vary according to social class and region, and over the course of time.

2.3.32.3.32.3.32.3.3 Personal factorsPersonal factorsPersonal factorsPersonal factors

A buyer's decisions are also influenced by personal factors. These include the buyer's age and stage in the life cycle, occupation, economic circumstances, lifestyle, and personality and self-concept:33

Age and stage in the life cycle

Consumers buy different goods and services dependent on their age. Taste in clothes, furniture, and recreation is age-related. Purchase decisions are also determined by the family life cycle. The eight stages of the family life cycle are listed in Figure 7, along with the financial situation and typical product interests of each group.

32 For more details see Chapter 5.1.2. Life Cycle of Products 33 System according to Kotler (2003), pp 190-195 and Kotler et al. (2003) pp 300-319



Figure 7: Stages in the family life cycle and buying behaviour Source: Kotler (2003), p 191

Marketers often choose life-cycle groups as their target market and develop corresponding products and marketing plans. Yet target markets are not always family based. There are also single households, or flat-sharing communities, for example.

Occupation

Occupation also influences consumption patterns. Blue-collar workers will buy work clothes, employees tend to wear suits and shirts. Marketers try to identify the occupational groups that have above-average interest in their products or services. A company can even tailor its products for certain occupational groups. Computer software companies, for example, design special computer programmes for lawyers, physicians, teachers, etc.

Economic circumstances

Product choice is greatly affected by economic circumstances: disposable income (level and stability), savings, assets (including the percentage that is liquid), credit facility, and



the propensity to save or spend. Marketing income-sensitive goods requires continuous monitoring of trends in personal income, savings and interest rates.34

Lifestyle

People from the same subculture, social class, and even same occupational group may lead quite different lifestyles. A lifestyle refers to a person's pattern of living as expressed in his or her activities, interests, and opinions. There are several approaches to defining lifestyle, with the AIO classification being just one of them.

Figure 8: The AIO framework Source: Kotler (1997), p 182

Dependent on research objectives or the questions posed, numerous lifestyle typologies have been developed over the years, in particular by the media and advertising agencies.

Personality and self-concept

Each person has personality characteristics that influence his or her buying behaviour. By personality, we mean a set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli. Personality is often described by traits like self-confidence, dominance, softness, sociability and adaptability. These traits can be a useful variable in analysing buying behaviour, provided that it is possible to classify different types of personalities, and also observe great interactions between these types and their product and brand choices. Many marketers use another idea called self-concept. The idea behind is that products lend a certain identity to their buyer and make his or her identity apparent.

2.3.42.3.42.3.42.3.4 Psychological factorsPsychological factorsPsychological factorsPsychological factors

A person's buying choices are also influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes.35

34 See also 1BC Economics FOCUS script.



Motivation

A person has many needs at any given time. Some needs are biogenic; they arise from physiological states of tension such as hunger, thirst or discomfort. Other needs are psychogenic; they arise from psychological states of tension such as the need for recognition, esteem, or belonging. Most needs are not strong enough to provoke immediate action. A need becomes a motive when it is aroused to a level of intensity sufficient to drive the person to act. By satisfying the need, the state of tension is reduced.

Psychologists have developed various theories on human motivation. Three of the best-known motivation theories are by Sigmund Freud, Abraham Maslow, and Frederick Herzberg.

Perception

A motivated person is ready to act. How the motivated person actually acts is influenced by his or her perception of the situation. Perception is the process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world. Two individuals with the same motivation in an objectively identical situation may act quite differently because they perceive the situation differently. There are three perceptual processes:

Perceptual Processes:

1. Selective attention

2. Selective distortion

3. Selective retention

People are exposed to a tremendous amount of daily stimuli. It is impossible for a person to attend to all of them, and so most stimuli will be screened out. Which stimuli do consumers attend to? Selective attention means that marketers have to work hard to attract consumers' attention. Products and services have to stand out from the crowd, so as not to disappear in a flood of stimuli on the target market. People are more likely to notice newspaper ads sized larger than the rest, advertisements in a four-colour print when the others are black and white, or advertisements that stand out through their novelty and difference.

Each person fits all incoming information into his or her personal scheme of thinking. Selective distortion describes the human tendency to twist information into personal meanings in such a way that it fits his or her pre-conceptions.

People will forget much of what they learn but will tend to retain information in their memory that offers possible alternatives, and supports their attitudes and beliefs. This is called selective retention.

These three factors of perception require intense marketing efforts to actually reach the target customers.

35 System according to Kotler (2003), pp 195-198 and Kotler et al. (2003) pp 300-319



Learning

When people act, they learn. Learning involves changes in an individual's behaviour arising from experience. Most human behaviour is learned. The learning theory says that marketers can build up demand for a product by associating it with strong drives, using motivating cues and providing positive reinforcement. A new company can enter the market by appealing to the same drives that competitors use and by providing similar cue configurations, because buyers are more likely to transfer loyalty to similar brands (generalization); or the company might design its brand to appeal to a different set of drives (discrimination) causing the buyer to recognize the special features of the brand.

Beliefs and attitudes

Through doing and learning, people acquire beliefs and attitudes. These in turn influence their buying behaviour. Naturally, marketers are highly interested in recognizing these beliefs, and deducing from them the image of their products. Buyers have strong beliefs and attitudes especially when it concerns the country of origin of certain products (Where was this car built?). Beliefs can rest on factual knowledge, personal opinion and mere ideas about something, or even carry certain emotions. Beliefs trigger off a relatively consistent behaviour towards similar objects. Thus, people do not need to interpret and respond to each new object they come across, saving energy and time for thinking.

As we have seen, numerous powers influence buying behaviour, and purchasing decisions are the result of complex interactions. Marketers need to analyse cultural, social, personal and psychological factors to determine how to manage product, price, distribution and communication required for a desired consumer response.

2.42.42.42.4 The buying decision processThe buying decision processThe buying decision processThe buying decision process

Individual elements have to be looked at when analyzing the buying decision process. Let's look at the different types of buying behaviour (Chapter 2.4.1) first. Then we can analyse the different stages of the buying decision process (Chapter 2.4.2).36

2.4.12.4.12.4.12.4.1 Types of buying behaviourTypes of buying behaviourTypes of buying behaviourTypes of buying behaviour

There are different types of buying behaviour. The decisions to buy toothpaste, a tennis racket, a personal computer, or a new car are all very different. Complex and expensive purchases are likely to involve many factors and many participants. We can distinguish between four different types of buying behaviour, based on the degree of differences among brands and the degree of buyer involvement (see Figure 9 and following descriptions).

36 System according to Kotler (2003), pp 202-209 and Kotler et al. (2003) pp 319-332



Figure 9: Four types of buying behaviour Source: Kotler (2003), p 201

2.4.1.1 Complex buying behaviour

Consumers engage in complex buying behaviour when they are highly involved in a purchase and aware of significant differences among brands. This is usually the case when the product is expensive, bought infrequently, risky and highly self-expressive. As a rule, consumers lack profound knowledge about this type of product category and have a strong need for learning. When buying a personal computer, for instance, a consumer may not know at first what features to look for. A great number of them have no meaning (yet). In this case, the consumer goes through a learning process in which he or she at first develops beliefs about the product, then attitudes, and finally makes a thoughtful purchase decision.37

The marketer of a high-involvement product must understand consumers' information-gathering and evaluation behaviour. The marketer needs to develop strategies that assist the buyer in learning about the product's attributes and their relative importance, and which call attention to the high standing of the company's brand on the more important attributes. The marketer needs to differentiate the brand's features, use print media to describe the brand's benefits in great detail, and motivate sales personnel and the buyer's acquaintances to influence the final brand choice.

2.4.1.2 Dissonance-reducing buying behaviour

Sometimes the consumer is highly involved in a purchase but sees little difference between brands. The high involvement is based on the fact that the purchase is expensive, infrequent and risky. In this case, the buyer will shop around to learn what is available and make a fast choice, as there are no pronounced brand differences. He or she might simply buy on price or convenience. A car, for example, is a high-involvement product, as it is expensive and plays an important role in the consumer's endeavour for self-expression. The consumer, however, is likely to assume that cars in a certain price category are of the same quality even if they come from different manufacturers.

37 See Kotler (2003), p 201



After the purchase, the consumer might experience dissonance that stems from noticing certain disquieting features about the car or hearing favourable things about other brands, and will be alert to information that supports his or her decision. In this example, the consumer first acted, then acquired new beliefs, then ended up with a set of attitudes. Marketing communications should supply beliefs and evaluations that help the consumer to feel good about his or her brand choice (this could be an instruction manual that starts out with "congratulations on having selected a fine product").38

2.4.1.3 Habitual buying behaviour

Many products are bought under conditions of low involvement and the absence of significant brand differences. Consider salt: consumers have little involvement in this product category. They go to the store and reach for the brand. If they keep reaching for the same brand, it is out of habit, not strong brand loyalty. There is good evidence that consumers have low involvement with most low-cost, frequently purchased products.39

With these products, consumer behaviour does not pass through the normal sequence of belief, attitude and behaviour. Consumers do not search extensively for information, evaluate characteristics and make a decision. Instead, they are passive recipients of information on television, or print ads. Ad repetition creates brand familiarity rather than brand conviction. Consumers do not develop a real attitude towards a certain brand, they simply buy what they know. After purchasing, they may not even evaluate the choice. For low-involvement products, the buying process begins with brand beliefs formed by passive learning and is followed by purchase behaviour, which may be followed by evaluation.

Buyers of low-involvement products show little brand loyalty, and marketers find it effective to use price and sales promotions to stimulate product trial. Advertisements for low-involvement products should concentrate on a few important points and mainly use symbols and pictures. They can easily be remembered and associated with a certain brand, especially when they are presented in the form of repeated short messages. For these products, television is more effective than print media because it is a low-involvement medium that is suitable for passive learning. Classic conditioning is the key word for any publicity campaign. Through repetition, buyers learn to make an immediate link between their preferred product and the symbol that goes with it.

Marketers use four techniques to try to convert a low-involvement product into one of higher involvement. First, they can link the product to some involving issue, e.g. the toothpaste brand "Elmex Sensitive" is linked to protecting sensitive teeth or exposed tooth necks. Second, they can link the product to some involving personal situation – for instance, by advertising a coffee brand early in the morning when the consumer wants to shake off sleepiness. Third, they might design advertising to trigger strong emotions related to personal value or ego defence. Fourth, they might add an important feature (for example, fortifying a plain drink with vitamins). These strategies at best raise consumer involvement from a low to a moderate level; they do not propel the consumer into highly involved buying behaviour.40

38 See Kotler (2003), p 201 39 See Kotler (2003), p 201 40 See Kotler (2003), p 202



2.4.1.4 Variety-seeking buying behaviour

Some buying situations are characterized by low involvement but significant brand differences. Here consumers often do a lot of brand switching. Think about cheese, wine or chocolate. The consumer has some beliefs about the product, chooses a certain brand without much evaluation, and evaluates the product during consumption. Next time, the consumer may reach for another brand - out of boredom, or a wish for a different taste. Brand switching occurs for the sake of variety rather than dissatisfaction.

The market leader and the minor brands in this product category have different marketing strategies. The market leader will try to encourage habitual buying behaviour by dominating the shelf space, avoiding out-of–stock conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free samples and advertising that presents reasons for trying something new.

2.4.22.4.22.4.22.4.2 Stages of the buying decision processStages of the buying decision processStages of the buying decision processStages of the buying decision process

On the basis of numerous consumer reports on shopping experiences, marketing scholars have developed a "stages model" to describe the buying decision process. Such stages models mainly concern complex buying decision processes i.e. expensive high-involvement products. We will use the model shown in Figure 10 according to which a consumer passes through five stages: problem recognition, information search, evaluation of alternatives, purchase decision, post-purchase behaviour. Clearly, the buying process starts long before the actual purchase and has consequences long afterwards. Marketers are advised to concentrate on the buying decision process rather than the purchase decision alone. This model implies that consumers pass through all five stages when buying a product. But this is not always the case, especially with low-involvement products. However, we will use the model in Figure 10 because it captures the full range of considerations that arise when a consumer faces a highly involving new purchase.

Figure 10: Five-stage model of the consumer buying process Source: Kotler (2003), p 204



2.4.2.1 Problem recognition

The buying process starts when the buyer recognises a problem or need. The need can be triggered by internal or external stimuli. With an internal stimulus, one of the person's normal needs - like hunger or thirst - rises to a threshold level and becomes a drive that must be satisfied. A person knows from experience how to deal with this drive and concentrates his or her attention on a specific class of objects known to suitably satisfy the drive. The need can also be aroused by an external stimulus. Marketers need to identify the circumstances that trigger a particular need. By gathering information from a number of consumers, marketers can identify the most frequent stimuli that spark an interest in a product category. They can then develop marketing strategies that trigger consumer interest.41

2.4.2.2 Information search

A consumer whose interest has been aroused will be inclined to search for more information. We can distinguish between two levels of arousal. The milder state of search is called heightened attention. At this level a person simply becomes more receptive to information about a product.

At the next level, the person may enter an active information search: looking for reading material, phoning friends, and concentrating on further search activities to learn more about the product. The intensity of the search will depend on several factors: intensity of the drive, initial amount of information, degree of difficulty to obtain more information, level of credibility attributed to further information, and degree of satisfaction derived from the process of searching. Normally, consumers will increase the number of search activities when switching from limited to comprehensive problem solving. Of key interest to the marketer are the major information sources to which the consumer will turn and the relative influence each will have on the subsequent purchase decision.

Consumer information sources fall into four groups:42

� Personal sources: Family, friends, neighbours, acquaintances

� Commercial sources: Advertising, salespersons, dealers, packaging, displays

� Public sources: Mass media, consumer-rating organizations, consumer associations

� Experiential sources: Handling, examining, using the product

The relative amount and influence of these information sources vary with the product category and the buyer's characteristics. Generally speaking, the consumer receives the most information about a product from commercial sources – that is, marketer-dominated sources. However, the most effective information comes from personal sources. Each information source performs a different function in influencing the buying decision. Commercial information normally performs an informing function, and personal sources perform a legitimising or evaluation function. For example, physicians often learn of new drugs from commercial sources but turn to other doctors for evaluative information.

41 See Kotler (2003), p 204 42 See Kotler (2003), p 204



Marketers need to identify the consumer's information sources and evaluate their relative importance. Consumers should be asked how they first heard about the brand, which information came in later, and the relative importance of the different information sources. The answers will help the company prepare effective communications for the target market.

2.4.2.3 Evaluation of alternatives

How does the consumer process competitive brand information and make a final value judgement? There is no single process used by all consumers or by one consumer in all buying situations. There are several decision evaluation processes, the most current models of which see the process as cognitively oriented. That is, they see the consumer as forming judgements largely on a conscious and rational basis. Some basic concepts will help us understand consumer evaluation processes. First, the consumer is trying to satisfy a need or solve a problem. Second, the consumer is looking for certain benefits from the product solution. Third, the consumer sees each product as a bundle of attributes with varying abilities for delivering the benefits sought to satisfy the need. The attributes of interest to buyers vary by product:43

� Cheese: Variety, form, texture, looks, qualities, degree of ripeness

� Computer: Memory capacity, graphics capability, availability of software

� Hotel: Location, cleanliness, atmosphere, price

� Mouthwash: Colour, effectiveness, germ-killing capacity, price, taste/flavour

� Lipstick: Colour, cover, applicability, quality of prestige, taste/flavour

� Tires: Safety, tread life, ride quality, price

Consumers vary as to which product attributes they see as most relevant and the importance they attach to each attribute. They will pay the most attention to attributes that can deliver the sought benefits. However, it should not be concluded that the decisive product attributes are also the most important ones. The consumers may consider some of the attributes decisive, because they have just come across them through an advertisement, or they have had a problem in which certain attributes played a major role. These attributes will then be in the consumers' minds right at the top of their list of priorities.

In addition to non-decisive product attributes, there can also be others the consumer has forgotten about, but, when reminded, would remember their importance. Marketers should concentrate more on those product attributes that are of real importance to the consumer rather than favour attributes that become decisive only in certain situations. Furthermore, they have to find out how much weight consumers really attach to decisive attributes at first sight.

Consumers tend to develop a set of brand beliefs by comparing the product attributes of different brands. The set of beliefs about a brand make up the brand image. The

43 See Kotler (2003), p 205



consumer's beliefs are influenced by his or her experience with the brand, and by selective perception, selective distortion, and selective retention.

2.4.2.4 Purchase decision

In the evaluation stage, the consumer forms preferences among the brands under consideration. The consumer may also form an intention to buy the most preferable brand. However, two factors can intervene between the purchase intention and the purchase decision, as shown in Figure 11.

Figure 11: Steps between evaluation of alternatives and a purchase decision Source: Kotler (2003), p 207

The first factor is the attitude of others. The extent to which another person's attitude reduces one's preferred alternative depends on two things: (1) the intensity of the other person's negative attitude towards the consumer's preferred alternative and (2) the consumer's motivation to comply with the other person's wishes. The more intense the other person's negativism and the closer the other person is to the consumer, the more the consumer will adjust his or her purchase intention. The converse is also true: A buyer's preference for a brand will increase if someone he or she respects favours the same brand strongly. The influence of others becomes complex when several people close to the buyer hold contradictory opinions and the buyer would like to please them all.

The second factor that can influence a buying intention is called unanticipated situational factors. Consumers make their buying intention dependent on issues such as household income, expected price for a certain product or benefits they hope to gain through the purchase. Any unanticipated situation before the actual purchase can change the purchase intention. Jack Hamilton might lose his job, some other purchase might become more urgent, or a friend reports bad experiences with the preferred computer. Preferences and even purchase intentions are not completely reliable predictors of purchase behaviour.

A consumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived risk. Expensive products are seen as risky. Consumers cannot tell for sure what the result of the purchase will be and respond with fear. The amount of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty and the amount of consumer self-confidence. Consumers develop routines for reducing risk, such as decision avoidance, information gathering from friends, and a preference for national brand names and warranties. Marketers must understand the factors that provoke a



feeling of risk in consumers and provide information and support to reduce the perceived risk.44

2.4.2.5 Post-purchase behaviour

After purchasing the product, the consumer will experience some level of satisfaction or dissatisfaction. Therefore, marketing does not end when a product is bought; it also embraces the phase afterwards called post-purchase marketing or after-sales marketing. This means that marketers must monitor not only post-purchase satisfaction, but also post-purchase actions, and post-purchase product uses.

Post-purchase satisfaction

After purchasing a product, the buyer may discover a certain flaw. While it is highly unsatisfactory for some to get a faulty product, it may be irrelevant for others. Some may even consider the flaw as something special and therefore an increase in value. In some cases, however, defective products can be harmful to the consumers. More than once the automobile, toy and pharmaceutical industries had to quickly recall any product that had the slightest chance of injuring users.

What determines whether a buyer will be highly satisfied, satisfied, somewhat satisfied or dissatisfied with the purchase? The buyer's satisfaction is a function of the closeness between the buyer's expectations (E) and the product's perceived performance (P): S = f (E, P). If the product's performance falls short of customer expectations, the customer is disappointed; if it meets expectations, the customer is satisfied; if it exceeds expectations, the customer is delighted. Consumers form their expectations on the basis of messages received from sellers, friends or other information sources. If a seller exaggerates the benefits, consumers will experience disconfirmed expectations, which lead to dissatisfaction.45

The larger the gap between expectations and performance, the greater the consumer's dissatisfaction. Here the consumer's coping style comes into play. Some consumers magnify the gap when the product is not perfect, and they are highly dissatisfied; others minimize the gap and are less dissatisfied. The importance of post-purchase satisfaction suggests that product claims must truthfully represent the product's likely performance. Some sellers might even understate performance levels so that consumers experience higher-than-expected satisfaction with the product.

When a person chooses between two or more alternatives, he or she is aware of the fact that any choice has certain benefits but also disadvantages, and is bound to feel disquiet or dissonance. Dissonance occurs after practically any kind of decision, and the person involved is likely to take measures to reduce this dissonance.

Post-purchase actions

Satisfaction or dissatisfaction with the product will influence a consumer's subsequent behaviour. If the consumer is satisfied, he or she will exhibit a higher probability of purchasing the product again, and speak favourably about the product and the producer to others. "Our best advertisement is a satisfied customer", as the slogan goes. Dissatisfied customers respond differently. In an attempt to strive for inner harmony – free from




conflicting opinions, conflicting knowledge and conflicting values – they will try to reduce the dissonance they feel. They may return the product, or dispose of it. They may seek information that confirms its high value, or simply avoid information that could reduce its value.

Sellers should identify the possible responses of their dissatisfied customers (see figure 12). The customer has the choice between responding or not responding. When responding, his or her actions may be public or private. Possible public actions are claims for compensation directed either to the company itself or via legal action, or complaints to private or public institutions that might become committed to the customer's issue. Such institutions could be the chamber of trade, chamber of commerce, medical association, certain TV programmes or magazines, and consumer associations. Possible private actions include making a decision to boycott the brand, the producer or the distributor; or advising friends against the product, the producer or the distributor.

Figure 12: Possible responses of dissatisfied customers Source: Kotler (2003), p 208

Marketers can also take measures to minimise the post-purchase dissatisfaction of customers.46

46 See Kotler (2003), p 208




1. Which roles can be played by people involved in the process of having needs and trying to satisfy them?

2. Which major issues are addressed in market research?

3. Describe the contents of the stimulus-response model of consumer behaviour.

4. Which different factors can influence buying behaviour? Describe them in detail.

5. How can lifestyle be classified? Give an example.

6. Why do different people perceive an identical situation in different ways?

7. Why is it important to know whether a consumer is highly or less highly involved in a purchase?

8. Why should a seller try to reduce the dissonances of a buyer?

9. Which stages of the buying decision process can be identified, and what do they imply for the seller?

10. What sources of information can be used by consumers?

11. Which unanticipated situational factors can influence purchase intention?

12. What post-purchase actions can be taken by the consumer?

13. Give one example of how a marketer may minimize the possible dissatisfaction of customers.



3333 Identifying market segments and selecting target Identifying market segments and selecting target Identifying market segments and selecting target Identifying market segments and selecting target

marketsmarketsmarketsmarkets

The market consists of buyers whose needs and buying behaviour vary greatly. Therefore, many companies do not try to serve all customers in a broad market but concentrate their attention on specific markets; this is called target marketing. Here sellers identify the major market segments, target one or more of those segments, and develop products and marketing programmes tailored to each segment.47

Target marketing requires marketers to take three major steps, as shown in Figure 13. STP marketing consists of market segmentation, market targeting, and market positioning.48

Figure 13: Three major steps of target marketing Source: Kotler (1997), p 249

3.13.13.13.1 Market segmentationMarket segmentationMarket segmentationMarket segmentation

The first major step of STP marketing is market segmentation i.e. identifying distinct groups of buyers who might require separate products or marketing mixes (see chapter 6). The broad market is split up into consistent sub-segments, with the aim to adapt the product offering to the requirements and expectations of a specific group of buyers.49 The most important criteria for market segmentation are as follows (see figure 14):

47 See Kotler (2003), p 278 48 See Kotler (2003), p 279 49 In tennis, for example, a beginner vs. a professional player



Figure 14: Criteria for market segmentation Source: Schneider et al. (2003), p 43

3.1.13.1.13.1.13.1.1 Bases for segmentationBases for segmentationBases for segmentationBases for segmentation

Two broad groups of variables are used to segment consumer markets: consumer characteristics and consumer responses.50

Irrespective of a specific product, some researchers try to form segments on the basis of consumer characteristics: geographic, demographic and psychographic characteristics. Then they examine whether these customer segments are suited to a specific category of products.

Other researchers try to form segments by looking at consumer responses to benefits, use occasions, or brands. Once the segments are formed, the researchers see whether different characteristics are associated with each consumer-response segment. For example, the researchers might examine whether people who want "quality" rather than "low price" in buying an automobile differ in their geographic, demographic, and psychographic makeup.

3.1.1.1 Geographic segmentation

Geographic segmentation requires division of the market into different geographical units such as states, districts, cities or neighbourhoods. The company can operate in one, in several, or all geographic areas, but must pay attention to local needs and preferences. There are pronounced regional differences, especially when it comes to eating habits.

50 See Kotler (2003), pp 287-294



Some companies even adapt their marketing departments to local variations. The US Campbell Soup Company, for example, employed regional market managers and provided them with the necessary budget to examine the local markets in order to tailor their products and sales promotions to regional distinctions.51

3.1.1.2 Demographic segmentation

In demographic segmentation, the market is divided into groups on the basis of variables such as age, gender, family size, family life cycle, income, occupation, education, religion, and nationality. Demographic variables are the most popular basis for distinguishing customer groups. One reason is that consumer wants, preferences and usage rates are often associated with demographic variables. Another is that demographic variables are easier to measure than most segmentation variables. Even when the target market is described in non-demographic terms (say, personality types), the link back to demographic characteristics is needed in order to estimate the size of the market and the media that should be used to reach it efficiently.

Here is how certain demographic variables have been used to segment markets:52

Age and life-cycle stage

Consumer wants and abilities change with age. A six-month-old baby has a different consumer potential than babies who are breastfeeding and only half as old. Today's toy manufacturers are aware of this and develop different toys for babies aged between three months and one year. This segmentation strategy makes it easier for parents and relatives to choose the right toy for the right stage of the child’s development.

Gender

Gender differentiation has long been applied in clothing, hairstyling, cosmetics and magazines. Occasionally, marketers in other industries also position their products as more masculine or feminine. While most men and women consume the same cigarette brands, the tobacco industry has increasingly launched cigarettes that are typically feminine. Flavour, packaging and advertising of "Eve" cigarettes, for example, emphasize a more feminine image and are hardly ever smoked by men.

The automobile industry is another sector that is beginning to recognize gender segmentation. In earlier years, cars were primarily designed for men. Since there are now more and more female car owners, some manufacturers such as Fiat or Suzuki are offering cars that appeal especially to women drivers. Advertisements show them as "women's darlings".

Income

Income segmentation is a long-standing practice in such product and service categories as automobiles, boats, clothing, cosmetics and travel. But other sectors are also partly interested in similar possibilities. Producers of spirits like Remy Martin or of genuine champagne target the most sophisticated and wealthiest customers.

51 See Kotler (2003), p 287 52 See Kotler (2003), pp 288-291



However, income does not always predict the best customers for a given product. One would assume that blue-collar workers buy Opel and Ford, while managers prefer Mercedes. Nevertheless, many managers drive an Opel or Ford (often as second car), and many a blue-collar worker owns a Mercedes. When colour television sets were first launched on the market, blue-collar workers were among the first buyers. It was cheaper for them to buy these sets than to go to the cinema and restaurants.

Generation

Many researchers are now turning to generation segmentation. Each generation is profoundly influenced by the times in which it grows up - films, events, music, prevailing political opinions, and economic and social conditions during childhood and adolescence. Marketers target a specific generation by using values and beliefs in their communications that are typical for that generation. One method used in generation segmentation is called cohort analysis. Members of a cohort share the same experiences, and their attitudes and preferences have been shaped by the same external major events. They often feel some form of unity due to the fact that they can look back on similar experiences in their lives. Marketers often advertise to a cohort group by using the icons and images prominent in their experiences.

Nationality

Many countries have a population with different nationalities. Marketers can use nationality as an effective form of segmentation in those countries where different national identities persist. Modern companies like Nestlé have identified the Turkish population in Germany as worthwhile market segment and are working on serving this segment profitably.

Social class

Especially in the US, social class has a strong influence on preferences in cars, clothing, home furnishings, leisure activities, reading and shopping habits. Many companies design products and services for specific social classes by furnishing them with those features that are attractive to the targeted social class.

Demographic segmentation based on several variables

Most companies segment a market by combining two or more demographic variables. A major US bank identified age and income as the two most important demographic variables when segmenting their retail banking customers. As shown in figure 15, it classified its customers into three different age groups and three different income groups. However, this classification can hardly be called ideal.



Figure 15: Segmentation bases of a major US bank Source: Kotler (2003), p 288

3.1.1.3 Psychographic segmentation

In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or personality or values. People within the same demographic group can exhibit very different psychographic profiles.53

Lifestyle

Lifestyle determines whether a customer is interested in a certain product, and the products he or she consumes are indeed an expression of his or her lifestyle.

Meat, for example, would seem like an unlikely product for lifestyle segmentation. A US-based supermarket, however, greatly increased turnover and profit when grouping meat not by type (pork, beef, lamb) but by lifestyle. Consumers found one section called "Meals in Minutes", one "Cookin' Lite", another "Kids Love This Stuff", and yet another "I Like to Cook". Habitual buyers of pork were animated to try out lamb or other types of meat of higher value.

Personality

Personality variables have been another common way of segmenting the market. Companies endow their products with a brand personality that corresponds to a target consumer personality. In the late 1950s, the US companies Ford and Chevrolet presented their cars with different personality traits. Advertisements showed the driver of a Ford as "independent, impulsive, masculine, open-minded, and self-confident". Owners of a Chevrolet were depicted as "conservative, economical, aware of personal prestige, less masculine and anxious to avoid extremes". A study was carried out to see if the descriptions

53 See Kotler (2003), pp 291-292



actually met the preferences of their customers. Ford and Chevrolet drivers had to undergo a personal test that measured their need for achievement, dominance, change, aggression, and so on. The results of the study showed that drivers of Ford cars featured somewhat higher values in the field of dominance, but hardly differed from Chevrolet owners in all other aspects. This led to the conclusion that the results stemming from the distribution of all needs overlapped to such an extent that it was practically impossible to identify different personalities. Later research on a broad range of products and brands partly managed to identify different personalities in the users of different brands.

In the last few decades, segmentation on the basis of personality variables has lost practical importance, as it is very difficult to correlate personality traits with other relevant marketing variables.

3.1.1.4 Behavioural segmentation

In behavioural segmentation, buyers are divided into groups on the basis of their knowledge of, attitude towards, use of or response to a product. Many marketers believe that behavioural variables – occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude – are the best starting points for constructing market segments.54

Occasions

Buyers can be distinguished according to the occasions when they develop a need, and purchase and use a product. For example, air travel is triggered by occasions related to business, holiday or family. An airline can specialize in serving people for whom one of these occasions is dominant. Charter airlines, for example, target holidaymakers.

A company can also focus on occasions that are not related to specific products but to special events in the life of a person, and examine whether these events are accompanied by certain needs. The company might meet these needs with a package of products or services. This approach is also called segmentation by critical life events and concerns events such as marriage, separation, divorce, buying a house, accident, illness, change of job or occupation, retirement and death of a family member. Companies providing their services on such occasions could be marriage or occupational counsellors, or funeral directors.

Benefits

Classifying buyers according to the benefits they seek in a product is another effective form of segmentation. Yankelovich used this method when studying the behaviour of buyers of watches. He found out that 23% of the buyers looked for the cheapest price; 46% made their purchase dependent on durability and generally high product quality; and for 31% the watch was to commemorate a special event. This led all major watch manufacturers to concentrate on the third segment and offer high-priced products. Watches were seen as highly prestigious objects and available only in specialised shops and at jewellers.

In the 1980s, Japanese producers of cheap watches rushed into the Swiss market famous until then for its high-priced and high-quality watches. Any counteraction by the Swiss had to focus on "cheap", which did not seem easy at first. But then they came up with watches made of plastic that were both a fashion accessory and a chronometer. They were even

54 See Kotler (2003), pp 292-294



profitable, because production costs were kept extremely low. Case, workings and glass were sealed instead of fixed with screws and bridges. The number of necessary parts was reduced from 153 to 51, and for the first time in history, the watch industry used a fully automated assembly line. In March 1983, the Swatch watch was presented in Zurich; with "Swatch" standing for Swiss Watch, but also for Second Watch.

Marketers use benefit segmentation to identify the most important benefits which buyers expect from certain product categories. They segment different types of buyers, they look for the different benefits in each case and they filter out those brands that can deliver these benefits. One of the most successful benefit segmentations was reported by Haley in his study of the American toothpaste market (see Figure 16). He found four benefit segments – economy, medicinal, cosmetic and taste. Each benefit-seeking group had particular demographic, behavioural and psychographic characteristics. For example, decay prevention seekers had large families, were heavy toothpaste users and were conservative. Each segment favoured certain brands. A toothpaste company can use these findings to focus its brand more precisely, to know the characteristics of each segment and to identify its most important competitors. The company can also find different benefit characteristics and launch a new brand that can deliver this benefit.

Figure 16: Benefit segmentation of the toothpaste market Source: Kotler (2000), p 268

User status

Markets can be segmented into regular users, non-users, ex-users, potential users and first-time users of a product. Market-share leaders tend to focus on attracting potential users and try to turn them into regular users. Smaller firms focus on attracting regular users of other brands. Potential and regular users require a different marketing strategy.

Usage rate

Usage rate is another form of market segmentation. Markets are segmented into light, medium and heavy users of a product: usage rate segments. Heavy users are often a small percentage of the market but account for a high percentage of total consumption.



Heavy users of a product tend to have the same demographic, psychographic and media-use characteristics. A profile of these users helps marketers decide on price, advertising and media strategies.

Marketers would rather attract one heavy user than several light ones, and keep him or her as a customer by means of relationship marketing. Airlines have developed programmes to win and retain frequent fliers as customers. For example, Lufthansa with its "Miles & More" programme: frequent fliers, mostly business travellers, benefit from flying with Lufthansa or any other member of the Star Alliance, and from choosing affiliated companies such as certain hotel chains or car rental firms. Additionally, heavy users are not only good customers. Often they are opinion leaders, and have a strong influence on and act as indicators for other people.

Loyalty status

Markets can also be segmented by loyalty. Customers may be loyal to a specific brand or to a certain supplier. Companies selling in a brand-loyal market have a hard time gaining more market share, and companies that wish to enter such a market have a hard time getting in.

By finding out which customers are shifting away from their brand, and when they actually do that, a company can learn about its marketing weaknesses. Switchers can always be won over with special offers.

A word of caution: what appear to be brand-loyal purchase patterns may reflect habit, indifference, a low price or the non-availability of other brands. Thus, a company must carefully interpret what is behind the observed purchase patterns.

Buyer-readiness stage

A market consists of people in different stages of readiness to buy a product. Some are aware of the product, some are unaware, some are informed, some are interested, some desire the product and some intend to buy. The relative number of people in each stage is important for designing the marketing programme.

Suppose a health agency wants to encourage women to have an annual Pap test to detect possible cervical cancer. At the beginning, most women may be unaware of the Pap test. The marketing effort should go into awareness-building advertising using a simple message. Once successful, the advertising should dramatize the benefits of the Pap test and the risks of not taking it. This may motivate more women to actually want to take the test. A sufficient number of adequate facilities has to be established which can offer this test to the large number of women who want to take it. Generally speaking, a marketing programme has to be based on the percentage of people in each stage of readiness to buy.

Attitude

Five attitude groups can be found in a market: enthusiastic, positive, indifferent, negative and hostile. Door-to-door workers in a political campaign use the voter's attitude to determine how much time to spend with that voter. They thank enthusiastic voters and remind them to vote; they reinforce those who are positively disposed; they try to win the votes of the indifferent voters; they spend no time trying to change the attitude of negative or hostile voters. If attitudes correlate with demographic descriptors, a company can more efficiently locate the best prospects, and handle them as a distinct market segment.



3.1.23.1.23.1.23.1.2 Making a customer segment profileMaking a customer segment profileMaking a customer segment profileMaking a customer segment profile

Companies should always make a detailed profile of any customer segment they are interested in. It is not sufficient to restrict a segment to "price-sensitive" or "quality-sensitive" customers. Segments are most useful when described in detail: demographic and psychographic characteristics, use of public media, attitudes, and behaviour.

Effective segmentation and segment profiles take into account the fact that a lot of buyers cannot be neatly pigeonholed into one segment. Many consumers are cross-shoppers. They may be tight-fisted when buying clothes, but lavish money on cars or food (hybrid buying behaviour).

3.1.33.1.33.1.33.1.3 Effective segmentationEffective segmentationEffective segmentationEffective segmentation

There are many ways of segmenting a market. Not all of them are useful. For example, table salt buyers could be divided into blonde and brunet customers, but hair colour is not relevant to the purchase of salt. To be useful, market segments must fulfil the following criteria:55

Measurable

The segments must be measurable, in order to measure and monitor the size, purchasing power, and other characteristics relevant to the marketing programme. Some variables produce segments that are difficult to measure: it would be too laborious to repeatedly determine the size of the segment of teenagers that smoke to rebel against their parents.

Substantial

The segments must be substantial, that is large and profitable enough to serve. A segment should be the largest possible homogeneous group worth targeting with a tailored marketing programme. It would not pay, for example, for an automobile manufacturer to develop cars for people who are shorter than 1.30m.

Accessible

It must be possible to effectively reach and serve a market segment. For example, a perfume company finds out that its perfume is often used by single women who like to go to bars late at night. It would be extremely difficult for the company to reach this group of customers, unless they lived in very specific areas, went shopping to certain places, or could be reached via special media.

Differentiable

The segments must be conceptually distinguishable and respond differently to different marketing-mix elements and programmes. If married and unmarried women respond similarly to a sales promotion for fur coats, they do not constitute separate segments.

Actionable

Effective marketing programmes must be an actionable formula for the marketer to attract and serve the segments.

55 See Kotler (2000), p 274



3.23.23.23.2 Market targetingMarket targetingMarket targetingMarket targeting

The next step after market segmentation is the definition of target markets. A company fixes evaluation criteria to measure how attractive a segment is. Then it focuses on one or more segments in which it wants to gain a foothold. Once the firm has identified its market-segment opportunities, it has to decide how many and which ones to target. Let us have a closer look at segment evaluation and segment selection.56

3.2.13.2.13.2.13.2.1 Evaluating the market segmentsEvaluating the market segmentsEvaluating the market segmentsEvaluating the market segments

In evaluating different market segments, the firm must look at two factors: size and growth of the segment, and objectives and resources of the company.57

3.2.1.1 Size and growth of the segment

Does a potential target segment have the right size and growth characteristics? And what is the "right size"? Larger companies tend to favour segments with a high sales volume and ignore or avoid smaller segments that would not be worth the effort. Smaller companies, in turn, tend to avoid big market segments as they would require too many resources (market-niche strategy).

Segment growth is always welcome. Companies usually strive to increase their turnover and profits. But also their competitors will try to increase their presence in growing segments, lowering the overall profit potential for each marketer.

3.2.1.2 Objectives and resources of the company

When a market segment seems to have positive size and growth characteristics, the company needs to weigh it against the company's objectives and resources. Some segments, though seemingly attractive and tempting, may clash with the company's long-term objectives. In the worst case, targeting this segment might absorb available resources destined for the company's primary objectives.

Let us assume that a segment matches all the objectives of a company. Now it is time for the company to check if it possesses the necessary skills and resources to be successful in this segment. Each segment calls for different requirements. A segment should be ignored when a company lacks one or more competence requirements, and is also not able to acquire them, and even if a company has all the necessary competence requirements, it may still not be enough. In order to be really successful in a market segment, a company needs to develop specific competitive advantages over its competitors. A company should never enter a market or a market segment unless it can offer some kind of special customer value.

3.2.1.3 Segment interrelationships

In selecting more than one segment to serve, the company should pay close attention to segment interrelationships in terms of cost, performance and technology. Two or more

56 See Kotler (2003), pp 299-300 57 See Kotler (2003), p 299



segments may be jointly served if they require the same technology, manufacturing processes or logistics, or if they have the same distribution channels. For example, a company sells carburettors to a car company. It could use the same sales organisation to sell fuel pumps. Cost distribution on both products would give the company a competitive advantage over other distributors that focus on carburettors only.

If the total costs of jointly serving two (or more) market segments are lower than serving the segments individually, we talk about economies of scope, i.e. economic benefits from joint business areas. This can be just as important as economies of scale, i.e. economic benefits through size.

3.2.23.2.23.2.23.2.2 Selecting the market segmentsSelecting the market segmentsSelecting the market segmentsSelecting the market segments

By evaluating different market segments the company hopes to find one or more segments which it is worth entering. The next step is to decide which and how many segments to target. The company can consider five patterns of target market selection to partly or fully cover a bigger market. These patterns are shown in figure 17.58

Figure 17: Five patterns of target market selection Source: Kotler (2003), p 299

3.2.2.1 Single-segment concentration

There are many examples of single-segment concentration. Porsche concentrates on the sports car market, while Toshiba specializes in laptop computers. Through concentrated marketing, the firm gains strong knowledge of the segment's needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies through specialising its production, distribution and promotion. If it achieves segment leadership, the firm can earn a high return on its investment.

In the simplest case a company chooses and concentrates on a single market segment. This can be done for various reasons: the company happens to have all the necessary requirements to be successful in this segment; it does not have the necessary means to attend to more than one single segment; there is no other competitor in this segment; this segment is the logical starting point for a later expansion into other segments.

58 See Kotler (2003), pp 299-300



However, concentrated marketing involves high risks. A particular market segment can turn sour, or a competitor may invade the segment. For these reasons, many companies prefer to operate in more than one segment.59

3.2.2.2 Selective specialization

The firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy between the segments, but each promises to be a money-maker. This multi-segment strategy has the advantage of diversifying the firm's risk. Even if one segment loses attractiveness, there are still others where the firm can make a profit.

3.2.2.3 Product specialization

The firm makes a certain product that it sells to several segments. An example would be a microscope manufacturer who sells to university, government and commercial laboratories. The firm makes different microscopes and offers specific customer services for the different customer groups, and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.60

3.2.2.4 Market specialization

The firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories such as microscopes, oscilloscopes, Bunsen burners and retorts. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products that the customer group can use. The downside risk is that the customer group may suffer serious budget cuts and greatly reduce purchasing from this specialized firm.61

3.2.2.5 Full market coverage

The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as IBM (computers), General Motors (vehicles) and Coca-Cola (soft drinks) can undertake a full market coverage strategy.

Large firms can cover a whole market in two broad ways: using undifferentiated or differentiated marketing.62

Undifferentiated marketing

In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer. It concentrates on the similarities – not differences – between customer needs and designs a product and marketing programme that will appeal to the broadest number of buyers. It relies on mass distribution and mass advertising. It aims to endow the product with a superior image in people's minds. An example of undifferentiated marketing was Coca-Cola in its early history when it launched one type of coke, in a standard bottle, in one single flavour for all customers.

59 See Kotler (2003), p 299 60 See Kotler (2003), p 299 61 See Kotler (2003), p 299 62 See Kotler (2003), pp 299-300



One of the major arguments in favour of undifferentiated marketing is cost reduction. The narrow product line keeps down costs of production, inventory, and transportation. The undifferentiated advertising programme keeps down advertising costs. Segment-oriented market research and planning is not required, which lowers the cost of market research and product management. Presumably, the company can turn its lower costs into lower prices to win the price-sensitive segment of the market.

When several companies compete with undifferentiated marketing they struggle hard for the big segments, while the smaller segments are not entirely satisfied. Some companies have recognized this shortcoming and have put again more effort into the smaller market segments. This has led to differentiated marketing.

Differentiated marketing

In differentiated marketing, the firm operates in several market segments and designs different products for each segment. General Motors does this when it says that it produces a car for every "purse, purpose, and personality". IBM offers many hardware and software packages for different segments in the computer market.

Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business:63

• Product modification costs: Modifying a product to meet different market-segment requirements usually involves R&D (research and development), and special tooling costs.

• Manufacturing costs: It is usually more expensive to produce 10 units of 10 different products than 100 units of one product. The longer the production setup time and the smaller the sales volume of each product, the more expensive the product becomes. However, if each model is sold in sufficiently large volume, the higher setup costs may be quite small per unit.

• Administrative costs: The company has to develop separate marketing plans for each market segment. This requires extra marketing research, planning, sales analysis, promotion and channel management.

• Inventory costs: It is more costly to manage inventories containing more products.

• Promotion costs: The company has to reach different market segments with different promotional programmes. Not all the media are used to the same degree, and volume discounts offered by different media cannot be made use of. The result is increased promotion-planning and media costs.

Since differentiated marketing leads to both higher sales and higher costs, no predictions can be made regarding this strategy's profitability. Figure 18 shows the differences between undifferentiated and differentiated marketing with respect to target markets.

63 See Kotler (2003), p 300



Figure 18: Strategies for managing target markets Source: Kotler (2003), p 300

3.33.33.33.3 PositioningPositioningPositioningPositioning

The last step in STP marketing is positioning. It is the act of designing the company's offering and image so that they occupy a meaningful and distinct competitive position in the target customers' minds. The product position describes how a product or its most important features are seen by the consumers. The product should occupy a clear and distinctive position in consumers' minds.64

3.3.13.3.13.3.13.3.1 Differentiation toolsDifferentiation toolsDifferentiation toolsDifferentiation tools

Let us assume that a company has studied all relevant target markets and chosen the one where it wants to become active. If it is the only active company on the target market, it is free to set its prices to make a profit. Overpricing, however, will attract competitors in a market with little or no barriers and lower the prices. On a target market with several competitors and undifferentiated products, the buyers will opt for the marketer with the lowest price. All the others are forced to lower their prices too. Differentiating its offers and positioning them in the customers' minds would be the company's only alternative to such a

64 See Kotler (1997), p 295



price war. By effectively differentiating and positioning its offers, the company no longer competes directly with the other competitors and can fix a price that meets the offer value.65

There are four general ways in which a company can differentiate and position its offering.66 A company can create value by being better, newer, faster or cheaper. "Better" means that the company outperforms its rivals' offers. "Newer" means developing a solution that did not exist before. "Faster" means reducing the performance or delivery time involved in using or buying a product or service. "Cheaper" means that similar products are sold at lower prices.

Companies that try to distinguish themselves solely with a low price should bear the following in mind:

� Consumers may view their products as cheap articles and therefore as inferior in quality.

� The firm may cut services to keep the price down, and this action may alienate buyers.

� Once the cheap offer runs smoothly, a competitor is likely to offer an even cheaper version.

3.3.23.3.23.3.23.3.2 Differentiation and positioning as seen by buyersDifferentiation and positioning as seen by buyersDifferentiation and positioning as seen by buyersDifferentiation and positioning as seen by buyers

Buyers or potential buyers face a psychological challenge when choosing between several companies, their products and their brands. This challenge consists of several sub-processes. They have to decide whether to look for differences. If they do and cannot find any, or if these differences are trivial and meaningless, all they can do is compare prices. However, if the differences do appear important and meaningful to the customers they have to identify these differences, i.e. differentiate them.67

Differentiation is the target customers' act of finding different features / characteristics of comparable objects.

Comparable objects can be manufacturers, marketers, brands, products or concrete sales offers. Buyers will limit their differentiation to features they consider meaningful. The extent of differentiation will depend on the different types of buying behaviour (see chapter 2.4.1)

Differentiating all offers intensively would be viewed as too time-consuming, costly and too much of a psychological burden for customers. In order to ensure better decision quality, buyers often use simplifying data processing models and decision models. One such model is brand categorisation: all offered brands are divided into sets in which data processing is carried out at different levels of intensity. A preliminary decision in favour of certain brands is made before a specific buying decision actually exists.




With the help of this or other data processing models, the buyers can relate different features to all relevant comparable objects and paint a picture in their heads. This means the individual comparable object is mentally positioned by the buyers.68

Positioning is the target customers' act of relating features to comparable objects.

It is crucial for marketers that the features customers associate with their company, brands, products, and offers are positive and promoting sales. The marketers develop appropriate differentiation and positioning strategies, and decide on the marketing tools they want to use. This, nevertheless, should always be guided by fundamental knowledge.

3.3.33.3.33.3.33.3.3 Criteria for differentiation and positioningCriteria for differentiation and positioningCriteria for differentiation and positioningCriteria for differentiation and positioning

Differentiation and positioning aims to highlight differences and communicate them effectively. But not all brand differences are meaningful or worthwhile. Not every contrasting feature is a differentiator and thus a basis for positioning. Companies have to weigh up costs and potential benefits. They must carefully select the ways in which they intend to distinguish themselves from competitors. A difference is worth establishing, and communication measures to enhance perception of this difference are worth taking, to the extent that they satisfy the following criteria:69

• Important: The difference delivers a highly valued benefit to a sufficient number of buyers.

• Distinctive: The difference either is not offered by others or is offered in a more distinctive way by the company.

• Superior: The difference is superior to other ways of obtaining the same benefit.

• Communicable: The difference is communicable and visible to buyers.

• Pre-emptive: The difference cannot be easily copied by competitors.

• Affordable: The buyer can afford to pay for the difference.

• Profitable: The company will find it profitable to introduce the difference.

• Sustainable: The difference has the potential to sustain the desired positioning.

Many companies have introduced differentiations that failed on one or more of these tests. AT&T picture phones partly failed on the market because not enough users were willing to pay extra money for the benefit of seeing the person they were talking to.

Positioning should be aimed at making customers relate a brand to highly valued features, on a long-term basis and in a long-lasting fashion. These features are usually abstract features that can be realised in a number of different forms, even if each form may be a meaningful differentiation for a short time only.




Crego and Schiffrin have proposed that customer-centred organisations should study what customers value and then prepare an offering that exceeds their expectations. They see this as a three-step process:70

1. Defining the customer value model. The company first lists all the product and service factors that might influence the target customers' perception of value.

2. Building the customer value hierarchy. The company now assigns each factor to one of four groups: basic, expected, desired and unanticipated. Consider the set of factors at a fine restaurant:

• Basic: The food is edible and the service satisfactory. (If this is all the restaurant does, however, the customer would normally not be satisfied.)

• Expected: There is good crockery and tableware, a linen tablecloth and napkin, flowers, discreet service and well-prepared food. (These factors make the offering acceptable, but not exceptional.)

• Desired: The restaurant is pleasant and quiet, and the food is especially good and interesting.

• Unanticipated: The restaurant serves an unexpected complimentary sorbet between the courses to increase the enjoyment of the dishes still to follow.

3. Deciding on the customer value package. Now the company chooses a combination of tangible and intangible items, experiences and outcomes designed to outperform competitors and win the customers' enthusiasm and loyalty.

These were a few basic thoughts and examples from a customer's point of view. Now let us focus again on the marketer's view and the tools for competitive differentiation.

3.3.43.3.43.3.43.3.4 Tools for competitive differentiationTools for competitive differentiationTools for competitive differentiationTools for competitive differentiation

Differentiation from a marketer's point of view is defined in the following way:71

Differentiation is the act of designing a set of meaningful differences to distinguish the company's offering from competitors' offerings.

A market offering can be differentiated along five dimensions: product, services, personnel, channel or image (see Figure 19)




Figure 19: Differentiation variables Source: Kotler (1997), p 283

3.3.4.1 Product differentiation

Differentiation of physical products takes place along a continuum. At one extreme we find highly standardized products that allow little variation, such as steel products (construction steel), nails and screws, or light bulbs. Yet even here, genuine variation is possible. Even in the case of simple consumer goods, such as coffee, experts in marketing succeed in differentiating their products and brands (Meinl, Kraft, Jacobs, Suchard).

At the other extreme are products capable of high differentiation such as automobiles, furniture or watches. Here the seller faces an abundance of design parameters. The main parameters are features, performance, conformance, durability, reliability, reparability and style:

Features

Most products can be offered with varying features. The starting point of feature differentiation is the stripped-down or "bare-bones" version of the product. The company can create additional versions by adding extra features – an automobile manufacturer can offer optional features such as electric windows, automatic transmission and air conditioning. Some of the features will be standard equipment and others installed on request. Each feature has the chance of capturing the interest of additional buyers.

Features are an important competitive tool for differentiating a company’s products. Some companies are extremely innovative in adding new features to their standard product. Others succeed internationally by continuously enhancing the features in their products, such as DVD players, games consoles or mobile phones with integrated cameras. Being the first to introduce valued new features is one of the most effective ways to compete.



How can a company identify and select appropriate new features?

One way of doing so is by contacting buyers at regular intervals and asking them a series of questions:

• How do you like the product?

• Are there any features that could be added and would improve your satisfaction? How much would you pay for each feature?

• How do you feel about each of several features that other customers suggested? (A catalogue with different features is presented.) How much would you pay for each feature you are interested in?

This research will provide the company with a long list of potential features. The next task is to decide which features are worth adding. For each potential feature, the company should calculate customer value versus company cost. These criteria are only the starting point. Features that require high company costs but have low customer value can be ruled out in the first place. Companies must also think in terms of feature bundles or packages. Some car companies offer their cars at three "trim levels". Companies must decide whether to offer feature customisation to customers at a higher cost or more standardisation at a lower cost. The latter would increase differentiation but not allow customers to specify all the individual options.72

Performance quality

Performance quality refers to the level at which the product's primary characteristics required by the customer operate. For example, a Mercedes performs better than a Suzuki if driving it is less strenuous for the user; if manoeuvring in everyday traffic is easy; if it accelerates in less time; and if it provides more safety. Buyers of costly products tend to compare the performance quality of different brands. They are willing to pay more for better performance if performance is more important to them than a lower price.

Performance quality is linked to product quality. Product quality is to be understood more broadly as a term that embraces all components of the product that influence performance.73

Conformance quality

Buyers expect products to have a high conformance quality, i.e. the degree to which the characteristics of a product correspond to a given standard.

In other words, performance and other characteristics have to conform to previously fixed specifications. Suppose a Porsche 911 is designed to accelerate to 100 kilometres per hour within 6.5 seconds. If every Porsche 911 coming off the assembly line does this, the model is said to have high conformance quality. The problem with low conformance quality is that the product will disappoint many buyers.74




Durability

Durability measures the expected useful life of a product and is a valued product attribute for most buyers.

The Swedish car company Volvo emphasised in its advertisements that it had the most durable brand in Sweden. The idea was to demonstrate high customer value that justified a high price. Buyers will generally pay more for products that have more durability. However, this rule is subject to some qualifications.

The extra price must not be excessive. Furthermore, the product must not be subject to pronounced fashion trends or technological obsolescence. In these cases the buyer may not pay more for longer-lived products. Thus advertising that a particular brand of personal computer or video camera has the highest durability may have little appeal because the product's features and performance levels are undergoing rapid change.75

Reliability

Buyers normally will pay a premium for products with more reliability. Reliability is a measure of the probability that a product will not malfunction or break down within a specified time period.

For example, a Mercedes is more reliable than a Ford if the chances that the Mercedes will not need any repairs within the first five years are 90%, while the Ford driver has to calculate a chance of 60%. Buyers are willing to pay more for products with a reputation of being reliable. They want to avoid the high costs of product breakdowns and repair time. Products from Germany or Switzerland tend to have a good reputation. Japanese companies have been especially successful in improving the reliability of their products (breakdown statistics).76

Reparability

Buyers prefer products that are easy to repair. Reparability is a measure of the ease of fixing a product that malfunctions or breaks down.

Thus an automobile made with standard parts that are easily replaced has high reparability. Ideal reparability would exist if users could fix the product themselves with little or no cost or time lost. The buyer might simply remove the defective part and insert a replacement part. As the next best thing, some products include a diagnostic feature that allows service people to correct a problem over the telephone or advise the user how to correct it. Worst case would be a product that fails and repair service and spare parts take a long time to arrive.

Many companies have lists of FAQs (frequently asked questions) on their websites, which reduces the number of calls and company costs.77

Style

Buyers are normally willing to pay a premium for products that are attractively styled. Style describes the product's looks and feel to the buyer.

75 See Kotler (1997), pp 285-286 76 See Kotler (1997), p 286 77 See Kotler (1997), p 286



Many car buyers pay a premium for a Ferrari because of its extraordinary look, even though Ferrari had a poor record of reliability in the past . Some car companies even hire automobile-design firms such as Pininfarina to design one of their models with extra styling. Some companies have outstanding reputation for styling, such as Apple in computers, Bang & Olufsen in hi-fi systems, and Swatch in watches. Style has the advantage of creating product distinctiveness that is difficult to copy. Furthermore, styling features can be registered as a trademark. Therefore it is surprising to see how little companies do in this regard. Many products are yawn-producing rather than eye-catching.

Under style differentiation, we must include packaging as a styling weapon, especially in food, cosmetics, toiletries and smaller consumer appliances. The package provides the buyer's first encounter with the product and is capable of turning the buyer on or off.78

3.3.4.2 Differentiation with services

In addition to differentiating its physical product, a firm can also differentiate the services offered with its product. When the physical product cannot be easily differentiated, the key to competitive success often lies in offering more value-adding services and improving their quality. The main service differentiators are described in more detail below:79

Order support

Order support refers to how easy it is for the customer to place an order with the company. Baxter Healthcare, for example, has eased the ordering process by supplying hospitals with computer terminals through which they can place orders directly. Many banks now provide home banking software to help customers get information and transact with the bank more efficiently. Customers today can do their grocery shopping via the internet without setting foot in a supermarket.

Delivery

Delivery refers to how well the product or service is delivered to the customer. It includes the speed, accuracy and care involved in the delivery process. Buyers will often choose the supplier with a better reputation for on-time delivery. Speed and reliability are important to both buyers and companies. They represent crucial elements in direct marketing. Many mail-order businesses charge extra for express delivery.

Installation

Installation refers to the work done to make a product operational in its planned location. Buyers of complex and heavy equipment expect good installation service from the vendor. The quality of installation service varies greatly from company to company. Customers with little or no technical knowledge are likely to choose a company that offers good installation service.

Customer training

Customer training refers to training the customer's employees to use the vendor's equipment properly and efficiently. For example, Siemens and General Electric not only sell and install their expensive medical equipment in hospitals but also take on the

78 See Kotler (1997), pp 286-287 79 See Kotler (1997), pp 289-291



responsibility for training the users of this equipment. In most developing countries, complex equipment that requires technical knowledge can only be sold when customer training is included. Also, the quality of customer training will finally decide if the buyer gets the expected benefit and contacts the same company again for future orders.

Customer consulting

Customer consulting refers to data, information systems and advisory services that the seller offers free or at a certain price to buyers. Many manufacturers and wholesalers help their direct customers to set up efficient computer ordering, accounting and inventory systems, and so forth. This improves the relationship between the company and its customers and enables more economical operations.

Maintenance and repair

Maintenance and repair are further services for differentiation. Caterpillar claims to offer a better and faster maintenance and repair service for its heavy-construction equipment than any other dealer in the world. Buyers of cars will opt for the car dealer with the best reputation for good maintenance and repair. Rolls Royce claims to send a mechanic by helicopter if the car gets stuck in a place which is inaccessible for other vehicles. Siemens offers remote connections for the repair of its computer tomographs.

Miscellaneous services

Companies can find many ways to add value by differentiating their customer services. They can offer a better product warranty or maintenance contract than their competitors. They can establish patronage awards, as the airlines have done with their frequent-flier programmes. There is practically no limit to the ways in which a company can distinguish itself from competitors by offering value-adding services to the customers.

3.3.4.3 Personnel differentiation

Companies can gain a strong competitive advantage through hiring and training better staff than their competitors. Specialised shops, for example, have qualified personnel that can offer good advice to the customers. Singapore Airlines enjoys an excellent reputation in large part because of its good-looking and charming flight attendants. Some Japanese department stores even go to the length of positioning employees next to doors and lifts to give customers a warm welcome. Better-trained personnel exhibit six characteristics:80

• Competence: The employees possess the required skill and knowledge.

• Courtesy: The employees are friendly, respectful and considerate.

• Credibility: The employees are trustworthy.

• Reliability: The employees perform the service consistently and accurately.

• Responsiveness: The employees respond quickly to customers' requests and problems.

80 See Kotler (1997), p 291



• Communication: The employees make an effort to understand the customer and communicate clearly.

3.3.4.4 Channel differentiation

Companies can achieve differentiation through the way they shape their distribution channels, particularly in terms of coverage, expertise, and performance. For example, Caterpillar's success in the construction-equipment industry is based partly on its superior channel development. Its dealers are found in more locations than the competitors', and are typically better trained and perform more reliably. Companies such as Dell in computers and Avon in cosmetics distinguish themselves by developing and managing high-quality direct marketing channels.81

3.3.4.5 Image differentiation

Even when competing offers look the same, buyers may respond differently to the company or brand image. Consider the worldwide success of Marlboro cigarettes. Even though most cigarettes have practically the same taste and are distributed via the same channels, Marlboro's "macho cowboy" image has struck a responsive chord with much of the cigarette-smoking public. Marlboro has created more than a differentiating image; it has developed a distinctive personality.

It is important to distinguish between identity and image. Identity comprises the ways that a company aims to identify itself or position its product. Image is the way the public perceives the company or its products. The company designs an identity or positioning to shape the public's image. A clear, distinct and balanced image will lead to a distinctive brand personality. An effective image does three things for a product: first, it conveys a singular message that establishes the product's character and value proposition; second, it conveys this message in a distinctive way so that it is not confused with similar messages from competitors; and third, it delivers emotional power so that it stirs the hearts as well as the minds of buyers.82

Symbols

A strong image consists of one or more symbols that trigger company or brand recognition. Such symbols are generally called brand or company logos. They should be designed for instant recognition. Also objects, colours or a specific piece of music can become identifiers for a specific brand or company. The Mercedes star logo is one of the best-known symbols internationally, as is McDonald's "M", and we all know symbols such as the apple (Apple Computer), the crocodile (Lacoste), or the puma (Puma).

Written and audiovisual media

The chosen symbols must be worked into advertisements that convey the company or brand personality. The ads should convey something distinctive, such as a storyline, a mood or a performance level. The message should be replicated in other publications, such as annual reports, brochures and catalogues. The company's stationery and business cards should reflect and convey the same image.




Atmosphere

The physical space in which the organization produces or delivers its products or services is another powerful image generator. This applies, in particular, to restaurants. Customers of Chinese restaurants, for example, expect Chinese decoration and Chinese staff. A friendly atmosphere is achieved through the right choice of building design, interior design, colours, materials and furnishings.

Events

A company can also build an identity through the type of events it sponsors - Red Bull, for example.

Generally speaking, there are numerous tools that companies can use to position themselves. They just have to decide which and how many differences they want to promote to reach their target customers.

3.3.53.3.53.3.53.3.5 Communicating the company's positioningCommunicating the company's positioningCommunicating the company's positioningCommunicating the company's positioning

Once the company has developed a clear positioning strategy, it must communicate that positioning effectively. Suppose a company chooses the "best-in-quality" strategy. It has to communicate quality by choosing those physical signs and cues that people normally use to judge quality. Here are some examples:

A motorbike manufacturer builds motorbikes with an unnecessarily noisy engine, because buyers think that this is a sign of more power. A truck manufacturer undercoats the chassis not because it needs undercoating but because this suggests concern for quality.

Quality is also communicated through other marketing elements. A high price usually signals a premium-quality product to buyers. The product's quality image is also affected by the packaging, distribution, advertising and promotion. A manufacturer's reputation also contributes to the perception of quality. Certain companies are sticklers for quality. Buyers of BMW or IBM products, for example, expect best quality in the first place.83 Last but not least, the buyers' perception is also influenced by the product's country of origin.


1. What is target marketing, and why does it make sense for a company to pursue this strategy?

2. What is market segmentation? Which criteria can be applied?

3. Describe segmentation by critical life event.

4. Describe the process of benefit segmentation by using an example.

5. Why should marketers design customer segment profiles? Explain their great practical importance.

83 Even though recall campaigns may somewhat damage the high quality image.



6. Define hybrid buying behaviour.

7. What criteria must be fulfilled to ensure effective segmentation?

8. When defining target markets, how can individual market segments be evaluated?

9. Describe the differences between market and product specialisation.

10 What are the differences between undifferentiated and differentiated marketing?

11. Why does differentiated marketing increase the company's costs? Which costs are affected?

12. What is the objective of product positioning?

13. Which differentiation tools are there for a company? Give a few examples.

14. How can customers' expectations be exceeded?

15. How can a company identify new features for its products, and does it necessarily have to get in touch with the customers?

16. Why have services that are offered with a product become more and more important? Identify the main service differentiators?

17. How can a company's personnel contribute to product positioning?

18. What is image differentiation? Give an example.

19. Why should companies clearly communicate their positioning?



4444 Market research as an information sourceMarket research as an information sourceMarket research as an information sourceMarket research as an information source

4.14.14.14.1 Objectives of market researchObjectives of market researchObjectives of market researchObjectives of market research

Marketing managers often commission formal marketing studies of specific problems and opportunities. They may request a market survey, a product preference test, a sales forecast by region or an advertising evaluation.84

We define marketing research85 as the systematic evaluation of all factors necessary for a company to be successful on the sales market.86

By collecting, organizing, using, analysing and interpreting information, companies gain knowledge of situations relevant to marketing. It is the objective of market research to obtain information that is crucial to enable a company to take corporate and operational decisions, especially in the area of marketing. The major tasks of marketing research are:87

• Information supply: Supply of information from and about the market. Research can be based on market structure, market partners, and all relevant marketing activities and environmental conditions of the company.

• Reduction of uncertainty: With information, unclear issues are given more precision and objectivity.

• Reliable planning: A higher degree of information makes the decision-making and planning processes of a company – especially in marketing – more reliable.

• Early warning: Dangers and risks of the markets can be recognized and made predictable at an early stage.

• Outlook: Market opportunities are systematically studied and identified.

• Selection: Relevant data are selected from all available information.

• Information management: The information obtained is processed and made useful for a particular purpose.

4.24.24.24.2 Market research Market research Market research Market research –––– the status quo the status quo the status quo the status quo

Two different areas characterise today's market research: qualitative / psychological research, and quantitative / representative research.

Qualitative / psychological research concentrates on the qualitative study of "subjective" situations using psychological and associative methods. Attitude, motivation and

84 See Kotler (2003), p 129 85 With reference to Koch (2004), ‘marketing research’ and ‘market research’ are used here as synonyms. 86 Scheider et al. (2003), p 46 87 Koch (2004), p 11f



behaviour research have a central position. The studies are based on groups and small samples of about 200 cases.88

Quantitative / representative research concentrates on supplying "objective" facts on the basis of representative samples. Typical areas of this type of research are survey research, test market research, consumer panels, and commercial panels.

Figure 20: Qualitative and quantitative methods of market research Source: Koch (2004), p 24

Market research development today is characterised by strong internationalisation, increased use of data processing methods, and the internet.

88 See Koch (2004), p 24



4.34.34.34.3 Different types of market researchDifferent types of market researchDifferent types of market researchDifferent types of market research

In market research we can distinguish between market diagnosis and market forecasting. Market diagnosis studies the status quo of the market using two different approaches: market analysis and market observation89

In market analysis the data are collected at a particular moment. Market observation observes how these data change over time (when the groups of buyers change, the competitors change too, and with them the company's market share etc.).

Market forecasting tries to find out what the market will look like in the future. It relies on data obtained from market analysis and market observation.

Figure 21: Different types of market research Source: Schneider et al. (2003), p 46

4.44.44.44.4 Applications of market researchApplications of market researchApplications of market researchApplications of market research

Market research can be applied to all of a company’s relevant environmental factors:90

Research on markets � Market volume / market potential � Market structures / market segments

89 See Schneider et al. (2003), p 46 90 See Koch (2004), p 13



� Market share � Market developments / market forecasts � Opportunities and threat analysis

Product research

� Product acceptance tests (for current and new products) � Handling tests (including the packaging) � Brand tests – product name testing � Image studies � Product test markets

Advertising and media research

� Advertising materials tests (pre-tests and post-tests) � Analysis of advertising effectiveness � Advertising effectiveness tests � Media analyses � Image analyses

Pricing research

� Comparative price analyses � Price sensitivity

Distribution research

� Channel analyses � Distribution surveys � Commercial panels � Store tests � Studies of sales force

Consumer research

� Consumer structures / consumer segments � Consumer attitudes / consumer behaviour

4.54.54.54.5 Market research methods Market research methods Market research methods Market research methods

The first step in market research is to find out which information sources can be used to obtain data. Second, is it information/data that already exist or do they have to be collected? For economic reasons, companies are advised to follow a two-step procedure: first, collect and evaluate internal and external data sources (secondary research), and second, if necessary, collect missing information (primary research) (see figure 22).91

91 See Koch (2004), pp 57-100



Figure 22: Outline of market research methods Source: Schneider et al. (2003), p 47

4.5.14.5.14.5.14.5.1 Primary researchPrimary researchPrimary researchPrimary research

Primary research refers to the collection of original data and becomes necessary when analysed information obtained from secondary research is not sufficient.

The concept and design of primary research should be based on the following criteria:

Information requirement: Which data are needed?

Research objective: What is the research aiming at?

Target group: Which people / groups should be targeted to obtain data?

Sampling: How many people should be interviewed?

Data collection method: Which method should be used to collect data?

Procedure: How should research be carried out? (field survey, test)

Rate and period of research: How often and for what period of time should research be conducted?

Mode of evaluation: How should the data be evaluated and analysed?



Basically, researchers of primary data use three different types of data collection:92

� Surveys

� Observation

� Experiments

These three methods are described in detail below.

4.5.1.1 Surveys

Surveys represent by far the most important data collection method in primary research. Surveys aim at collecting reliable and valid information from a selected target group. This is done by asking questions (orally or in writing) or through other stimuli such as pictures. There are different ways of conducting surveys. The most important methods are described below.

Different modes of conducting surveys

Target person / target group: individuals, groups (focus groups), experts, households, firms.

Mode of communication: oral (face to face), oral over the phone, in writing by mail, computer-assisted or monitor-assisted, online via the internet

Type of interview: direct or indirect interview

Degree of standardisation: guideline / open conversation / free interview / structured interview / standardised interview

Frequency of interviews: one-time / ad-hoc interviews, follow-up interviews, panel interviews.

Range of topics: one-topic interview, multiple-topic interview / omnibus survey

A survey can be conducted in different ways: face to face, over the telephone, or by mail.93

Advantages of face-to-face Interviews

� Relatively high rate of response (if the interview takes place, the respondent is also very likely to give answers)

� Even a fairly high number of questions can be asked as the interviewer keeps up the interest.

� The interviewer can make complementary observations. For example, if the interviewee has answered quickly or rather hesitatingly.

92 See Koch (2004). pp 64-100 93 In this script web surveys are also considered to be mail surveys.



Disadvantages of face-to-face Interviews

� Quite costly since the interviewers have to be trained.

� Due to lack of anonymity, the interviewees may give answers that do not express their real opinion.

� The interviewers may influence the results through the way they ask the questions and conduct the interview in general.

In telephone interviews the interviewer contacts and asks the respondent via the telephone.

Advantages of telephone Interviews

� Quick and inexpensive

Disadvantages of telephone Interviews

� Only those listed in a directory can be asked (this distorts the selection of potential study participants)

� The interview must be limited to a certain number of questions (overly long calls from an unknown interviewer would greatly distort the outcome)

Mail surveys use structured questionnaires which the interviewees have to complete. These questionnaires are sent by mail, e-mail or fax. They can also be distributed personally or enclosed in some advertising material.

Advantages of mail surveys

� Does not require an interviewer (therefore inexpensive and the respondent cannot be influenced by the interviewer)

� Distance is irrelevant

Disadvantages of mail surveys

� Low response rate (as a rule, only 15-20% of the questionnaires are completed and returned)

� Complementary observations - like in face-to-face interviews – are not possible.



Figure 23: Criteria for different survey methods Source: Koch (2004), p 79

4.5.1.2 Observation

With "pure observation" researchers study the behaviour of people – mainly customers – in a natural environment that has not been changed.

Examples: In a supermarket, which shelves do customers look at first when walking down an aisle – left or right?

Do customers look at the window dressing before entering the shop?

In practice, there are three areas where observation is quite commonly used: trade and buying behaviour, advertising, and television and internet research.



Let us have a look at different observation methods in trade and buying behaviour research:

• Customer frequency and traffic counts: mainly used in location studies to measure the number of buyers and potential buyers, and thus the customer potential.

• Customer flow analysis: These studies are carried out to evaluate which and how often customers visit the different departments of a shop. How do customers move inside the tested shop? Which departments / shelves are visited often, only sometimes, or not at all? In which order do customers visit the departments / shelves?

• Observation of buying behaviour: Here the buyers are observed at the shelf. How do they select the items? How fast is their selection? What is their response (especially to new products)? This type of observation is carried out using cameras.

• Observation of use: How do customers handle a product concerning its package and functions?

• Mystery shopping: This is a fictitious purchase in retail stores to check staff behaviour, communication and selling performance (quality of service). With mystery shopping trained personnel take the place of a potential customer. They record all observations and include them later in a report.

Limitations of observation

Observation is limited to perceivable external facts.

A sequence of actions can be observed only at the moment of occurrence.

Due to survey techniques, observation is mostly subject to very limited periods of time.

In many cases, the observer cannot handle the multitude of different matters relevant for recording, or simply misses some responses due to selective perception.

4.5.1.3 Experiments

Experiments or tests are the third most important survey method for data collection. As it is another form of observation and interviewing, it might be argued that an experiment or test cannot be considered as a separate survey method. The only difference to the other methods mentioned so far is the fact that experiments are set up specifically. In an experiment the situation to be observed is arranged artificially and in most cases modified to see the impacts of the changes.

Examples: A number of selected test subjects receive different types of packaging. They have to choose those they like best.

Test subjects reading a newspaper are being filmed in order to measure which pages get the most attention (first page, last page, or a page with a certain advertisement).



Different types of experiments

• Interview experiments: The impact of one factor on another is identified through an interview. For example, connection between purchase intention and price.

• Observation experiments: The impact of one factor on another is identified through observation. For example, connection between product sales and price

• Laboratory experiments: This experiment is conducted under conditions specifically created for this experiment. Such an "artificial" situation can eliminate unwanted effects and guarantee constant test conditions. It is a method that is quite popular for product, packaging and advertising material tests.

• Field experiments: Field experiments take place under "natural" conditions. The situations are very close to reality and therefore better suited for generalisations. Lack of control options tends to be problematic, though. Used, for example, in market tests or store tests.

4.5.1.4 Panels

A panel is a fixed group of people, households or companies that are surveyed with the same questions at regular intervals. Panel surveys are continuous survey methods within primary research, as opposed to one-time surveys.

Examples: Household panels: a number of households keep records of all purchases. These data show:

� preference for certain shops (supermarket, specialist shops, department stores, etc.)

� preference for certain brands, even when they are more expensive than comparable no-name products.

� influence of advertising campaigns on purchase decision.

Retail panels: A group of retailers is questioned about changes in consumption patterns. A few examples:

� Do buyers of skis consider insurance and warranty important features?

� Do customers tend to buy high heels or flat shoes?

� How often do customers renew their toothbrush?

Household panels are usually substituted by retail panels, as they allow for a more specific evaluation. (For example, only a few households buy new skis every year. Therefore, a ski manufacturer would get little information from a household panel.)



4.5.24.5.24.5.24.5.2 Secondary researchSecondary researchSecondary researchSecondary research

Secondary research deals with the analysis and evaluation of existing data. As a rule, this is much faster and cheaper than primary research where information has to be freshly gathered.

Unfortunately, secondary research tends to be neglected or underestimated despite the fact that many decisions could be based solely on secondary data. For economic reasons, secondary research should always come before primary research.

Basically, there are two different distinctions between secondary information sources:

WHERE have the data been collected? � internally or externally

HOW can the data be used? � offline or online

4.5.2.1 Internal data sources

Sales and sales volume analyses of

� products, product groups � customers � sales areas � distribution channels

Cost accounting of

� cost categories � cost centres � profit coverage

Sales force reports on

� customer visits � product offers � purchase orders

Statistics on

� customer claims � output figures � inventory

Marketing information systems

� stored data on market size and developments � market shares � sales and marketing figures � advertising expenditures

4.5.2.2 External data sources

Official statistics:

� Eurostat � federal statistics agency



� city council statistics agencies � municipal statistics � statistics of international agencies (EU, UNO, OECD, etc.)

Trade association statistics

Statistics of the Chamber of Commerce and Industry, and the Chamber of Crafts

Statistics and publications by economic institutions (two Austrian examples)

� Austrian Institute of Economic Research (Wifo) � Institute for Advanced Studies (IHS)

Publications of publishing companies in

� text books � trade journals � research reports � media data

Publications by companies

� annual reports � company magazines � catalogues � company homepages

Information obtained from

� reference books � information services (Reuters, APA, etc.)

Back data from market research organisations

� GfK � Gallup

External databases

Economic databases

4.5.2.3 Offline data sources

Offline data sources consist of archives, statistics and databases that are printed or electronically stored, but not accessible via data lines. In the past, printed information was the most common form available in archives, files and libraries. Using these data sources generally involved an enormous amount of time due to confusing layouts.

Today, more and more information providers store their information and data electronically, and offer data carriers such as floppy disks, CDs and DVDs.

4.5.2.4 Online data sources

Online data sources are electronically-stored databases that can be accessed via data lines or the internet. Easy access, easier handling and lower costs have led to a rapid increase in the use of such databases in the last few years. Information seekers have two ways of



getting information from databases: via a commercial provider of online databases, or via an access to the Internet.

Users of online databases offered by a commercial provider have to pay royalties. A direct data line connects to the host (central computer) of the provider that allows permanent access to stored data. There are also several additional benefits: enquiries can be made in a standard search language (search matrix) and the databases can logically link different search criteria and conveniently offer a description and a report.

The internet is the other provider of databases. The enormous number of documents published on the Web has made it necessary for users to use search engines, topic directories and link lists. Search engines such as Google, Lycos, Yahoo, Excite or AltaVista search the Web on the basis of search keys entered by the user. Special search engines allow for searches in certain subject areas – medicine, companies, tourism, etc. Topic directories (Yahoo, Dino, Excite and others) allow access via given topics, and successively lead to the required information. Link lists are compilations of different subject areas (economy, media, medicine, law, etc.) that allow quick access to information.

4.64.64.64.6 QuestionnairQuestionnairQuestionnairQuestionnaire designe designe designe design

At the beginning of each questionnaire design, the researchers have to decide which format to use for the questions. The right choice depends on the research objective. For example, are qualitative issues being surveyed, or rather quantitative issues?

4.6.14.6.14.6.14.6.1 Formatting the questionFormatting the questionFormatting the questionFormatting the question

Basically, we can distinguish between two groups of question formats. One focuses on the interviewing technique, the other on interview controlling techniques.

Focusing on interviewing technique

Open questions

� There is no specification as to how the respondent has to answer. Respondents can answer freely, and the interviewer records the response verbatim.

Example: What are the main reasons for buying brand X?



Closed questions

The respondent is given different categories of responses. There are two formats:

� Alternative question: yes/no

Example: Do you buy brand X?

� Multiple choice question

Example: Why do you buy brand X: because of the price, the design, the image or the product features?

� Rating scale questions

Example: Do you consider the price of brand X: too high, adequate, or too low?

� Ranking questions

Example: Which of the following brands on the list do you personally favour? What other brands come next?

� Direct questions

Indicate immediately which issues are of interest.

Example: Do you vote for the political party X?

� Indirect questions

Do not show an immediate connection to the issues of interest. Indirect questions are used for issues concerning prestige, taboos or matters of secrecy.

Example: In the last few years, new political parties have emerged. Do you know any of them, and what do you think of them?

� Projective questions

(For example, interpretation of pictures or other things, cartoon test)

These questions try to explore issues that are not directly accessible.

Example: Here are several different furnishings from living rooms in Austrian households. Who do you think lives there? What kind of people are they?

� Associative questions

Try to survey spontaneous qualitative issues.

Example: When you hear the word "unemployment", what comes to your mind spontaneously?



Focusing on interview controlling techniques

� Warm-up questions

These are questions at the beginning of the interview. Their purpose is to introduce the topic and to create a nice atmosphere. They should have a very easy wording!

� Technical questions

Their purpose is to survey the actual research issue.

� Changeover questions

They link one topic with the next (in surveys with more than one topic)

� Buffer questions

Their purpose is to lead away from the present topic. For example, in order to avoid learning or transmission effects (especially in surveys with more than one topic)

� Motivation questions

Motivation questions aim at increasing the willingness of the respondent to answer, and at eliminating possible inhibitions.

� Control questions

They help to clarify whether the questions have been answered truthfully.

� Filter questions

Filter questions aim at controlling the survey by filtering out respondents. Depending on their relevance to a certain subject, respondents are included in or excluded from certain questions.

� Questions about personal data / statistics

These questions at the end of the interview are for demographic data collection.

4.6.24.6.24.6.24.6.2 Question wordingQuestion wordingQuestion wordingQuestion wording

Apart from question formatting, the wording of the questions is of the utmost importance for a good questionnaire. Market researchers are often accused of orienting their questions towards the commissioner of the survey, or the particular point of view of the project manager. Therefore, three criteria must be fulfilled in question wording:

� Simple vocabulary

Questions should be clear, immediately comprehensible and adapted to the linguistic and intellectual level of the respondents. They should not contain foreign words, abbreviations, or words that are not commonly used.

Wrong: What do you think are the objectives of the OECD in times of recession?



Unambiguous words

Questions should be clear and unambiguous, and understood by every respondent in the same way. Only one-dimensional questioning.

Wrong: How are you doing? (This could refer to health, financial, or job matters.)

� Neutral wording

Respondents should not be influenced by suggestive or hypothetical questions.

Wrong: As a modern woman, what do you think about abortion?

4.6.34.6.34.6.34.6.3 Scaling formsScaling formsScaling formsScaling forms

Scales are of prime importance in qualitative surveys (motivation and attitude research) to identify facts and opinions. Scales help to classify the matter and categorise different nuances of characteristics and intensities. Facts – especially attitudes – are made "measurable".

Here rating scales are of great significance. The respondents can rate their attitude towards a certain subject. The scale can be numerical, verbal or graphic.

The problem with scales lies in the fact that many respondents tend to opt either for extreme values or average values (tendency towards the golden mean). Furthermore, respondents are practically forced (forced rating) to make a choice, as there is no provision for a "don't know / no answer" category.



Figure 24: Rating scales Source: Koch (2004), p 84



4.6.44.6.44.6.44.6.4 Questionnaire design in practiceQuestionnaire design in practiceQuestionnaire design in practiceQuestionnaire design in practice

The design of the questionnaire has a great impact on the outcome of the survey. Accuracy and careful planning are absolutely essential. The following table gives some tips on how to organise a questionnaire.

Phases of questionnaire design Aspects / criteria

1. Specifying and clarifying the research matters, making hypotheses

Deciding on the level of standardisation, the survey method (oral or by mail) and the groups to be surveyed.

2. Wording the questions Precise, comprehensible and unambiguous questions.

3. Arranging the questions in a particular order Introduction: general information, motivation, confirmation of anonymity, warm-up questions

4. Pre-testing the questionnaire

Pre-test with about 20 respondents. Finding out if wording of questions is accurate. Statistical analysis (when there is only one answer to a question, the question is not informative)

5. Preparing the main research: training interviewers and selecting the sample

Training of interviewers, organizing address lists, etc.

4.74.74.74.7 Market research processMarket research processMarket research processMarket research process

4.7.14.7.14.7.14.7.1 The ideal processThe ideal processThe ideal processThe ideal process

Market research, or more precisely, a marketing research study, takes place in phases or steps. In accordance with the general communication process (analysis � survey � transmission � processing � storing � application) the marketing research process ideally occurs in 5 phases:94

Phase 1: Definition

Phase 2: Design

Phase 3: Data collection

Phase 4: Data analysis

Phase 5: Documentation

94 See Koch (2004), p 22 f



Depending on the research objectives and issues, the contents of these five phases can be designed differently.

4.7.24.7.24.7.24.7.2 Process phasesProcess phasesProcess phasesProcess phases

Phase 1: Definition

The marketing decision process poses questions that require additional information. The necessary information supply needs a precise definition concerning type and amount of data. Furthermore, the objective has to be formulated. It has been proven to be advisable to formulate the questions in the form of hypotheses. The hypothesis can be verified or falsified by means of the survey. It is also useful to make a briefing paper, a form of schedule, to see when the information has to be provided.

Check list

Description of status quo

Definition of objective / task

Determination of target market (target group/s) for research

Definition of required information concerning type, amount, and quality.

Which information can be obtained internally, which has to be gathered externally.

Which external information can be obtained by secondary research, and which by primary research?

When should the required information be available?

What is the budget for obtaining the information?

Phase 2: Design

At first, researchers have to find out if the information required already exists internally or externally. If not, primary research has to be conducted. The sampling method (random / quota sample), target group and survey method (interview, observation, test) have to be selected. In the case of an interview a questionnaire has to be designed.

Phase 3: Data collection

Depending on the survey method chosen, an observation situation / test situation has to be planned, or a field survey (interviewer) organized.

Phase 4: Data analysis

All data obtained have to be processed with the aid of data processing systems such as SPSS, and undergo different analyses depending on the specific requirements.



Phase 5: Documentation

The data have to be interpreted according to the information needs, and documented in a report.

4.84.84.84.8 Characteristics of good marketing researchCharacteristics of good marketing researchCharacteristics of good marketing researchCharacteristics of good marketing research

What is at the heart of good marketing research? We can pinpoint seven characteristics:95

� Scientific method

� Research creativity

� Multiple methods

� Interdependence of models and data

� Value and cost of information

� Healthy scepticism

� Ethical marketing

4.8.14.8.14.8.14.8.1 Scientific methodScientific methodScientific methodScientific method

Effective marketing research uses the principles of the scientific method: careful observation, deduction and formulation of hypotheses, prediction and testing. Take a look at the following example:

A mail-order company was suffering from a high rate (30%) of returned merchandise. Management asked the marketing research manager to investigate the causes. The marketing researcher examined the characteristics of returned orders, including the geographical locations of the customers, the sizes of the returned orders and the merchandise categories. One hypothesis was that the longer the customer waited for ordered merchandise, the greater the probability of its return. Statistical analysis confirmed this hypothesis. The researcher estimated how much the return rate would drop for a specific increase in speed of service. The company speeded up delivery time and the return rate actually dropped.

4.8.24.8.24.8.24.8.2 Research creativityResearch creativityResearch creativityResearch creativity

At its best, marketing research develops innovative ways to solve a problem. Here is a classic example called the shopping list method:

When instant coffee came onto the market for the first time, many housewives complained about the taste. In blind tastings, however, many housewives could not tell the difference

95 Kotler (1997), pp 125-126



between instant coffee and normal coffee. This led to the conclusion that their strong rejection of instant coffee was of a psychological nature. The marketing manager had the idea of presenting two almost identical shopping lists to two different groups of housewives. The only difference was normal coffee on the one list, and instant coffee on the other. The women were asked to characterise the two housewives that had written the shopping lists. The descriptions were identical in many aspects. But there was one significant difference: the group of women with the instant-coffee list described the housewife comparatively more often as "lazy, stingy, a bad wife, and not able to look after the family". They apparently projected their own fears and negative beliefs about the use of instant coffee onto other housewives. The manufacturer of instant coffee then knew the reason behind this strong rejection of instant coffee, and started an advertising campaign aimed at positively changing the image of the housewife serving instant coffee.

4.8.34.8.34.8.34.8.3 Flexible research methodsFlexible research methodsFlexible research methodsFlexible research methods

Good marketing researchers shy away from overreliance on any one method, preferring to adapt the method to the problem rather than the other way round. They also recognize that using multiple sources leads to better information.

4.8.44.8.44.8.44.8.4 Interdependence of models and dataInterdependence of models and dataInterdependence of models and dataInterdependence of models and data

Good marketing researchers recognise that data are interpreted using underlying models. These models guide the type of information sought, and the availability of data, in turn, limits the choice of possible models.

4.8.54.8.54.8.54.8.5 A good costA good costA good costA good cost----benefit ratio benefit ratio benefit ratio benefit ratio

Good marketing researchers weigh the benefits of information against its cost. Cost/benefit considerations help the marketing research department determine which research projects to conduct, which research designs to use and whether to gather more information after the initial results have been collected. Research costs are typically easy to determine, but the value of research is harder to quantify. The value depends on the reliability and validity of the research findings and management's willingness to accept and act on those findings.

4.8.64.8.64.8.64.8.6 Healthy scepticismHealthy scepticismHealthy scepticismHealthy scepticism

Good marketing researchers show a healthy scepticism towards glib assumptions made by managers about how a market works. In most cases, companies or marketing managers are simply trying to justify and support their concept. When looked at critically, these assumptions or generalisations often prove to be nothing more than myths. Healthy scepticism can save a company from taking far-reaching wrong decisions.

4.8.74.8.74.8.74.8.7 Ethical marketingEthical marketingEthical marketingEthical marketing

Good marketing research benefits both the sponsoring company and its consumers. With marketing research, companies learn more about consumers' needs and are able to



supply more satisfactory products and services. However, the misuse of marketing can also harm or annoy customers.


1. Why do companies carry out marketing research, and what are its objectives?

2. Describe the different marketing research methods.

3. What is the difference between market diagnosis and market forecasting?

4. Where can marketing research be applied?

5. What is the difference between primary and secondary research? Which of these should be conducted first?

6. What are the main criteria for primary research design?

7. What are the three methods of data collection generally used in primary research?

8. What is more costly: a personal interview conducted by an interviewer or a mail survey?

9. Describe the different observation methods used in research into trade and buying behaviour.

10. Which of the two allows a more specific evaluation: retail or household panels? Give reasons for your answer.

11. What are the sources of internal data?

12. Specify the different question formats.

13. What do you have to take into account when wording questions?

14. Which problems can arise from the use of rating scales?

15. Describe the ideal process of a marketing research process.

16. Identify some characteristics of "good" marketing research.



5555 Marketing toolsMarketing toolsMarketing toolsMarketing tools

Most marketers today base their marketing design on four tools called the four Ps: product, price, promotion, place.96

• Product: This tool comprises all activities concerning a company's offerings that define the whole spectrum of its products and/or services � product policy and production programme policy

• Price: This tool, in turn, comprises all activities that provide optimal conditions for rewarding the company for services rendered � pricing policy and terms policy

• Promotion: This tool comprises all activities concerning information that have an advertising effect on the target customers and other groups of interest to the company � communications mix and corporate communications

• Place: This tool comprises all activities that enable the market to be effectively and efficiently supplied with the company offerings � distribution policy and sales policy

In service marketing97 - an area of increasing importance - a fifth P has become necessary: personnel. Further "Ps" are process and presentation, but these will not be dealt with in this script (see figure 25).

Figure 25: Overview of marketing tools Source: Pepels (2005), p 34

96 See Kotler (1997), pp 92-94 97 For further details see 1BC Marketing advanced



5.15.15.15.1 Product policy and producProduct policy and producProduct policy and producProduct policy and product assortment policyt assortment policyt assortment policyt assortment policy

Product design and product assortment design require the following decisions:

• Which products are offered (how many different products, and how many different styles of each product are offered)?

• What is the product's design and how will it be modified over time (technically advanced or offered in a different style)?

• Which support services will be offered (repair, warranty, customer training, customer consulting, etc.)?

Note:

Manufacturers talk about production programme and product design, whereas commercial enterprises talk about product assortment and product assortment design.

5.1.15.1.15.1.15.1.1 What is a product?What is a product?What is a product?What is a product?

The term "product" has to be understood in a broader sense. In terms of marketing, it refers to any service, object or combination of the two that is offered on the market (a cheap drinking glass is as much a product as the investment account management offered by a bank for private investors, or all-inclusive holidays in a club)

In marketing, the following two aspects have to be taken into account:

Basic utility of a product: A mountain bike for off-road, outdoor use.

Additional utility of a product, with the two most important features being:

• Prestige utility (owners of an expensive mountain bike are more prestigious; they appear as very sportive.)

• Experience utility (the mountain bike is nicely designed; the owner can go on mountain bike trips with other people.)

If these aspects are being neglected, all other marketing efforts may be futile. Even investment goods need to have some additional utility.

Examples: Today, even investment goods such as machine tools or computers are styled by industrial designers in order to enhance "experience value".

Expensive office furniture and the latest computer software can have considerable "prestige value".



5.1.25.1.25.1.25.1.2 Product life cycles Product life cycles Product life cycles Product life cycles

Normally, the "life" of a product is limited. There are several reasons for economic "aging":

� technological progress

� intensive competition

� change in consumer behaviour

Examples: Aging due to technological progress � record players are substituted by CD players, cameras with conventional films are substituted by digital cameras.

Aging due to intensive competition � holidays in long-haul destinations instead of destinations in one's own country.

Aging due to change in consumer behaviour (in many cases these changes are also determined by advertising) � changes in fashion: colours, cuts, length; trendy sports: snowboarding instead of alpine skiing.

Relaunch

Some marketers try to prolong the life cycle of a product by varying it – product variation. This is called the relaunch of a modified product.

Examples: Relaunch

� Microwave ovens with new integrated functions such as roasting.

� Relaunch of TV sets with large-size screens.

� Relaunch of washing powders with new additives, refill packages, etc.

Figure 26: Product life cycle with relaunch Source: Schneider et al. (2003), p 52



The length and course of a product's life cycle depend on the product itself. For example, the saturation stage of cars is often slowed down with product variation (special models with extras). A relaunch is rather rare (exceptions: VW Beetle, Mini). Well-established washing powders, in turn, have a very long life cycle with several relaunches and a very long maturity stage.

5.1.35.1.35.1.35.1.3 Width and depth oWidth and depth oWidth and depth oWidth and depth of a production programme (product assortment)f a production programme (product assortment)f a production programme (product assortment)f a production programme (product assortment)

When talking about production programmes (product assortment) we can distinguish between width and depth. Width refers to the product categories offered, while depth indicates the styles in which (types, models, varieties, sizes, etc.) a product is offered.

Example: A manufacturer of electronic appliances produces

� TV sets, video recorders, radios, CD players, shavers (width of production programme)

� The TV sets are produced with 33cm, 56 cm, 66 cm, and 80cm screens. The radios are manufactured as table tops and portables (depth of production programme).

There are several aspects that can help manufacturers decide on the width and depth of their production programmes. A small width and depth allow for a higher degree of specialisation. Few products may be produced on a larger scale at lower costs. However, this strategy has considerable disadvantages. It is more risky to produce just a few products. When there are many products it is less likely that the turnover from all of them decreases. In other cases, certain products are so very well known by the customers that the manufacturers can sell additional products (for example, a manufacturer of high-quality washing machines also sells refrigerators and dishwashers.) Product policy must find a balance between specialisation and the variety of products.



5.1.45.1.45.1.45.1.4 Types of product policyTypes of product policyTypes of product policyTypes of product policy

Figure 27 shows the different types of product policy:

Figure 27: Different types of product policy Source: Schneider et al. (2003), p 53

5.1.4.1 Product innovation

Product innovation means that new products are included in the production programme and figure as product differentiation and product diversification.

Product differentiation (deeper product assortment)

The depth becomes bigger, but the width stays the same. A product is offered in different styles (types, versions). Product differentiation aims at satisfying different needs and different spending power of consumers, thus strengthening the market position of the company. The automobile industry offers many different versions of one basic type (equipment, engine).

Product diversification (wider product assortment)

The programme width becomes bigger i.e. new product categories enter the existing production programme. For example, a ski manufacturer decides to also produce tennis rackets and ski wear.



Reasons for including new products:

� Participation in growing markets

� Changing from a steady or shrinking market to a growing market.

� Utilization of existing production capacities

� Broader risk spreading

5.1.4.2 Product variation (product modification over time)

Product variation means that only certain features of existing products are modified over time to make them seem more attractive to potential customers.

Such product modifications can refer to

• functions (remote control instead of manual control)

• material (PVC window frames instead of wooden frames)

• colour and form (ski model in a different colour)

• packaging (different form, different style, different colour)

• name (an additional "new", or "new formula" for washing powders, toothpastes, etc.)

With product variation the number of products and product categories stay the same; the product range is not being extended. The different variants are offered successively over time, as opposed to product differentiation where the different variants are offered at the same time.

5.1.4.3 Product abandonment

Products whose life cycle has come to an end have to be abandoned in time. This can refer to whole product categories or product variants. Also, specialization involves a company abandoning product variants and product categories.

5.1.4.4 Support services as part of product design

Support services like customer advice, installation, customer training, maintenance and repairs can also be considered part of product design. In the whole spectrum of technological products (durable consumer goods and investment goods) these support services are becoming more and more important.98

98 See Chapter 3.3.4.2 Service differentiation



5.1.55.1.55.1.55.1.5 Resource allocation with the aid of portfolio analysis Resource allocation with the aid of portfolio analysis Resource allocation with the aid of portfolio analysis Resource allocation with the aid of portfolio analysis

Generally speaking, portfolio models are used on a corporate level to evaluate individual business units of the company regarding their profit expectations, opportunities and risks. Each business unit is positioned in a matrix that shows market opportunities or investment risks on the one hand, and the business unit's competitive strengths on the other.

The portfolio concept results from the company's need to optimise the use of its scarce resources. The more attractive a market, and the stronger the company's position in a specific line of business, the more the company will prioritise resource allocation to this line. Business areas with different growth potentials and growth conditions need different strategies. A risk portfolio should maintain a balance between high-risk and low-risk business areas, and between resource needs and resource generation. This is to ensure the existence of the company in the long run.

Portfolio analysis and portfolio planning are oriented towards cash-flow, and aim at allocating scarce resources with respect to their profit and risk expectations depending on the company's market position and competitive environment. The two key factors consist of two values – an opportunity or risk value (this value is determined externally and can be influenced only to a limited extent) and a strength value (this value can be influenced). The opportunity or risk value describes the market attractiveness and the respective investment requirement. The strength value describes the strength in the business unit (and therefore the profit expectations) in relation to competitors. The usage of only two key factors allows a simple and sufficiently accurate analysis of the strategic position of the business unit and the company. In this analysis generalising types of business area99 are formed, and analysed and described with respect to their characteristics. As a result strategic principles (so-called generic strategies) can be deduced from this approach.

The benefit of portfolio models lies in their simplicity, clarity, informative value and high communication value. Nevertheless, there are also disadvantages: the simplifying two-dimensional classification, and the fact that it might entice the responsible managers to adopt the generic strategies without further reflection.100

5.1.5.1 Market growth and market share

Originally, the portfolio approach was derived from financial theory. At the beginning of the 1970s, the Boston Consulting Group, in cooperation with General Electric, developed the growth-share portfolio. In this growth-share matrix, the relative market share (the market share of the company's strategic business unit – SBU - relative to that of its largest competitor) is used as corporate profit component, and market growth as the environmental opportunity and risk component.

The growth-share portfolio is largely based on the findings of the learning curve and the life-cycle concept. In line with the learning curve concept, investments should be made primarily in growing markets in order to increase accumulated quantities and derive advantages from economies of scale. The relative market share gives information about the relative (potential) cost position and the (potential) profitability of the company. The different stages a business unit normally passes through correspond in large parts to the stages of the life cycle.

99 For further information see 1BC Business Management FOCUS. 100 Eschenbach (1996), pp 274-282



The expected market growth is entered on the linear scale of the vertical axis. The actual portfolio has to be based on the quantitative (not value-based) average market growth of the three years to come. It has to be taken into account that there can also be a negative market growth, which would shift the origin accordingly. The market share relative to the largest competitor is entered on the horizontal axis.

The individual SBUs of the company are illustrated by circles that are positioned in the matrix according to their expected market growth and relative market share. The different sizes of the circles represent the relative importance of the SBU. This can refer to the SBUs share of the total turnover or of the contribution margin.

By using two auxiliary lines the portfolio is divided up into four quadrants. In these four quadrants, strategic business units with similar market growth and competitive strength characteristics are depicted. The average (quantitative) trade sector growth is used as the determinant of the vertical axis. Value 1 is the determinant on the horizontal axis and indicates the market share (a value bigger than one would indicate market leadership).

5.1.5.2 Interpretation

By positioning its SBUs in the four quadrants, a company can interpret each SBU's importance and position. Each strategic position has a different name for better illustration (see figure 28).

Figure 28: Growth-share portfolio Source: Eschenbach (1996), p 276



Question marks

Question marks are strategic business units that have a high market growth rate but a low market share. These SBUs are usually in the introduction or growth stage. They require more cash than they can generate, because the fast-growing market demands high investments in order to reach a strong market position. SBUs in this category have high opportunities and high risks. If a high relative market share can be achieved, then the question marks turn into stars.

Stars

Stars are businesses with a high market growth and a dominant market share. They are usually in the growth stage. They mostly have high surplus revenues, but also require a lot of cash to maintain their market share position (increase in capacity, product improvements, higher advertising budget). Normally, they finance their further growth. Stars contribute to the present growth in the sales of the company and turn into cash cows when market growth slows down. Cash cows are SBUs with a low market growth and a dominant market share. They are usually in the maturity or decline stage.

Cash cows

Cash cows are the SBUs of a company with the highest cash flow. Surplus revenues are high and investments are diminishing due to a market that is growing less quickly or stagnating. Cash cows usually constitute the main source of positive cash flow, some of which is used for financing the question marks.

Dogs

Dogs are SBUs with a low market growth and a low relative market share. They are in the decline stage. Dogs normally do not yield adequate cash flow or profit. They do not contribute to the company's future growth because there are hardly any chances to improve their market position. Trying to gain market share from the market leader would require a disproportionate amount of money. Dogs are usually at the end of their life cycle. For economic reasons, dogs will be kept by a company only in exceptional cases.

Company growth primarily comes from stars and question marks, and capital strength from cash cows. Normally, an SBU starts out as a question mark (some innovations even as stars), then overtakes the market leader and becomes a star. When market growth diminishes this SBU becomes a cash cow, and at the end of its life cycle (due to better problem solutions, etc.) it turns into a dog. At first, this dog may still generate a profit, but this can eventually turn into losses.

Interpretation of the portfolio reveals that the old and established business units have to finance the new ones till they are strong enough to pay for their further growth. The following table shows an industrial firm with eight strategic business units illustrated in a growth-share matrix.



Figure 29: Data for positioning in a growth-share matrix Source: Eschenbach (1996), p 279

5.1.5.3 Generic strategies

Fundamentally, by describing and interpreting the individual strategic positions, different strategic measures – so-called generic strategies - can be deduced. These generic strategies are aimed at a horizontal shift of the business units and therefore an increase in the relative market share. Market growth can hardly be influenced.

� Investment strategy / Build strategy

All possibilities must be made use of to increase the market share of question marks. This implies high investments and rather aggressive and systematic marketing efforts. A company with several question marks is advised to choose the most promising ones in order to avoid resource fragmentation. If there are no possibilities to significantly improve the relative market share of a question mark, then immediate disinvestment is the right strategy to pursue. Only those SBUs should be invested in that have a greater chance of becoming market leaders. A question mark that remains in the same competitive position could easily turn into a dog and not yield appropriate cash flows once market growth slows down.

� Growth strategy / Hold strategy

No efforts should be spared to further strengthen the competitive position of stars, and to stop competitors from entering the market. This is to ensure the relative cost advantage in the future, even at the expense of short-term earnings due to high expenditures.



� Harvesting strategy

Cash cows yield the highest surplus revenues and secure the current success of the company. The dominant competitive position of cash cows should be kept as long as possible. Pursuing a harvesting strategy means that the market share is maintained and no further money is put into increasing this share. Market growth is low, so trying to expand the market leadership of a business that holds a dominant competitive position would not pay off anyway. Resources should be primarily used to build up question marks and stars.

� Divestment strategy

Dogs should be managed in a way that they do not burden the company financially. They have to be taken off the market when all efforts to considerably improve the market share and thus the cash flow are in vain. They would only tie up resources which the company could use more profitably somewhere else, e.g. for question marks. The same applies to question marks that do not have any realistic prospects of achieving a dominant market position. When adopting a divestment strategy, however, the company has to bear in mind that all overhead costs allotted to abandoning business units have to be shared by other business units.

Generic strategies show the connections and dependencies between the individual strategic business units and point out the necessity of a balanced portfolio.

5.1.5.4 Possible undesirable developments

In practice, the following undesirable developments can be observed in connection with portfolio management:

• The portfolio is unbalanced. This often happens with well-established companies whose cash cows are yielding high cash flows, making the company appear very competitive. However, there are no corresponding question marks or stars that could secure the long-term survival of the company. Young companies, in turn, tend to over-emphasize their question marks whose position has not yet been strengthened due to a lack of strong cash cows.

• Available financing and resources are invested in cash cows and not in question marks and stars. This happens because most companies find it difficult to divert the high cash flow achieved in one SBU to other SBUs, thus depriving the manager of a successful cash cow unit of cash.

• All available finance is invested in question marks and stars, while the cash cows are neglected. Companies with a very strong desire to expand tend to make this error. As soon as an SBU has reached a dominant market position, the company turns to another SBU. Cash cows quickly become dogs without achieving adequate cash flows.

• Dogs are not abandoned despite low or negative cash flow. Companies are often not consistent enough to really withdraw from SBUs that have a consistently bad strategic position. This inevitably leads to suboptimal resource allocation, higher complexity, fragmented resources and overall lower company profitability. In some cases, companies with several question marks fail to make any pre-selection. They try to turn a number of question marks into stars even though some of them may have very



little realistic chance of actually succeeding. In the end, the really promising SBUs may lack the necessary means due to scarce resources.

Due to its largely objectively measurable dimensions (market growth and relative market share) the growth-share portfolio can be looked at in quantitative terms. Note that it is more important to assign an SBU to one of the quadrants and deduce all the necessary generic strategies from it, than finding the exact position of a business unit. Anyway, in most cases the market shares of the competitors have to be assessed, forecasts concerning market growth are uncertain, and it may turn out to be quite difficult to define the strategic business unit.

A growth-share portfolio allows for fairly simplified management of complex strategic planning. This is possible due to the underlying selection and intensification process. For a growth-share matrix to be successful, the relevant SBUs have to be defined correctly in order to determine market growth and their relative market share. Managers then need to find out if the relative market share is a good indicator for the specific situation of the market to identify cash flow developments and therefore the SBU’s competitive position. The same has to be done for market growth: is it a good indicator for cash flow, or are there other indicators that are responsible for the investments and the cash-flow development? In practice, competitive relations are far too complex to evaluate SBUs solely on the basis of relative market share and market growth and draw deductions from that. Portfolios can greatly support a company in diagnosing its fundamental strategies. Nevertheless, they cannot replace comprehensive analyses or give complex recommendations of how to proceed.

5.25.25.25.2 Terms policyTerms policyTerms policyTerms policy

The terms policy consists of pricing policy (money for output) and the general business terms policy (see figure 30).

Figure 30: Overview of terms policy Source: Schneider et al. (2003), p 54



5.2.15.2.15.2.15.2.1 Pricing policyPricing policyPricing policyPricing policy

Different parameters influence the market price. Several factors affect the degree to which a company can freely choose its prices. The most important are listed below:

� Supply in proportion to demand. Is there more supply than demand, or vice versa?

� Market structure and market behaviour: How many marketers and prospects are there, and how do they behave?

� Level of information of the market participants: Are marketers and prospects fully informed about different qualities, prices, and terms of delivery and payment?

� Preferences of the market participants: Frequently, preferences for a certain business partner or product determine a purchase decision.

� Price fixing: Are the prices regulated by the state?

� Price elasticity of a product: To what degree does a change in price influence the sales volume of a product?

� Costs: Do the costs leave enough room for manoeuvre for the pricing policy?

5.2.1.1 Supply in proportion to demand

Sellers' market

When demand is higher than supply it is easier for the sellers to influence the price. Prices will rise. This generally leads to more producers offering the desired good. As a result prices will fall again since supply is now higher than demand. Now we have a

Buyers' market

Since supply is higher than demand, the buyers can influence the prices. The prices will fall until some marketers (sellers) are no longer willing to produce or sell their products at such a low price. Supply will diminish and prices will rise again. In the long run this should result in a price where supply and demand are equally high. However, this simple idea is only true if certain assumptions are made.101

5.2.1.2 Level of information of market participants

Pricing theory is always based on the assumption that all market participants are fully informed about market development. However, this can neither be said about the sellers nor the buyers. Sellers never have precise information about their competitors' offers and buyers' behaviour.

Buyers equally lack precise information about all goods that could satisfy a specific need, their prices, their terms of delivery and payment, and the actual market structure and the sellers' market behaviour.

101 For further details see 1BC Economics FOCUS



Therefore, buyers and sellers try to get more information. For example, by going to trade fairs and exhibitions, or conducting systematic market research (customer preference research, research on competition, evaluation of market shares, exact price comparisons, information search in the internet, etc.) The lower the level of information, the higher the probability that purchasing decisions will be influenced by certain preferences rather than low prices.

5.2.1.3 Preferences

Personal preferences: preference for a specific seller (a person always does his or her grocery shopping at the same grocer's because the shop assistant is friendly) or for a specific buyer (an exporter always supplies a specific importer in a partner country because they spend their holidays together.)

Product preferences: preference for a specific product (a buyer of a car always buys from the same manufacturer without ever considering any other brand.), or a specific way of satisfying a need (using a raincoat and not an umbrella for protection against the rain).

Preferences play an important role in consumers' buying decisions.

5.2.1.4 Price fixing

Prices can be fixed in the following ways:

� through pricing agreements with other market participants

� through regulations by the state (or province or municipality)

Privatization and liberalization reduce the importance of price regulations by the state.

5.2.1.5 Price elasticity of demand

When prices change, demand is likely to change as well. We talk about elastic demand when the degree of demand change is higher than the degree of price change. Inelastic demand refers to a degree of demand change that is lower than the degree of price change.

Example: The price for a branded perfume is reduced by 10%. If sales volume increases by more than 10% then we talk about elastic demand. If sales volume increases by less than 10% then we talk about inelastic demand.

Theoretically, price reductions will lead to a higher sales volume, price increases to a lower sales volume. However, there are several irrational influence factors that can cause the exact opposite:

� Snob effect (people buy expensive goods to show that they can afford them)

� Bandwagon effect (some people buy expensive goods because others buy them too)

� Price as quality criterion (people buy expensive goods assuming that these goods are better than cheaper products)



5.2.1.6 Costs

Costs limit the room for manoeuvre of pricing policy. In the long run costs must be covered by the price. For details on how and in which form costs influence price decisions, see 1BC Cost Management.

5.2.25.2.25.2.25.2.2 Different types of pricing policyDifferent types of pricing policyDifferent types of pricing policyDifferent types of pricing policy

5.2.2.1 Cost-oriented pricing

In markets where it is difficult to compare goods, and where buyers lack an overview of the market, pricing is heavily cost-oriented.

Example: Maintenance and repair by tradespeople (painters, upholsterers, mechanics, etc.). Consumers hardly ever ask for more than one or two estimates.

5.2.2.2 Competition-oriented pricing

Smaller firms tend to orient their pricing towards their competitors. For example, a small grocery store offers the same products as the supermarket next door at a similarly low price.

5.2.2.3 Demand-oriented pricing

When demand is high, prices are raised. When demand decreases again, the prices are lowered too.

Examples: On special occasions like All Saints' Day or Mother's Day, prices for flowers rise.

High vegetable prices when supply is low and demand is high.

High prices for certain metals when, in times of war, demand by the defence industry rises.

5.2.2.4 Pricing as purchase preference policy

Companies try to win new customers for a product by making special offers and introductory offers in the hope that the new customers still buy the product when prices rise again.

Examples: A new coffee brand is introduced at low prices (customers should get used to the new brand).

A car manufacturer lowers the prices for a certain period of time (car owners tend to be brand loyal).

5.2.2.5 Special measures within pricing policy

Within the scope of price differentiation a product is sold at different prices in order to fully cover the demands of different groups of buyers.



There are different types of price differentiation:

� Regional price differentiation (different prices at home and abroad, lower prices in developing countries and higher prices in industrialised countries etc.)

� Seasonal price differentiation (off-season and high-season prices in tourism, lower prices for heating oil in summer and higher prices in winter etc.)

� Customer-oriented price differentiation (different prices for commercial and private customers etc.)

In loss-leader pricing, mark-ups for sensitive goods are lower than for goods that are less sensitive.

Examples: Food retailers (staple food like bread and butter are sold at prices with little mark-up or even at a loss. Alcoholic beverages and tinned specialities are sold with a higher mark-up)

Textile sector (ready-made clothing is sold with less mark-up than haute couture clothing)

Price is just one instrument of sales policy. The more a product can distinguish itself against competitors through quality, advertising, service and so on, the bigger the room for manoeuvre in pricing policy.

5.2.35.2.35.2.35.2.3 General business terms policyGeneral business terms policyGeneral business terms policyGeneral business terms policy

By means of a general business terms policy, marketers determine a net price, i.e. the actual amount of money that has to be paid (out-of pocket price). The pricing policy described up to now refers to a gross price or list price. The general business terms policy comprises several elements.102

5.2.3.1 Sales financing

Normal purchase procedure means delivery versus payment (spot transaction). Other forms of purchase procedure involve payment in advance before the good or service is delivered, or delivery of the good or service before payment is effected (forward transaction). This latter and common form of purchase is known as a supplier credit.

For a company to be successful on the market it often needs to furnish a prospect with adequate purchasing power. This is all the more necessary, the higher the amount of money involved, and the weaker the general purchasing power of the prospect. Therefore, extending credits is of significant practical importance, especially in transactions concerning industrial goods and foreign trade. There we talk about financial engineering, which can be compared with the physical production process. Prospects in a sellers' market situation expect to be offered financial engineering as part of an attractive package and make their order dependent on it. Credit is only attractive as long as it is offered on conditions that are lower than the prospect can afford. Thus, the resulting cost difference diminishes the profitability of the company.

102 Pepels (2005), pp 62-63



5.2.3.2 Discounts

Discounts are another popular form of price reduction that lower the company's sales revenues. This price reduction can be based on several different aspects:

• Functional discounts: i.e. the customer assumes responsibilities that are normally fulfilled by the distributor, such as transport or storage. The distributor offers some sort of compensation in return.

• Quantity discounts: this can refer to a single purchase (non-cumulative quantity discount) or several purchases that accumulate over a given period of time (cumulative quantity discount, or bonus)

• Seasonal discounts: for off-season purchases, brand loyalty, models that are being discontinued

• Cash discounts: for prompt payment

Discounts can be granted according to:

� mode: as a cash discount or discount in kind

� calculation: as fixed discount or dependent on a variable (usually the purchase quantity);

� size: as a standard discount or graded (discount list);

� progression relative to variable: as progressive, decreasing, or linear discounts;

� reference base: discount rate calculations using the full reference base or a change in the reference base.

5.35.35.35.3 Distribution policyDistribution policyDistribution policyDistribution policy

Distribution refers to all measures that help to overcome the time and distance between manufacturers and consumers. In distribution policy we can distinguish between two sub-areas (see figure 31).



Figure 31: Summary of distribution policy Source: Schneider et al. (2003), p 60

5.3.15.3.15.3.15.3.1 Sales organisationSales organisationSales organisationSales organisation

In sales organisation, a company chooses

� the sales channels (direct or indirect sales)

� the distribution system (centralised or decentralised distribution)

� the sales force (internal or external)



Basically, delivery can take place directly or indirectly (see figure 32).

Figure 32: System of sales channels Source: Schneider et al. (2003), p 60

5.3.1.1 Direct sales

With direct sales a company delivers its goods or services directly to those that use them - industrial goods to another company, consumer goods to consumers. Direct sales can be centralised (i.e. without any sales branches) or decentralised (i.e. with company-owned sales branches). Non-store retailing refers to company offerings by phone, mail, fax, or on the internet; customers receive catalogues and brochures. Direct sales can also be carried out by travelling sales staff that are sent and supervised by the company's headquarters.

5.3.1.2 Indirect sales

In indirect sales, independent commercial enterprises and agents operate between the company and the final customer:

� Sales agents who sell on behalf of and for the account of the company they represent.



� Commission agents who sell on their behalf but for the account of the company they represent.

� Authorised dealers who sell on their own behalf and own account.

Authorised dealers can be roughly separated into wholesalers and retailers. Wholesalers sell to other companies, retailers to consumers.

Examples: Direct sales

Investment goods, such as construction equipment, turning lathes or industrial computers, for which the manufacturer needs to take charge of installation, customer training and maintenance.

Consumer goods, such as shoes, clothing, or underwear that are sold through a company-owned network of branches (e.g. Palmers).

Indirect sales

Consumer goods that are sold in small quantities and mostly only in connection with other goods (in a product assortment), for example, groceries and furniture.

Combination of direct and indirect sales

The tyre industry delivers the original equipment directly to car manufacturers, while spare parts are sold via dealers.

5.3.1.3 Franchising

Franchising is a sales channel chosen mainly by companies with a high degree of popularity. The franchisor allows the franchisee to use the company's brand name and marketing know-how, and receives a franchise fee in return. This fee is usually a fixed sum plus commission.

Franchisees are independent on both economically and legally. However, they have to comply with the franchisor’s regulations. This concerns the appearance of the store or restaurant, and also the product range, which must not differ from the franchisor's offering. Thus, for a third party it is not apparent whether a store or restaurant belongs to the franchisor or a franchisee. A well-known example of franchising is McDonald's.

5.3.25.3.25.3.25.3.2 Physical distributionPhysical distributionPhysical distributionPhysical distribution

Marketing logistics aims at delivering the company's offering at optimal costs, in the right amount, and at the right time, to the place where it is demanded. This involves taking, implementing and controlling the following decisions:

Organisation of transportation

� Transportation by the company / someone else

� Minimisation of transport costs



� Optimal choice of transportation to satisfy customer demand and also keep transport costs low. For example, sending a product express or by normal transport, choosing air freight when necessary, etc.

Organisation of storage

� Assessing serviceability (quality control, quantity control, optimal order sizes and reorder periods)

� Decisions concerning warehouse showrooms (for example, decentralised warehouse showroom to keep delivery times low)

Organisation of serviceability

� Optimisation of the storage of spare parts and the operation of the service department.

Short delivery times, reliable delivery and serviceability are important sales arguments. However, trying to improve these aspects should never go beyond necessary measures in order to keep additional costs within limits.

5.45.45.45.4 Communications mixCommunications mixCommunications mixCommunications mix

A company communicates with its customers using advertising, sales promotion, public relations and personal selling activities (see figure 33)

Figure 33: Overview of communications mix Source: Schneider et al. (2003), p 63



A communications mix aims at providing information for a specific target group, and at creating attitudes, which should result in a desired behaviour by the customers. In business, a communications mix is used in the following areas:

� Sales

The objective is to make customers buy a certain product or use a specific service. This can refer to holiday trips, insurance services, a positive attitude towards a company or a certain product category, etc.

� Procurement

The objective is to make distributors participate in tenders, ensure delivery on schedule, etc.

� Staff

The objective is to make qualified people apply for vacancies, retain competent staff members and create positive attitudes towards the company.

A communications mix is also exercised in non-economic areas (non-profit areas):

� politics: in order to achieve a positive attitude towards a political grouping, and specific voting behaviour

� public charities: appeal for money

� health sector: advertising against smoking and drinking, advertising for vaccinations, etc.

� social sector: advertising for greater acceptance of foreign workers, participating in parents' association meetings or visiting job information events, etc.



5.4.15.4.15.4.15.4.1 AdvertisingAdvertisingAdvertisingAdvertising

Figure 34 shows the areas in which advertising strategies are planned and executed.

Figure 34: Elements of advertising strategies

Source: Schneider et al. (2003), p 63

5.4.1.1 Advertising objectives

The advertising objectives of a company derive from its higher-ranking company objectives and marketing objectives.

General advertising objectives

• Informative advertising: carried out during the pioneering stage of a product.

• Reminder advertising: aims at maintaining turnover, sales or market share.

• Maintenance advertising: aims at fending off threats from competitors.

• Expansion advertising: aims at increasing market share, turnover and sales.

Special advertising objectives

If marketers want to measure the effectiveness of their advertising, they have to formulate special advertising objectives on the basis of the company's general advertising objectives. Furthermore, these special advertising objectives have to be observable.



• Commercial advertising objectives: Such objectives could be the company's turnover or sales per quarter, per year, per region, per branch, etc. or the company's relative or absolute market share.

• Communicative advertising objectives: whether financial objectives are reached or not does not solely depend on advertising. It also depends on the other marketing measures, the behaviour of the competitors, the general economic situation, and so on. Therefore, companies often use communicative advertising objectives to measure the effectiveness of their advertising:

Advertising exposure (how many target customers and what share of target customers should be reached by the advertising message – those that read newspapers, those that watch TV at a certain time, etc.)

Advertising impact (how many target customers and what share of target customers should be exposed to the advertising message)

Advertising recall (how many people should still remember an advertisement after a given period of time).

5.4.1.2 Advertising objects

Companies can advertise for:

Single products (product advertising):

Example: "Cats know the difference" (Whiskas cat food)

Product categories (product line advertising):

Example: "The AXE effect feels so good." (line of personal hygiene products for men)

Total product range or product assortment (corporate advertising)

Example: "Because Change HappenZ" (insurance advertising)



5.4.1.3 Advertising partners

The following figure shows the different advertising partnerships that are possible in marketing practice.

Figure 35: Advertising partners

Source: Schneider et al. (2003), p 65

There are different forms of collective advertising:

In joint advertising, the companies involved are not named.

Examples:

� Advertising for milk ("Got milk?")

� Advertising for shoes ("You can never have enough shoes")

In association advertising, the companies involved belong to the same sector and are named in the advertisements.

Examples:

� Advertising of the authorised dealers of a specific car brand

� Advertising of florists in a town for Mother's Day



In tie-in advertising, the companies involved belong to different sectors and are named in the advertisements.

Examples:

� Advertising for all retailers in a shopping street.

� Collective advertising of tour operators and airlines.

5.4.1.4 Advertising subjects

An advertisement should reach those people that are potential buyers (target group) as accurately as possible. Individual advertising, such as an advertising letter, is addressed to individual persons. Mass advertising, such as a newspaper ad or a TV spot, is addressed to a wide circle of anonymous consumers.

5.4.1.5 Advertising message

An advertising message aims to highlight the "unique utility" that is exclusive to a particular product, and which makes it stand out against all competitors' products (USP – unique selling proposition). The message may emphasize the basic utility of the product or its additional utility.

Examples: Emphasizing the basic utility

"Add wings to your cleaning" (vacuum cleaner)

"The perfect cleaner for an imperfect world" (kitchen and bathroom cleaner)

"Sophisticated food for sophisticated dogs" (dog food)

Emphasizing the additional utility

"Because I am worth it" (advertisement for cosmetics)

"The drive of your life" (car advertisement)

Very often, marketers just try to attract attention with their advertising in order to fix their product or brand name in the target customers' minds. Almost everybody knows the slogan "Red Bull gives you wiiiiiings".

Companies use different features to plant their advertising message in the minds of their target customers. We know many of these features from TV commercials.

Examples: Lifestyle

Lifestyle ads show how well a product suits a specific lifestyle. ("Perrier. Champagne of table water")

Argumentation through recommendation

Well-known personalities such as actors or top athletes recommend the product.



Technical knowledge

A competent person explains, for example, how environmentally friendly a washing powder is.

Figure as symbol

A figure representing the product is created. This can also be a cartoon figure. Such figures are found in advertisements for toilet paper or fabric softeners.

Music as symbol

A tune that is immediately identified with the product.

5.4.1.6 Advertising media and media vehicles

There is a strong connection between advertising media and suitable media vehicles (see figure 36).

Figure 36: Connection between advertising media and media vehicles Source: Schneider et al. (2003), p 66

The term advertising media refers to the specific design of the advertising message. Media vehicles are the media with which the advertising media are transmitted to the advertising subjects (target group).

Other forms of advertising media:

� Direct advertising (delivery and distribution of catalogues, flyers, etc. by mail or commercial distributors)

� Product Placement (different brands are used as props in films, e.g. watches, cars, cigarettes or computers)



� Shop window advertising

� Advertisements on trams, buses, cars, etc.

Criteria for choosing media vehicles

The following criteria are used to choose between different media vehicles:

� Market shares of the media (television, daily and weekly newspapers, magazines, etc.)

� Coverage (space/quality)

� Costs (price for media use)

5.4.1.7 Media timing

Before advertisements can be coordinated temporally, several other decisions have to be taken.

� Number of messages per day (e.g. on the radio in several commercial breaks)

� Distribution of messages throughout the advertising period (rising, falling, level or intermittent)

Different advertising objectives call for different strategies.

Examples: Introduction of a new product

At first, advertising is kept at a low level. This could be posters with the still unknown product name and a question mark as teaser. The closer the launch date, the higher the degree of advertising.

Maintenance advertising

Here, advertising includes intermissions.

With off-season advertising companies try to prolong the season (e.g. ads for ice-cream in autumn) or balance fluctuations (e.g. car adverts in autumn). However, anti-cyclical advertising may largely be ineffective (e.g. advertising swimwear in autumn)



5.4.1.8 Advertising budgets

In marketing practice, the following methods are commonly used for advertising budgeting:

� Percentage-of-sales (profit) method

A certain percentage of the past or expected sales volume (profit) is spent on advertising. This leads to a strongly pro-cyclical advertising behaviour. Some criticise this method because the sales volume determines advertising expenditure, and not the other way round.

� Competitive-parity method

A company advertises when the competitors advertise, too. In most cases, the decision about when to advertise is left to the market leader. The company only responds to the market leader’s measures.

� Objective-and-task method

It always makes sense to orient the budget towards the advertising objectives.

Different industries have very different advertising budgets. But even in very competitive sectors, the budget is rarely higher than 3% of the sales volume.

5.4.1.9 Controlling advertising effectiveness

Controlling advertising effectiveness is based on the company's advertising objectives. Non-financial advertising effectiveness is measured through interview surveys.

� Advertising exposure (e.g. what percentage of the target group bought the newspaper with the advertisement, or listened to the radio programme when the advertisement was broadcast)

� Advertising impact (How many were exposed to the advertisement?)

� Advertising recall (How many could still remember the advertisement after a given period of time?)

By conducting interviews before and after an advertising campaign, a company can find out if brand awareness or customers' interest in its product has increased.



5.55.55.55.5 Sales promotionSales promotionSales promotionSales promotion

Sales promotion is intended to support sales through special measures aimed at the company's sales force, intermediaries (retailers / wholesalers) and consumers. The different sales promotion measures are chosen according to the target group:

Sales force promotion: for the company's sales force in the form of sales training, sales contests, and so on.

Trade promotion: for retailers and wholesalers in the form of product presentation, shelf maintenance, dealer training, display materials, promotional materials such as stickers, etc.

Consumer promotion: for consumers in the form of product samples, give-aways, special offers, raffles, etc.

Public relations (PR): A company’s public relations may not directly aim to influence the sales volume, but indirectly it is also directed towards an increase in sales. When a company as a whole is seen as more trustworthy, the company's sales will most probably increase.

Public relations comprises:

� press conferences

� paid-for and other positive reports in the press

� annual reports with attractive design

� events for the public (e.g. open day)

� promotion of scientific or cultural projects (e.g. promotion of research projects, promotion of young artists, sponsoring sports clubs)

5.5.15.5.15.5.15.5.1 Personal sellingPersonal sellingPersonal sellingPersonal selling

Personal selling refers to the direct, face-to-face sales dialogue with the customer, in which the individual requirements of the customer can be attended to. Personal selling is of great importance for goods that need explanation. Such goods are investment goods, data processing equipment, but also consumer goods like cameras, sporting goods, shoes, clothes and so on.



5.65.65.65.6 Marketing mixMarketing mixMarketing mixMarketing mix

A detailed plan of concrete marketing activities consists of a wise combination of the four controllable, tactical tools. A company uses the four Ps in such a way that the target market (or markets) responds in a desired manner. Figure 37, at the end of this chapter, summarises the marketing tools that can be combined in a marketing mix.

Figure 37: The four Ps of the marketing mix Source: Kotler (2000), p 15




1. Explain "width" and "depth" of a production programme (product assortment) using an example.

2. With which product policy measures can

a) the width

b) the depth

of the production programme be changed?

3. What is product variation and why is it carried out?

4. A buyers' market and a sellers' market do not fully determine price and sales. Explain why.

5. What parameters change the price?

6. When do we talk about a buyers' market?

7. Why is price not only influenced by supply and demand?

8. Give some examples of buyers' preferences.

9. What does price elasticity mean? Explain the term using an example.

10. Which fundamental possibilities of pricing policy do you know?

11. What does price differentiation mean? Which forms of price differentiation do you know?

12. What is meant by loss-leader pricing? Give an example.

13. In sales financing, why does the cost difference of offering credit diminish the profitability of the company?

14. On the basis of which aspects do customers get a discount?

15. How can a portfolio analysis support the marketing manager?

16. What is the difference between direct sales and indirect sales?

17. Which sales channels do you know?

18. Which goods are sold directly, and which rather indirectly?

19. Which sub-areas does distribution policy consist of?

20. Which decisions have to be taken when planning an advertising campaign?

21. Can products be advertised only individually?

22. Name all the advertising media and communication media you know.



23. In marketing practice, what options are commonly used for advertising budgeting?

24. Why is the sales development of a company not the only factor for measuring advertising effectiveness?

25. Which non-financial methods of controlling advertising effectiveness do you know?

26. Which components does the marketing mix consist of?



6666 Marketing PlanMarketing PlanMarketing PlanMarketing Plan

Companies combine all the issues discussed in this script in a marketing plan. This marketing plan contains the company's pre-defined goals, which can be communicated through the marketing plan and measured at a later stage.

The marketing plan documents all activities aimed at reaching specific marketing objectives. A marketing plan can be made for a specific product or service, a brand, or a complete product line. The time frame is usually one year, but can also consider up to five years.

6.16.16.16.1 Corporate planCorporate planCorporate planCorporate plan

Before mapping out a marketing plan, a company should develop a corporate plan which contains the following information:103

Introduction

1. General description of the business plan 2. Short description of the marketing programme 3. Business objectives and financial objectives and requirements

Corporate analysis

1. Strengths / weaknesses analysis 2. Company history 3. Product offering, production programmes and services 4. Future target markets and customers 5. Technology and resources 6. Important competitors and competitive positions 7. Key success factors 8. Cost comparisons

Industrial sector analysis

1. Definition and description of the sector 2. Growth rates and key factors of growth 3. Operative financial factors 4. life cycle of the sector

Market analysis

1. Market size 2. Market segmentation 3. Market barriers 4. Demand, market share, and market turnover 5. Distribution channels and selling methods 6. Pricing structure and pricing policy 7. Advertising plan, public relations plan, and sales promotion plan

103 See Gerson (2003), pp 11-12; for further details also see our 1BC Business Management Script



Strategic analysis

1. Objective and purpose 2. Key indicators of performance/success 3. Tactical plans and schedule for achievement of objectives 4. Operative requirements

Management analysis

1. Definition of managerial staff for key positions 2. Personnel requirements for current and future needs 3. Organisational structure 4. Management philosophy and customer service philosophy

Financial analysis

1. Current and future budgeting and possible budget alternatives 2. Financial plans and annual accounts

6.26.26.26.2 Elements of a marketing planElements of a marketing planElements of a marketing planElements of a marketing plan

A marketing plan consists of the following elements:104

Introduction

1. Description of the marketing plan and its principles √ 2. Introduction into the production programme or service √ 3. Expected customers, estimated turnover and profits √ 4. Competitive position / market niche / market share √

Market analyses

1. Results of market research √ 2. Analysis of demand / market attractiveness √ 3. Analysis and stages of the product life cycle √ 4. Corporate analysis √ 5. Competition analysis √ 6. Product analysis/production programme analysis/service analysis √

Methods of market segmentation/Customer analysis

1. Selection criteria for the target market √ 2. Customer characteristics √ 3. Needs and wants of customers √ 4. Matching products/production programmes/services with customer requirements √

104 See Gerson (2003), pp 16-17



Marketing mix: strategies

1. Company objectives and financial performance √ 2. Marketing objectives: niches, position, advantages √ 3. Marketing strategies: company as a whole, product life cycles, etc. √ 4. Marketing policies: action plans, implementation √

Promotion mix

1. Advertising programme: description of media plan √ 2. Publicity/Public relations √ 3. Direct sales √ 4. Sales promotion √

Marketing results

1. Evaluation of marketing activities √ 2. Turnover and profits √ 3. Achievement of objectives and differentiating advantage √ 4. Recommendation for future opportunities √

Supportive marketing documents

1. Budgets: income, expenditure, advertising, publicity √ 2. Advertising texts, layout and graphics √ 3. Business forms and tables √ 4. Legal documents and required authorisations √

6.2.16.2.16.2.16.2.1 Introduction to the marketing planIntroduction to the marketing planIntroduction to the marketing planIntroduction to the marketing plan

The introduction of the marketing plan consists of the following components: abstract of the marketing plan, descriptions of the products and/or services offered by the company, the target markets, the sales and profit margins the company is hoping to achieve, and a definition of the competitors. Furthermore, the introduction should also describe the marketing mix and corresponding strategies.

Many people read the abstract first. If they find it boring they will not read further. This can have severe consequences, especially when the marketing plan is supposed to convince a banker or investor to support the project financially. Therefore, the abstract should be short, informative and easy to read.105

6.2.26.2.26.2.26.2.2 Market analysesMarket analysesMarket analysesMarket analyses

Market research106 is of utmost importance to every company. In market analyses, the company describes the results of its marketing research. This part of the marketing plan should contain a short summary of previous activities and the findings of the research, without being as detailed as the marketing research report itself.

105 See Gerson (2003), p 18 106 See Chapter 4, Market research as an information source



The following table can help evaluate market attractiveness. The higher the points totals, the better the chances of succeeding in this market:107

Low � High

1. Market size 1 2 3 4 5

2. Growth potential of the market 1 2 3 4 5

3. Approachability of customers through advertising efforts

1 2 3 4 5

4. Potential of prospective users 1 2 3 4 5

5. Scope of pricing 1 2 3 4 5

6. Regular customers as a percentage of total number of customers 1 2 3 4 5

7. Competition among companies 1 2 3 4 5

8. Influence of word of mouth by satisfied customers 1 2 3 4 5

9. Customer retention through services 1 2 3 4 5

10. Long-term service requirements 1 2 3 4 5

Figure 38: Evaluation of market attractiveness Source: Gerson (2003), p 20

Products and services pass through several stages within the product life cycle (introduction – growth – maturity – saturation – decline; then perhaps relaunch).108 As soon as a product nears the saturation stage, the company has to take measures in order to stay competitive – either with new or adapted products.109

Corporate analysis aims at finding the company's strengths, weaknesses, opportunities, and threats, and is, therefore, also called SWOT analysis. Competition analysis looks at the strengths and weaknesses of the most important competitors of a company and compares them with the company's own strengths and weaknesses. With this analysis the company tries to find its competitive position relative to its competitors.

The last section of market analysis should be dedicated to the company's products/production programmes/services. Such an analysis could look as follows:110

107 See Gerson (2003), p 20 108 See also Chapter 5.1.2, Life cycle of products 109 See Gerson (2003), p 21 110 See Gerson (2003), p 27



Purpose and objectives:

Strengths and weaknesses of the company:

Strengths and weaknesses of the competitor:

Target market / special position:

Costs / required resources:

Service department:

Sales methods:

Customer service programme:

Time requirements:

Key questions:

Figure 39: Evaluation of products/services Source: Gerson (2003), p 27

This illustration allows a quick overview of the current situation of the company’s marketing activities, and it is also a good starting point for further development of the marketing mix.



6.2.36.2.36.2.36.2.3 Methods of market segmentation/customer analysisMethods of market segmentation/customer analysisMethods of market segmentation/customer analysisMethods of market segmentation/customer analysis

Market segmentation, or customer analysis, helps a company find out who its customers are, where they are, how and why they buy a specific product, what characteristics they have, and what has to be done to guarantee their loyalty.111

A company is only successful if it knows the needs of its customers. It can secure its competitive position on a long-term basis by continuously developing and adapting its products to the requirements of its (potential) customers. For example, camera and music integrated in mobile phones.

6.2.46.2.46.2.46.2.4 Marketing mix: strategiesMarketing mix: strategiesMarketing mix: strategiesMarketing mix: strategies

This part of the marketing plan contains the strategies that should lead the company to success. Two steps have to precede the actual marketing mix. First, general objectives and a marketing strategy have to be developed. Second, the target customers have to be identified. Now, a marketing mix can be put together.112

The following overview shows all the adopted strategies at a glance:113

1. Choosing target market / characteristics of market segmentation

2. Offered products / production programmes / services

Name:

Characteristics:

Satisfied needs:

3. Distribution channels (accessibility and availability)

4. Pricing (includes price reductions, incentives and terms of payment)

5. Sales promotion

Techniques: advertising, public relations, direct mail, personal selling, telemarketing, networks, etc.

111 See Gerson (2003), p 28 112 For further information see Chapter 5 Marketing tools, and a summary of the topic in Chapter 5.6 Marketing mix 113 See Gerson (2003), p 37



Marketing action plans (or MAPs) are used to guarantee the successful implementation of the planned strategies. These MAPs determine 114

• purpose

• objective

• activities

• responsible person

6.2.56.2.56.2.56.2.5 Promotion mixPromotion mixPromotion mixPromotion mix

After developing a marketing mix, the company fixes a promotion mix. This promotion mix includes all measures which, when implemented, bring the marketing mix to life. In "advertising", the company pays for placing adverts in the different media. "Public relations" combines press relations, organisation of events, sponsoring and so on. "Direct sales" includes both customer calls and telemarketing. "Sales promotion" defines all special activities (discounts and offers for a limited period of time) that are directed towards selling a large volume of products and services.

6.2.66.2.66.2.66.2.6 Marketing results and supportive documentsMarketing results and supportive documentsMarketing results and supportive documentsMarketing results and supportive documents

So far, the market, the customers and the competitors have been analysed. Furthermore, the target markets have been identified and new strategies for the marketing mix and promotion mix developed. Now it is time to examine the effectiveness of the marketing plan and to prepare supportive documents.

For example, responses to advertisements and sales promotion measures can help a company evaluate its marketing activities. Calculating the company's market share and market position is another form of evaluation.

Market share: Company revenues divided by the total revenues of the sector

Market position: The company's market share in comparison with the three most important competitors

"Supportive documents" refers to different types of reports and business forms, such as customer call reports, telephone call reports, control sheets for analysing advertising effectiveness and all other types of tables. It is also recommended to enclose copies of the marketing budget, turnover, income, expenditures and advertising. Supportive documents are include copies of contracts, authorisations and other legal documentation.115

114 See Gerson (2003), p 38 115 See Gerson (2003), p 48



Once the marketing plan is fully developed, it has to be implemented. All planned measures have to be PUT INTO PRACTICE. Note that a marketing plan is dynamic. This means that it has to be continuously adapted and revised, as the company's environment (competitors, customers, regulatory framework, etc.) is subject to continuous changes.

The 1BC Team wishes you every success in putting into practice all you have learned with us!



Table of figuresTable of figuresTable of figuresTable of figures Figure 1: Meffert: The marketing management process......................................................... 3 Figure 2: The levels of the marketing process ....................................................................... 4 Figure 3: Example of a two-party exchange, as illustrated by Caterpillar ............................... 7 Figure 4: A simple marketing system..................................................................................... 8 Figure 5: Stimulus-response model of consumer behaviour .................................................12 Figure 6: Detailed model of the factors influencing buying behaviour ...................................13 Figure 7: Stages in the family life cycle and buying behaviour ..............................................16 Figure 8: The AIO framework ...............................................................................................17 Figure 9: Four types of buying behaviour..............................................................................20 Figure 10: Five-stage model of the consumer buying process ..............................................22 Figure 11: Steps between evaluation of alternatives and a purchase decision .....................25 Figure 12: Possible responses of dissatisfied customers......................................................27 Figure 13: Three major steps of target marketing .................................................................29 Figure 14: Criteria for market segmentation..........................................................................30 Figure 15: Segmentation bases of a major US bank.............................................................33 Figure 16: Benefit segmentation of the toothpaste market....................................................35 Figure 17: Five patterns of target market selection ...............................................................39 Figure 18: Strategies for managing target markets ...............................................................42 Figure 19: Differentiation variables .......................................................................................46 Figure 20: Qualitative and quantitative methods of market research.....................................55 Figure 21: Different types of market research.......................................................................56 Figure 22: Outline of market research methods....................................................................58 Figure 23: Criteria for different survey methods....................................................................61 Figure 24: Rating scales.......................................................................................................70 Figure 25: Overview of marketing tools ................................................................................76 Figure 26: Product life cycle with relaunch............................................................................78 Figure 27: Different types of product policy...........................................................................80 Figure 28: Growth-share portfolio .........................................................................................83 Figure 29: Data for positioning in a growth-share matrix.......................................................85 Figure 30: Overview of terms policy......................................................................................87 Figure 31: Summary of distribution policy .............................................................................93 Figure 32: System of sales channels ....................................................................................94 Figure 33: Overview of communications mix ........................................................................96 Figure 34: Elements of advertising strategies .......................................................................98 Figure 35: Advertising partners...........................................................................................100 Figure 36: Connection between advertising media and media vehicles ..............................102 Figure 37: The four Ps of the marketing mix .......................................................................106 Figure 38: Evaluation of market attractiveness ...................................................................112 Figure 39: Evaluation of products/services .........................................................................113



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