Bm Handbook Marketing

Marketing What is a market? A market can be defined as a meeting place for buyers (consumers) and sellers. Markets can be set up in a shop, restaurant, over the telephone/ internet, at a car boot sale, etc. A market consists of the individuals or organisations who are actual or potential buyers of a product or service. Markets may be classified as consumer markets or industrial markets.

Consumer markets are made up of individuals who purchase goods or services for personal or domestic use. They make most of their purchases from retailers and buy a combination of consumable goods, such as food and durable goods such as cars, televisions, and clothes. Consumable goods are bought more frequently than durable goods. Industrial markets are made up of organisations that purchase goods or services to use in the production of other goods and services. They buy a combination of consumable goods, such as raw materials and longer-lasting durable goods, such as machinery and equipment. Market share The percentage of total sales of a product or service achieved by one organisation is known as market share . It is often considered by businesses to be an indicator of their success – the larger the market share, the larger the profits. The advantages of having a large market share are: • High market share companies have the power to buy their raw materials in bulk, which will reduce costs. This may be passed on to the consumer in the form of cheaper prices, thus edging smaller competitors out of the market. Otherwise, the firm will make higher profits. • High market share companies may be able to make special components or ingredients for themselves, rather than buying them from other firms. This again will prove to be a saving in costs. • If larger profits are made, more can be reinvested in the organisation. Additional research and development may give the company a competitive edge. • Costs, such as marketing and transport, are spread over a larger output – making expenditure on advertising, etc. much more worthwhile.

Market growth An organisation may be selling in a high- or low-growth market. Markets that are growing offer more potential for products to develop than declining or static markets do. High-growth markets are attractive to organisations that wish to increase their market share. It becomes very difficult to gain market share from established market leaders when market growth has slowed down. What is marketing? Marketing Manager Required Here is your chance to influence the spending habits of a discerning sector of the population and manage a world-famous cosmetics company. Reporting to Senior Management, you will develop and implement a marketing strategy for a range of brands. You will have responsibility for market research, promotion and advertising, direct mail activity and preparation of publicity material. Additional responsibility will be for new product development and branding in order to expand our market base. The marketing activities contained in the above job advertisement are italicised in the text. The Chartered Institute of Marketing defines marketing as ‘the process involved in identifying, anticipating and satisfying consumer requirements profitably’.

The role and importance of marketing in organisations • Identify • Anticipate • Satisfy 1

To identify consumers’ requirements

Businesses must identify what exactly a consumer wants from a product or service. There is little point in providing something that does not meet consumers’ requirements – they simply will not buy it. Marketing departments aim to ensure that consumers buy products or services and that they continue to do so (that is, make repeat purchases). Firms today face a lot of competition and consumers’ expectations are increasing and becoming more sophisticated. Requirements change frequently and the marketing department must make sure the product or service is developed or altered to meet these requirements. The role of marketing is, therefore, an increasingly important one in today’s business world.

Price and quality have always been important factors in whether or not a consumer will buy, but so too have prompt delivery, attractive packaging and after-sales service. Advertising and promotion play a big part in influencing consumers to buy. 2

To anticipate consumers’ requirements

The role of the marketing department is to find out what consumers want today and will want in the future. Consumer trends must be considered in order to anticipate future needs. This is especially important in markets where trends and fashions change rapidly (e.g. clothing, toys), or where technological changes occur frequently (e.g. computers). It may be necessary to develop new products quickly to stay ahead of competitors. 3

To satisfy consumers’ requirements

The consumer is the most important consideration for most businesses today – businesses are often said to be ‘consumer (or customer) focused’. Without consumers the business would fail. Good service and quality products that offer value for money are essential. Prompt delivery and good after-sales service are also important, as are well presented and packaged goods. It is vital that the product is available at the right price and at the right time. These three aims, for the majority of businesses, must be achieved profitably. There is little point in spending large amounts of money on marketing if costs are greater than revenue. However, organisations do exist where profitability is not an objective. Schools, hospitals and charities also use marketing techniques in order to become more effective in satisfying consumers’ requirements.

The importance of marketing The importance of marketing can be illustrated by considering the contrasting responses of the American car industry and the Swiss watch industry to changes in market conditions.

The decline of the American car industry For decades, motor cars manufactured by American companies were built on the principle that the American consumer preferred a long, roomy vehicle with large engine capacity. During the 1960s large heavy vehicles with names like Chevrolet and Buick, produced by American manufacturers, dominated the market. Roads were seldom graced by the sight of a foreign motor car and the American manufacturers tended to ignore trends taking place in the rest of the world where small, economical vehicles with lower engine capacities were capturing an everincreasing share of the market. American manufacturers believed that small cars would never sell in the US market. Japanese car manufactures, on the other hand, disagreed and recognised a major opportunity for market growth in the US. Marketing strategies were developed, research and development programmes carried out, factories built, and a workforce was trained in order that Japan could enter the American motor vehicle market. During the 1970s world oil prices quadrupled, making fuel much more expensive. Increasing labour and raw material costs also combined to make large American cars expensive to buy and to run. American consumers rapidly switched their preference to smaller, economical cars, and sales of Japanese vehicles such as Datsun and Toyota rocketed because American manufacturers offered no alternative. Even while this process was taking place, American car manufacturers decided against changing to small car production believing that the trend was only temporary and that their market share would recover when world oil prices fell. This never happened, and by the time American manufacturers finally changed to small car production, the Japanese manufacturers had a powerful grip on the market. They also faced severe competition from West Germany, Italy, France and Korea where technological advances in car production enabled competitors such as Volkswagen, Fiat and Renault to secure a market share. Several American car producers went out of business and thousands of manufacturing jobs were lost. This led to the United States having a large balance of payments deficit with Japan due to the high volume of imported Japanese motor vehicles. The domestic American industry failed to anticipate the changes in consumer needs and never recovered. The Swatch story In contrast, the outstanding success of a Swiss watch manufacturer during the 1980s was the result of a careful and well-executed marketing plan, brought on by necessity.

For years the Swiss were world leaders in the watch industry. In 1974 their worldwide market share was 30%. Then the Japanese actively began to produce and market quartz watches, which the Swiss viewed as a passing fashion. Quartz digital watches were, however, no fad and by 1983 the Swiss share of world markets for watches had fallen dramatically to 9%. The Swiss manufacturer SMH carried out extensive research in its watch markets and carefully analysed patterns of consumer behaviour. Marketing experts advised the company that a turnaround was possible if an inexpensive, good-quality quartz analog watch could be developed, since the market was saturated with digitals. Gradually, a marketing plan was devised and implemented resulting in the introduction of the Swatch in 1984, which has since revolutionised the world watch industry. Based on their extensive analysis of consumer behaviour and lifestyle, SMH adopted a strategy that completely changed the concept of a wrist watch. Watches were to be a fashion accessory first and a watch second. They would also be analog rather than digital. Product planning developed a distinctive quartz analog watch in a wide range of fashionable colours and designs. New models were introduced rapidly and older ones quickly dropped. Because Swatches were sold as fashion accessories, consumers were encouraged to buy more than one (to match different sets of clothes or lifestyles). The average Swatch customer in Britain today owns three different models. In Britain, Swatch watches were distributed mainly through department stores and speciality shops. They were not sold in high-street jewellery stores, which the company believed were an inferior point of sale for the product. The marketing strategy was based on carefully controlling distribution to avoid flooding the market, which would have resulted in consumers losing their desire to own a Swatch. Today, Swatch watches sell for a relatively low price which appeals to a large number of consumers and encourages multiple purchases. The watches are highly distinctive. Extensive product promotion, which includes advertising on TV and in magazines, together with sponsorship of various concerts and sporting events, generates further sales. Successful marketing has greatly increased market share and enabled the company to introduce new product lines, such as clothing and telephones, using the Swatch name. ACTIVITY In your own words compare the success of the American Car Industry with that of Swatch.

The marketing function In the case of Swatch, the strategic function of marketing was to attract and retain a loyal group of consumers through a unique combination of market research, product design, distribution, promotion and price factors. Since many markets for goods and services have evolved to the point where the consumer has become of prime importance, businesses have responded by attempting to ensure that their products are produced to an appropriate standard, at an acceptable price, and distributed in a convenient manner. Marketing decisions, therefore, centre on four functional activities:

• product • pricing • distribution or place • promotion (including advertising). These decision areas, when combined, are known as the marketing mix .

CORPORATE BLUNDERS

Sotheby's and Christie's. The names oozed high culture and big checkbooks, until this year. Now they sound more like Bonnie and Clyde. The two auction houses conspired to fix prices so that they would not lose clients, or hefty profits, through competition. Among the elite to get caught (and likely to face jail time) is Sotheby's chairman Alfred Taubman. That's the same Taubman who chaired (until recently) the mall development company that bears his name and brought International Plaza to the Tampa Bay area.

Marketing as a strategic activity Marketing is concerned with every aspect of an organisation’s product or service, e.g. its design, price, distribution, selling and promotion, from its inception until it finally reaches the hands of the consumer. Even after the sale, marketing still has a job to do: it must ensure consumer satisfaction through the provision of after sales service, such as maintenance, repairs, instruction booklets, spare parts and quality guarantees. Marketing is far more than just selling the product. It is concerned with what is to be sold, how it is to be sold, when it is to be sold and where it is to be sold. Amongst the most important functions of marketing is the assessment of the market to discover • where the consumers of the product are to be found • how many consumers there are • the attitudes and preferences of the consumer • the effectiveness of distribution methods • the strengths and weaknesses of competitors. The current position must be looked at along with the future position – marketing departments must anticipate what will happen in the future in order to allow adjustments to goods and services to be made and new goods and services to be produced. Profit is important to most organisations, but there may also be a need to improve brands in order to obtain or retain brand leadership or increased market share. Today, marketing has come to be recognised as the discipline which coordinates and manages the total business function. In a consumer society, marketing decisions are often strategic decisions since they frequently determine the overall direction of the organisation. Other business functions such as production and human resource management are often influenced by marketing considerations.

Product-oriented organisations These assume that the product or service being offered is the best on the market and will be very easy to sell. It is felt that there is no need for product change or development as there is no real competition. This might be the case with a new invention or a highly technical unique product, or even when a very strong advertising campaign can convince a consumer to purchase the product. Henry Ford in launching his Model T car said ‘customers can have any color they want as long as it is black’.

In today’s competitive business world, this approach may be seen as complacent. Organisations operating like this may fail once competitors enter the market. An example can be shown by the demise of the British Motorcycle industry. BSA, Norton and Triumph, producing heavy, slow-revving, large capacity machines, were superseded by Kawasaki, Honda and Suzuki – they had failed to look at what these foreign competitors were producing and how they met the needs of the consumer more successfully. Product orientation was predominant in the UK in the 1930s and 1940s when there was less competition, and customers’ expectations were not so sophisticated. Consumers did not have such a large disposable income and their knowledge of products was more limited. Pressure from the media was considerably less.

Customer-oriented organisations These constantly modify their products or services in response to changes in the market. They will make an effort to find out what customers want and what influences their purchasing decisions. These organisations realise that their profits and/or success depend on meeting the needs of the customer. During the 1980s and 1990s, customers became increasingly aware of what is available on the market and the amount of competition has greatly increased. This has led to the customer being seen as the main focus of an organisation’s activities. Marketing ensures that the needs of the customer are considered before production takes place.

The marketing of products and services Marketing applies to both products and services. Consumer goods (i.e. ones bought by end consumers for their own personal use) are commonly used to give examples to illustrate marketing. It is important to remember, though, that marketing also applies to industrial goods and to services. The main principles of marketing (covered later in this text) apply in all cases, but the ways in which they are used may differ between consumer goods, industrial goods and services. This section considers industrial goods and services. Industrial goods are distinguished from consumer goods according to the purpose for which they are bought. They are purchased for use in a business, e.g. raw materials and machinery. In some cases, the same goods can be both industrial goods and consumer goods. Cars, for example, may be industrial goods when bought by companies for use by sales representatives, but are consumer goods when bought by private individuals for their own use. From a marketing point of

view, the marketing of industrial goods is influenced by several factors: • Crucial considerations when buying industrial goods include product performance and quality in terms of wider company requirements – the technical specification of industrial goods may then be an important feature of marketing them. • The link between the seller and the buyer is usually much closer with industrial goods – for this reason, mass advertising is not often used for industrial goods and marketing tools such as branding may be less common. • Personal selling tends to be more common for industrial goods than for consumer goods. Services (e.g. hairdressing, car repairs, bank accounts) are distinguished from goods in the following ways: • They are intangible – as a result, they cannot be displayed like products nor can they be handled, tested etc. before they are bought. • They are usually sold and consumed at the same time – products can be produced, then stored and consumed at a later date, but the production and consumption of services cannot usually be separated. • They are perishable and, unlike products, cannot be stored. • Their quality may be variable – products can be produced in constant conditions so that quality can be closely controlled. Services are often provided on the spot and quality may depend on the person providing the service. Although people can be trained to follow very detailed job procedures (such as those used by McDonald’s in their fast food restaurants), quality control of services is generally more difficult than it is for products. These factors mean that the marketing of services often concentrates on ensuring that the quality of the service is as consistent as possible so that consumers get the same experience wherever the service is provided.

Marketing myopia Marketing myopia is a disease rampant among business people. It is the inability to see 'down the road'. Many business people make their decisions based on current circumstances. They do not think about what will likely occur in their industry in the future. The reason that short sightedness is so common is that people feel that they can not accurately predict the future. They are right, of course. But just because we cannot accurately predict the future, that is no reason why we should not use the whole range of business prediction techniques available to us to estimate future circumstances as best we can. The term was coined by Theodore Levitt in the 1960's.

Ansoff's Matrix - Planning for Growth. This well known marketing tool was first published in the Harvard Business Review (1957) in an article called 'Strategies for Diversification'. It is used by marketers who have objectives for growth. Ansoff's matrix offers strategic choices to achieve the objectives. There are four main categories for selection. Ansoff's Product/Market Matrix

Market Penetration Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market Development Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.

Product Development This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.

Diversification This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business. Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for growth.

Ansoff's Matrix Exercise. Colorado Ricardo Mountain Bikes. Colorado Ricardo Mountain Bikes was founded by Ricardo Francisco in 1992. He was a keen cyclist who spent his weekends with many friends cycling and having fun in the mountains of Colorado. He was very competitive and loved to take his bike off-road to test his strength and endurance. However he found that the bikes themselves kept on breaking-down under the strain. So Ricardo designed and built a number of bikes to overcome this problem. Many failed but eventually he came up with the ultimate in off-road bike, which he called the 'Colorado Ricardo'.People liked Ricardo's bike and he was asked to build and sell them to other cyclists in the Colorado region. It went so well that soon he was able to give up his own job as a DJ to focus on the construction of the bikes. As the mountain bike sport took off, Ricardo's business grew to produce 10,000 units in 1996. However sales have fallen annually since then and forecasted sales for 2000 are only 4,000 units. Ricardo's company needs strategies for growth before it is too late. Use Ansoff's matrix to examine the options for Colorado Ricardo. The marketing environment Organisations operate in an environment that is constantly changing. It is vitally important that marketing decisions take account of the forces that shape that environment in order to compete more effectively. The factors that determine and influence the marketing environment can be shown as follows:

Consumer trends and behaviour

Competition

Government THE MARKET

The economy

Technology

They are the same kinds of factors that influence all aspects of the behaviour and activity of an organisation.

The marketing mix For marketing to be successful, an organisation has to combine all the marketing activities to create a combination of benefits considered to be the most suitable to meet the needs of a selected market. These factors can be split into the four Ps: PRODUCT PRICE PLACE PROMOTION

Each of these factors has an influence on attracting the customer to the product. Each can be varied to suit the needs of the consumer, e.g. place needs to be considered when setting the price of a product – expensive meals can be sold in up-market type restaurants, but not a local café.

Product/service The product must meet the needs of consumers – actual and potential. Existing products may have to be adapted to meet these needs. Products are not necessarily tangible: the bank, travel agent, insurance company and architect all offer products – normally referred to as services . The quality of a product is capable of wide variation depending on how it is designed, the materials used in manufacture, the method of manufacture and how it is packaged.

Products are the means by which a business provides benefits for its customers. For example, what the consumer wants when buying washing-up liquid is clean dishes; a gardener buying insecticide wants to get rid of insects. A product is useless unless it provides a benefit for the user.

CORPORATE BLUNDERS Cheers to Bud "Lite" Selig, commissioner of Major League Baseball, for whining all year about MLB's red ink and the need to get rid of at least two major league franchises. If the business of MLB is in such trouble, why did we just witness an unprecedented bidding war, topping $700-million, to acquire the Boston Red Sox? Does anybody smell a rat?

PRODUCT For many a product is simply the tangible, phsysical entity that they may be buying or selling. You buy a new car and that's the product - simple! Or maybe not. When you buy a car, is the product more complex than you first thought? In order to actively explore the nature of a product further, lets consider it as three different products - the CORE product, the ACTUAL product, and finally the AUGMENTED product. These are known as the 'Three Levels of a Product.' So what is the difference between the three products, or more precisely 'levels?' The CORE product is NOT the tangible, physical product. You can't touch it. That's because the core product is the BENEFIT of the product that makes it valuable to you. So with the car example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly. The ACTUAL product is the tangible, physical product. You can get some use out of it. Again with the car example, it is the vehicle that you test drive, buy and then collect. The AUGMENTED product is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacture, and any after-sales service. STUDY QUESTIONS 1. Describe what you understand by a ‘Product’ 2. Describe the difference between the core and augmented product 3. Discuss the key features and benefits of an augmented product you own 4. From watching Steve Jobs introducing the i-Pod, what were the main features and benefits of the i-Pod? 5. Make a list of other elements you feel are important in creating a product 6. Finally, be creative! As part of an upcoming group task you are going to design your very own product. Brainstorm some ideas in your jotter

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The Product Life-Cycle When we buy a product we need to know how long it will last. Perishable goods, like fruit and vegetables, have a short lifespan. Durables like a car have a longer lifespan. Different products last for different lengths of time but their life-cycles have elements in common and follow this curve:

Introduction The product is tested and developed before it is launched. Initial sales will be low until the consumer starts buying. At this point, production costs are much higher than the revenue from sales. Growth As sales increase production becomes more profitable. The early development costs can be recovered. The success of the product can lead to brand loyalty and repeat sales. Maturity The product reaches its peak of sale and is at its most profitable point for the company. Competitors have now entered the market that may reach saturation point. Decline As new models and designs come out, or fashions change, a product may become obsolete. Sales fall, as does revenue. It is no longer profitable to produce it. Applying the product life cycle to the marketing mix Marketing teams watch for changes in the business environment and react to them. They respond to consumer needs, the actions of competitors or government and use the following strategies during each stage of the product life cycle. Introduction To make the target market aware of the new product it is important to heavily promote it. A special introductory price may help push the product. Growth As sales and profitability increase, the selling price may be reduced to make the product more attractive. Continued advertising around the brand name will help to sustain sales. The marketing team may consider expanding its distribution, to reach more consumers. Maturity Competitors will usually have entered the market at this stage. If their products are as good but cheaper the company may lose some of its market share. The pricing strategy must be reviewed. Marketers may also put added value onto their product, by offering accessories or insurance, for example.

Decline Marketing cannot save a product at this stage, but targeting a different and smaller segment can prolong its life. Extending the Product Life A product need not die. Through manipulation of the marketing mix the product cant survive longer. Product – a new version or generation of the product may be introduced. It may have better features, or changes in packaging. Price – the price may be lowered to reach a new market Place – changes in where the product is sold can expand the lifecycle. For example Brother typewriters are now sold in the Developing world, but are considered old hat in the West. Promotion – BOGOF and other deals may encourage more sales.

CORPORATE BLUNDERS After Sept. 11, three major airlines (American, Delta and Northwest) said they would lay off an estimated 100,000 employees. Citing the terrorist attacks as a "force majeure," the airlines argued they could make the cuts without customary notice, severance and early-retirement incentives. They later backed down.

Product Life Cycle Questions 1

Draw and label the product life-cycle diagram

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2

Describe what happens in each of the 4 stages.

4

3

What stage of the product life cycle do you think these products are at?

4

I-Pod PS3 DVD Video

Walkman Cars CDs PSP

4

Give 4 ways in which a product’s life may be extended

4

5

Describe what happens in the development stage

2

CORPORATE BLUNDERS In a boffo move, Sony Pictures used "quotes" from an imaginary film critic in Connecticut named David Manning, invented by a couple of Sony execs, in ads promoting such Sony-backed movies as A Knight's Tale and The Animal. Oops. A couple of moviegoers sued and several state lawmakers began investigations.

PRODUCT FAILURES

THE PRODUCT – Name and the Developer

THE TARGET MARKET – Who it was aimed at

FEATURES AND KEY BENEFITS TO CUSTOMERS

REASONS FOR FAILURE

BRANDING Originally branding meant anything that was hot or burning; by the European Middle Ages it was commonly used to identify the process of burning a mark into a stock animal so as to identify ownership. Today a brand is an identifying mark, image, name or concept, which distinguishes a product or service. A brand name that has been given legal protection is referred to as a trademark. Brands are the personality attributed to products and/or services. Without the brand, Coca-Cola is little more than sugared water; Domestos is just another detergent, and Chiquita is a banana just like another. Brands were born with the 19th century advent of packaged goods. Industrialization moved the production of many household items, such as soap, from local communities to centralized factories. These factories needed to sell their products nationwide, to a customer base that was only familiar with local goods. It quickly became apparent that their soap was a hard sell next to the familiar, local product. The packaged goods manufacturers needed to convince the public that their product was just as trustworthy. This is illustrated by many brands of that era, such as Uncle Ben's rice and Kellogg's breakfast cereal. The manufacturers wanted their products to appear and feel as familiar as the local farmers' produce. From there, with the help of advertising, manufacturers quickly learned to associate other kinds of brand values, such as youthfulness, fun or luxury, with their products. This kick-started the practice we now know as branding.

Examples of prominent brand names The 2001 ranking of the 100 most valuable brands worldwide by Business Week magazine contained 62 American, 30 European, and 6 Japanese brands. Brands (United States): Apple Ford Motor Company The Gap Nestlé Sony Ferrari

Boeing Hershey's BP Nokia Toyota Ikea

Coca-Cola McDonald's Cadbury Orangina Nintendo Lego

A good brand name should be: • • • •

legally protectable easy to pronounce, remember and recognise attract attention suggest product benefits (eg.:Easy off) or suggest usage

Columbia Records Microsoft Honda Canon Brio Mercedes-Benz

• •

suggest the company or product image distinguish the product's positioning relative to the competition

Brand Equity is the value built-up in a brand. It can be positive or negative. Positive brand equity is created by a history of effective promotion and consistently meeting or exceeding customer expectations. Negative brand equity is usually the result of bad management. The value of a company's brand equity can be calculated by comparing the expected future revenue from the branded product with the expected future revenue from an equivalent non-branded product. This calculation is at best an approximation. Positive brand equity can allow family branding, which makes new product introductions less risky and less expensive. Corporate Branding refers to the practice of using your company's name as a product brand name. Disney, for example, includes the word 'Disney' in the name of many of its products. So do IBM, Pepsi, and Coca-Cola. One advertising campaign can be used for several products. It also helps new products being introduced because customers are already familiar with the name. A corporate branding strategy should only be used if the company is already well known by the target market and also has a very positive image in their minds. If corporate branding is done well, the corporate name can become synonymous with a product category (e.g.: Kleenex, Tampax). Even purchasers of Charmin will refer to the product as Kleenex. The main disadvantage with corporate branding is the products are not treated as individuals; hence there is not adequate focus on the products' unique characteristics.

Questions 1. 2. 3. 4. 5. 6. 7.

Explain the origin of the word branding. Define what a brand is. In your own words, describe how brands were born. Which brand do you remember most? Why? What is brand equity? Explain the difference between positive and negative brand equity. Choose an example of a brand with either positive or negative brand equity. Explain your answer. 8. How is brand equity calculated?

CORPORATE BLUNDERS Tobacco giant Philip Morris left no doubt it should be somewhere on this list for its decision to swap its corporate name for the nonsense word Altria. The company topped its naming blunder when it funded a report in the Czech Republic on the economic virtues of a heavy smoking population. You see, the study said, people who smoke cigarettes tend to die young, thus saving the country the extra costs of providing them with a pension in their old age.

Brand loyalty Some consumers are faithful to one particular product. A marketing department must make sure that consumers believe the product to be better than all of its competitors. It is difficult to persuade brand loyal customers to switch products. A branded product may also command a higher price, but despite this brand loyal customers are reluctant to change. Manufacturers are able to launch new products much more easily if they use an existing brand name. Consumers believe that the new product will meet the same standards as the products they already know and like to buy. Own brands This is the term for products branded with the name of the store stocking the product, e.g. Tesco, Sainsbury’s or Boots. The product may well be manufactured by someone else. The responsibility for marketing the product is passed to the retailer. Retailers can have products made to their own specification and it may be offered as a cheaper alternative to the consumer. Many organisations maintain a product portfolio with different products at different stages of development.

CORPORATE BLUNDERS James Broadhead, CEO of FPL Group (parent of Miami's Florida Power & Light), obviously knows a good (personal) deal when he sees one. FPL's proposed $15.8billion buyout of New Orleans' Entergy was never consummated. But Broadhead and other FPL honchos still walked away with $62-million in deal-related bonuses. Broadhead, who is retiring at the end of this month, is quite used to remarkable paychecks. Last year, he received more than $39-million.

The Unique Selling Proposition

In developing your marketing message, it's very helpful to develop a Unique Selling Proposition, or USP. What is a USP? The USP very clearly answers the question, "Why should I do business with you instead of your competitors?" The USP may be used repetitively in your marketing literature to build the customer's or client's identification of your company with your product or service. There are two major benefits in developing the USP. First, it clearly differentiates your business in the eyes of your current and potential customers or clients. Second, it focuses your team on delivering the promise of the USP, helping to improve your internal performance. USPs should focus on a real product characteristic, for example Irn Bru’s taste or quality of Armani. Stronger still are USPs based on patented technical advantages like many car manufacturers (GPS, airbags or ABS) or computer firms (DVD-Rs, Internet access etc.). However many USPs are based on advertising imagery like Tango (wacky) or Levi jeans (cool). Who do you think of when you hear the phrase, "Fresh, hot pizza delivered in 30 minutes or less, guaranteed"? Dominos virtually took over the delivered pizza market with that USP. Notice Dominos didn't even promise the pizza tasted good. Questions 1. 2. 3. 4.

What is a USP? What are the two main benefits of having a USP? What other examples of USP can you think of? How do you think a Dominos delivery person would behave compared to a delivery person who works for a competitor without this USP? 5. Do you think the team at Dominos made a considerable effort to develop systems to assure the USP was met?

CORPORATE BLUNDERS In Panama City, a Hooters restaurant boss told waitress Jodee Berry that a new Toyota awaited the employee who sold the most beer in a month. After she won, the blindfolded waitress was escorted to the parking lot to claim her "toy Yoda," a doll of the Star Wars character. She sued.

STAGES IN NEW PRODUCT DEVELOPMENT Brainstorming Filter ideas Ask customers Formulate strategy Estimate sales, costs and profits Prototype created Trial launch in a few areas Putting into production

Memorandum To:

Business Management Students

From:

Mr McGowan

Date:

Today’s

Subject:

Product Design

Firstly…

We will view Steve Job’s brilliant iPod launch to see how the very best in the world present a product to market.

Then…

In your Apprentice Groups you are to come up with a new ICT Product. Go through the processes of idea generation, screening and concept development.

Then… You are required to create a 5 minute Presentation for your Product and to prepare a 2 page brochure outlining the Target Market, the Competition, Features and Key Benefits of your Product.

Finally…

A specially invited Judge will decide on the winning group. The losing teams will have to fire the members they believe was least productive/cooperative.

The Boston Matrix - The Boston Consulting Group's Product Portfolio Matrix

Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share. This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows. Dogs. These are products with a low share of a low growth market. These are the canine version of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid of these products. Cash Cows. These are products with a high share of a slow growth market. Cash Cows generate more more than is invested in them. So keep them in your portfolio of products for the time being. Problem Children. These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share. Stars. These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars. Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows is used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures. Problems with The Boston Matrix. • There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs

•

• •

It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product. There is another assumption that SBUs will cooperate. This is not always the case. The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.

Boston Matrix Exercise Manor Way Tools Manor Way Tools began life as a small steel company at the end of the 19th Century. It was one of the first companies to put carbon into regular iron to create steel. It was strong and flexible. Their first products were fish hooks which were made from the flexible wire that they were able to produce. Over the years the product portfolio grew to include anything that their operation could turn its hand to such as javelins and railings. Today they focus their operations on the manufacture of tools for the professional, production, and the enthusiastic amateur. Core products include handsaws, drill bits, screwdriver, bowsaws etc. The tool trade is very complex and competitive. Manor Way's main competitor is Oliver Tools. They are the market leader in many similar areas of the market. Analyze your product portfolio using the Boston Matrix. • Oliver is the market leader in handsaws with 40% of the market. Manor Way has only 25%. There is little house building and nowadays many amateurs use power tools. However is is still quite profitable. • Manor way still make a range of barbed fish hooks which are now banned in some markets. • Both Oliver and Manor Way have invested heavily in gardening tools and expect sales to increase in the future since people have more leisure time and a larger disposable income. Maner Way has 10% of the new market, and Oliver has 15%. • Manor Way has a high share in the new market for sandpaper replacement products. Their Wayplate is a steel sandpaper replacement for which they have sole rights. They have 5% of this growing market. • What about the javelins?

Mass vehicle recall hurts Toyota Toyota is already recalling more than a million vehicles Toyota is recalling nearly 250,000 vehicles in Japan over concerns about engine parts, not long after it had to take a million cars off the road. The latest scare involves Crown sedan and Hiace van models in Japan. Toyota will consider whether it should withdraw a million similar models exported to Thailand, India and Australia as well as Europe.

more than Indonesia,

The Japanese firm recalled a record 1.41 million last month to repair a separate electrical defect.

vehicles

Corrosion worry The latest recall came after drivers complained about unusual noise and vibration and vehicles stopping unexpectedly. No accidents have been reported. Toyota said it was investigating possible corrosion of parts within the engines of certain models manufactured between 1998 and 2005. Affected models include the Crown Chaser Cresta and the Hilux and Dyna truck marques. The company did not comment on the likely cost of the recall. Toyota, the world's second largest carmaker, is expected to sell about 8.5 million vehicles this year. STUDY QUESTION Discuss the implications for Toyota of recalling and not recalling the product.

PRICE The price a firm sets for its products/services will affect demand.

Demand Curve

Fig. 1 The Demand curve shows us the relationship between price and the quantity demanded. As we can see when the price increases from P1 to P2, then the Quantity demanded falls from Q1 to Q2. When goods or services respond strongly to changes in price, they can be deemed price sensitive.

Price is important for two main reasons: 1. Consumers will only pay what they can afford 2. Consumers use price as a measure of quality

How do small firms set their price? Small firms usually use cost-based pricing methods called mark-ip and cost-plus pricing. For example, A small clothes shop buys a dress for £40. Mark-up – adds a profit percentage onto direct cost of goods, so if the dress is to have a 100% mark-up, the £40 dress will be sold at £80. Cost-plus pricing – this is similar to mark-up but adds overheads onto direct costs before the profit percentage is added.

Long Term Pricing Strategies Low Price – businesses may charge a lower price than those of competitors if the good is price sensitive. This is when consumers respond positively to changes in price, and lower may result in higher sales. Market Price – when a business sets prices in line with competitors. This avoids a price war, which is unbeneficial to all companies. High Price – adopted by firms offering high quality, premium goods and services, where image is all important.

Short Term Pricing Strategies Skimming – when a new product is introduced the price is set high. At the beginning when competition is low, consumers pay for the novelty value. As more competition enters the price is lowered each time to ‘skim the cream’ off the market. This occurs in technological markets. When DVD players first came out in the late 1990s they cost in excess of £1,000. Today cheap DVDs can be bought for around £80. Penetration Pricing – used when entering an established market, it allows sales and market share to increase quickly. Prices are set low, sometimes at a loss. As the product becomes established it can then increase the price. Stagecoach introduced low fares when entering the Glasgow market in 1997 to take passengers from First Bus. Destroyer pricing is when a firm sets a price low enough to drive competitors out of the market. Once the competitor is forced out, prices can return to normal. It is deemed anticompetitive by the Government. Rentokill advertised competitive prices nationwide, but reduced prices occasionally at local level to put local firms out of business. Promotional pricing is used in the short term to boost sales or create interest in a new product. Supermarkets may lower the price of their best selling products in order to attract customers who will buy other goods while in the store. This is also called a loss leader - a product that has a price set so low that it acts as a promotional device and draws customers into the store. Demand-orientated pricing refers to varying the price for different groups of consumers. For example telephone calls are less expensive off peak as there are less calls made during that period. It is a way of generating more business. This is also called price discrimination.

Questions

1. 2. 3. 4. 5. 6.

What does the demand curve show? Explain the difference between mark-up pricing and cost-plus pricing? Describe the three long term pricing strategies. What is market skimming? What types of firms would use this strategy? Compare and contrast penetration pricing and destroyer pricing. Explain what promotional pricing is. Give an example of a good which you have bought recently which would be priced in this way. 7. Describe demand-orientated pricing. Give an example of a good or service which could use demand-orientated pricing.

DISTRIBUTION The next P in the marketing mix is Place. This refers to where the product is sold, and how is it distributed. Channel of distribution – the route taken by product as it passes from producer to consumer. Wholesaler – they buy large quantities of product from suppliers and sell them on in smaller volumes to retailers or business users. The wholesaler provides a link between the producer and the retailer, saving the producer time and money in delivering direct to the retailer. Retailer – the shop which sells goods to the general public. Retailers offer a variety of goods and services from a variety of producers. Goods are stored on their premises and are prepared for sale and display them for sale. Types of retailer

o Independent retailers – most common type and can be best illustrated as your local corner shop.

o Multiple chain stores – a number of outlets across the country with a well-known o o o o

o

name. E.g. Marks and Spencers Supermarkets – offer a wide range of groceries, clothing and electrical goods. E.g. Tesco, Sainsbury’s Department Stores – offer a range of goods within different departments. Normally specialise in premium brands. E.g. House of Fraser, Debenhams Franchises – offer a new business a chance to trade using a successful formula, e.g. McDonald’s. Mail Order – rather than having expensive shops to run they issue catalogues to consumers who can select products in the comfort of their own home. Successful due to the credit facilities offerd. E.g. Freeman’s Door-to-door – companies like Avon take orders from people’s doorstep.

Agent – an independent person or company appointed to handle sales and distribution within a specified area. Agent’s income comes from commission they make on each sale. Agents carry out promotional activities to attract customers and sell them the product. Car manufacturer’s use agents to sell to local markets because they should have better knowledge of the market. One drawback is that if an agent sells many different products, yours might not be given the attention needed. Importer/Exporter – they play a similar role to the agent but on an international scale. They will have superior knowledge of the world markets, and can create sales through their own promotional campaigns. Sometimes act as retailers too.

Direct Selling – This is when the manufacturer sells straight to the consumer. More common in small, local businesses like a baker. It also occurs in the industrial market, especially with highly technical machinery.

Choice of distribution channel – how the product gets to the consumer depends on a number of factors. The Product – Perishable products which have a limited shelf-life should select a direct channel. However, some perishables like fish, fruit and vegetables sometimes go through specialist wholesalers who buy from small producers in order to make up the bulk needed fro retailers. Premium brands are selective where they are sold, and both Calvin Klein and Levi’s have prevented Tesco selling them in their stores. The Market – if the market is nationwide, then to save in distribution costs, then using wholesalers and retailers are more efficient. If the market is small and local, direct selling is more apt. Legal requirements – some goods can only be sold through licensed premises such as chemists, pubs and off-licenses. Buying habits – consumers influence where products are distributed. The emergence of out-of town retail parks have seen identikit sites open up nationwide. Each one contains supermarkets, carpet stores, furniture stores, DIY stores, Garden centres etc. People now expect these type of stores to be located in such places. The business – some firms have their own distribution process with their own wholesalers and retailers. Once common among large organisations, most of these functions have been outsourced. QUESTIONS 1. 2. 3. 4. 5. 6. a) b)

Why is distribution important to the marketing mix? What is a channel of distribution? Compare and contrast wholesalers and retailers. Explain what an agent does. Give one advantage and disadvantage of using an agent. Explain why the choice of distribution channel is important in terms of: the product the market

7) Give two advantages of selling online

A Distribution Channel Manufacturer Wholesaler Retailer Consumer CORPORATE BLUNDERS Viisage Technology of Massachusetts was happy to supply its face-recognition software at this year's Super Bowl in Tampa so law enforcement could scan and compare the face of every fan at Raymond James Stadium with a criminal database. Too bad nobody told the fans. The company and law enforcement escaped rising criticism after the Sept. 11 terrorist attacks changed the public's view on aggressive security tactics.

Manufacturers A B

C

C

D

Company warehouse

Wholesalers

Company outlets

Retailers

o

n

s

u

E

Retailers

m

E-tailers

e

s CORPORATE BLUNDERS St. Petersburg's Florida Power Corp. grossly underestimated the need for meter readers, forcing Central Florida's dominant electric utility to "estimate" an unusually large number of its residential customers' monthly bills. Many of those whose power usage was underestimated got a nasty shock later when the meter was finally read and a revised bill arrived.

r

PROMOTION Who’s Advertising Slogans are these?

1. Whassup? 2. Australian’s wouldn’t give a _____________ for anything else 3. Make yourself at home. 4. Dangerously entertaining. 5. Bon voyage. Bonne destination. 6. Thank you very much 7. A ________ a day helps you work rest and play 8. You either love it or hate it 9. Hello boys 10.Making life taste better 11.The drive of your life 12.Original and best 13.Vorsprung durch technik 14.“Where do you want to go today?” 15.Finger lickin' good 16.Because I’m worth it 17.And all because the lady loves _____________ 18.You can be sure of _______________ 19.Be the Best 20.Your flexible friend 21.The world’s favourite airline 22.Put a tiger in your tank 23.You know, when you’ve been ____________ 24.got your number 25.the world’s local bank

Methods of Promotion The three main aims of promotion are: • persuading – to persuade consumers to purchase the product; • informing – to tell consumers about the product; • reminding – to remind consumers that an established product still exists. There are two main types of promotion:

• Above the line – Use is made of independent media such as television and newspapers, enabling businesses to reach large audiences easily. Obviously there will be those who are not really interested in the product at all so, to a certain extent, the promotion can be said to be wasted. • Below the line – This type of promotion is directly controlled by the business, e.g. sales promotions, direct mail, trade fairs and personal selling. It allows

businesses to target the consumer they hope will be interested in their product more directly. Let us look at the individual components of the promotions mix in more detail. Remember all of the elements are 'integrated' to form a specific communications campaign. Advertising is a 'paid for' communication. It is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market. There are many advertising 'media' such as newspapers (local, national, free, trade), magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoors advertising (such as posters, bus sides). Informative Advertising – used to pass on information about new or improved products, or to give information about a technical product. The government uses informative advertising in the media. E.g. HEBS regularly run ads to change Scottish unhealthy lifestyles and eating habits. Persuasive Advertising – a hard sell by manufacturers to get us to buy their products. Often used in competitive markets where there are few USPs between products. They use powerful images and language to try and get us emotionally involved. E.g. in the lager industry Carlsberg state: “Probably the best lager in the world.” Corporate Advertising – like corporate branding, where the whole company is promoted not just individual products. Generic Advertising – When rivals come together and sell not their individual products, but their market or industry as a whole. A recent example would be during the BSE crisis, British Beef advertised in unison to try and allay consumer’s fears. The effectiveness of advertising will often depend on selecting the most appropriate media to reach the target segment of the market. MEDIUM Television

ADVANTAGES Exposure on a national scale The advert reaches all socio-economic groups Sound, vision, movement and colour can all be used

Daily newspapers

Exposure on a national scale People tend to believe what is in the papers They have high attention value Market segments closely identified with readership

DISADVANTAGES Expensive There may not be a nationwide interest in the product, so TV advertising would not be appropriate Only read by particular groups Can be expensive

Sunday newspapers

Local newspapers

Direct mail

Independent radio

Greater attention value since people have more time to read them Large circulation Advertising in colour supplements is attractive Readers tend to scrutinise local papers more closely than they do the nationals Greater density of readership on a local basis Good for targeting market used with mailing lists Good for exclusive products and particular interest groups Less expensive than press and television

‘Captive’ audience

Cinema

Outdoor media

Messages can combine voice, image and colour Effective for targeting local markets and segments High visual impact

Expensive Difficult to define market segment of readership Local papers do not have the authority of national papers Newsprint is sometimes of poor quality Poor strike rate if target if audience is not carefully selected Many consumers view it as an ‘invasion of privacy’ Relies on messages being communicated by voice – high ‘noise’ factor Difficult to target specific segments Listeners tend to ‘switch off’ when the adverts come on Limited market coverage Expensive to produce ‘quality’ adverts May go unnoticed – i.e. part of the scenery

The choice of advertising method will be affected by: • cost • the audience reached • the advertising used by competitors • the impact • the law (restrictions on tobacco advertising) • the marketing mix (may be used along with other promotions).

Controls on advertising Advertising Standards Authority (ASA)

This is a voluntary body set up to monitor advertising in the UK. It is responsible for making sure advertisers conform to the British code of advertising and sales promotion practice. Advertisements must be legal, honest, truthful and not cause offence. Independent Television Commission (ITC) This is a body which controls advertising on television and radio.

Sales promotion tends to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions, free accessories (such as free blades with a new razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales promotion should be carefully costed and compared with the next best alternative. There are two main types of sales promotion:

Into the pipeline This is a promotion designed to enhance sales of a product to trade outlets and to help them sell the product to their customers. Examples include point of sale (POS) material, such as displays, posters, promotional videos, etc., and sale or return arrangements under which the supplier agrees to take back unsold stock. Out of the pipeline This is a promotion that helps trade outlets to persuade their customers to make a purchase. Examples include free trial packs, bonus packs and money-off coupons. Personal Selling is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. However sales people are very expensive and should only be used where there is a genuine return on investment. For example salesmen are often used to sell cars or home improvements where the margin is high. Public Relations is defined as 'the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its publics' (Institute of Public Relations). It is relatively cheap, but certainly not cheap. Successful strategies tend to be long-term and plan for all eventualities. All airlines exploit PR; just watch what happens when there is a disaster.The pre-planned PR machine clicks in very quickly with a very effective rehearsed plan.

Merchandising is an attempt to create an atmosphere or mood to attract customers into stores via elaborate displays, posters etc. Layout of stores are designed for customers to follow routes whereby to get to the popular selling products they have to pass less popular ones, in the hope of making a sale. Similar products are stacked together for customer ease. Prices for shelf space vary, the most expensive for producers to get is at eye-level. Products at eye-level out perform other, similar products. Direct mail is very highly focused upon targeting consumers based upon a database. As with all marketing, the potential consumer is 'defined' based upon a series of attributes and similarities. Creative agencies work with marketers to design a highly focussed communication in the form of a mailing. The mail is sent out to the potential consumers and responses are carefully monitored. For example, if you were marketing medical textbooks, you would use a database of doctors' surgeries as the basis of your mail shot.

Trade Fairs and Exhibitions Such approaches are very good for making new contacts and renewing old ones. Companies will seldom sell much at such events. The purpose is to increase awareness and to encourage trial. They offer the opportunity for companies to meet with both the trade and the consumer. Expo has recently finish in Germany with the next one planned for Japan in 2005, despite a recent decline in interest in such events. Sponsorship is where an organization pays to be associated with a particular event, cause or image. Companies will sponsor sports events such as the Olympics or Formula One. The attributes of the event are then associated with the sponsoring organization. The elements of the promotional mix are then integrated to form a unique, but coherent campaign

Activity For each of the various methods of promotion, think of advantages and disadvantages of each. Draw a T-chart if necessary.

CORPORATE BLUNDERS In Miami, a dozen Burger King executives suffered serious burns to their feet after walking across a bed of hot coals during a management training exercise. At the home of the Whopper, it gives new meaning to "flame broiled."

Memorandum To:

Business Management Students

From:

Mr McGowan

Date:

Today’s

Subject:

Design an Advert

Your task is to design a promotional advert and flyer. Our clients will be one of the following: a) b) c) d) e)

Healthy Eating in Octagon Mr McGowan’s Podcasting Club HGS e-zine Dangers of using Bebo/Facebook/My Space Kazakhstan Tourist Board

I will select which one in class before we begin. You need to make sure you are communicating the message of the product as well as making it eye-catching enough so it will stand out from the crowd, or to use advertising speak, ‘cut through the noise.’ The adverts will be judged by an expert! The winning poster and flyer will be used for real!

Marketing Mix: The 4Ps and how they relate to each other PRODUCT

PRODUCT -

PRICE High production costs may mean a high selling price -

PLACE Products should be sold in relevant shops/locations

PROMOTION Ad campaigns must use appropriate media

In different locales prices may differ (think shopping malls or internet)

Low priced goods are often heavily promoted via BOGOF (sales promotion) Promotions need to be aware of the ‘noise’ in certain places such as the internet (pop-up killers etc) -

PRICE

High price is perceived as high quality

PLACE

Where a product is sold affects image and quality

High priced goods are available in exclusive stores

-

PROMOTION

Campaigns must target right consumers

High priced goods are advertised selectively and exclusively

Competitive High Streets or Shopping Malls may have to have regular promotions to attract customers

Market Segmentation: Introduction There are three main approaches to marketing strategy: 1. Undifferentiated or mass marketing 2. Differentiated or product-varied marketing 3. Target, concentrated or niche marketing

Undifferentiated marketing

Firm

Market Marketing mix

Differentiated marketing

Marketing mix1

Segment 1

Marketing mix 2 Firm

Segment 2

Marketing mix 3

Segment 3

Concentrated marketing

Segment 1

Firm

Segment 2 Marketing mix Segment 3

Perceptual Mapping Perceptual maps are grids to help us understand consumers’ views and perceptions about products and brands.

High Quality

High Price

Low Price

Low Quality

The above circles are products. Market segmentation Market segmentation is when a market is analyzed to identify all the different types of consumer. Then products are matched to consumer categories. Types of segments Just as you can divide an orange up into segments you can divide the population as a whole into many different groups of people or segments that have something in common. Segmenting the market makes it easier to identify groups of people with the same consumer needs and wants. Marketers therefore look for categories they can use to divide up the population. There are five commonly used categories: • • • • •

Gender Culture Age Income Lifestyle

Gender Products may be targeted at a specific gender group. For instance, cosmetics have been traditionally targeted at women while DIY has been targeted at men. Culture People's needs and wants as consumers will vary according to their religion, language, social customs, dietary habits and ethnic background. In the UK businesses provide for a wide range of different cultures. There are magazines and newspapers in many different languages and Halal butchers in areas with large Muslim populations.

Age The population can be divided by age in years (eg. 0-16, 17-25) or by the stage of life reached (eg. schoolchild, teenager). For example, a pensioner will have similar needs to those of other pensioners but different needs from those of a teenager.

Income The population can be segmented according to annual salary (e.g. £15,000, £30,000 etc.), or type of job and social class. Establishing a group's disposable income is important so that products can be targeted to the relevant income group. This is called a socioeconomic segment. The socio-economic groups A, B, C1, C2, D and E describe how much the head of the household earns. A. B. C1. C2. D. E.

Higher managerial, administrative or professional Intermediate, clerical, administrative or professional Supervisory, clerical, junior administrative or professional Skilled manual Semiskilled and unskilled State pensioners, widows, casual and lowest paid

Lifestyle People are grouped according to the way they lead their lives and the attitudes they share. For example, young professionals may drive a sports car because of the image they want to project. Married parents might want the same things, but have to provide for their children, which is a large extra cost. They will need a family car to suit their lifestyle. Market Segmentation Tasks 1. Outline the differences between the three marketing approaches. 2. What is market segmentation? 3. Describe the ways you can segment a market. 4. Create a perceptual map for running shoes based on quality and price. Place the following brand sin your map: Reebok, Nike, Gola, addidas, Puma, 5. Create a perceptual map for jeans, again based on quality and price. Place the following brands in the map: Levi’s, Pepe, Wrangler, Armani, Lee’s, Versace

6. Copy and complete the table to show the most likely target market for each product. Detail

Age

Sex

Socio-economic group

Dyson vacuum cleaner Shoot magazine Audi TT PlayStation 3 Filofax personal organizer B&Q Power Drill CK Obsession IKEA coffee table Westlife CD Baby Annabelle doll Robosapien Rod Stewart CD Gap Jeans 3G phone 4 week holiday in Portugal in January Gold Rolex watch

7. Look at the top 10 films in the UK at present AND the top 10 albums. (You may have to access the internet). Now place each film/album into a segment you create. You decide how you are going to segment the market and justify why.

Niche Marketing Golf in Scotland Golf Tourism - Introduction Scotland boasts five of the nine Open Championship venues as well as hosting many other major events that attract wide media coverage. Since the launch of the Scottish Golf Tourism Strategy in 2000 there have been concerted efforts to further develop and promote what is clearly a core product for the Scottish tourism industry. In 2002, around 300,000 UK visitors took holidays in Scotland specifically for the purpose of playing golf. This generated around £105 million in tourism spend. Around another 1 million visits where golf was part of the trip and this generated an additional £240 million in tourism spend. In addition, Scotland attracts approximately 100,000 golfing visitors from overseas, bringing an additional £100 million into the Scottish economy. For every £1 spent on a green fee in Scotland, a further £5 is spent elsewhere in the Scottish economy, and with many types of business and all parts of Scotland benefiting from this spend. Despite Scotland’s obvious strengths, there are big challenges in the golf tourism market, namely: • Golfing visitors are now spoilt for choice, with more and more countries, resorts, golf courses and hotels competing for their attention and business. • Scotland has drawbacks to accompany its strengths – the weather deters some visitors, there is little winter business and demand often outstrips the supply of available tee-times at some of the courses visitors most want to play, thus driving up prices. Who are Scotland’s golf tourist customers and what are they looking for? The key to success is to identify the different segments in the golf tourism market, the requirements of each of these different types of visitors and match these with what you can offer. But first, here are a few key findings about Scotland’s golfing visitors from a survey carried out as part of the National Golf Tourism Monitor in 2001 •

•

•

Visitors found it easy to obtain information on golf holidays in Scotland and also found it easy to book their accommodation and golf. (With more and more online information and booking activity, it is probably now even easier.) Most visitors booked all their accommodation and (to a lesser extent) their golf before leaving home, and most booked directly with accommodation establishments and/or golf courses. However, a third of visitors booked all their golf after arriving in Scotland. 40% of visitors made their holiday decision and 25% made their bookings, more than six months before their visit, with only about 30% making their decision and bookings within three months of their visit.

• • •

• •

Visitors were typically experienced and competent golfers – 20 years’ experience, mostly golf club members, and with an average handicap of 15. 80% of ‘golfing holidaymakers’ take at least one golf holiday a year with 50% taking several such holidays every year. Scotland’s strongest features are the number and quality of its golf courses, and the ease of access to them. Accommodation quality and value for money are less highly rated than golf course quality and value. Overseas visitors are Scotland’s most critical customers – as well as being our most valuable ones in terms of length of stay and spend per head. About 20% of visitors had considered visiting a country other than Scotland for their holiday – with Ireland the strongest competitor destination.

Of course, different types of golf facilities and different parts of Scotland attract different types of golfing visitors. The first step is therefore to recognise these different segments in the golf tourism market and what each type of visitor is looking for. You will then be able to decide which of these segments you can realistically target. For instance, day-trip visitors can be a key part of the market mix for many golf courses, but are obviously of no direct interest to accommodation operators, while most North American golfing visitors tend to focus on Scotland’s famous courses. A key distinction is between ‘golfing holidaymakers’ for whom golf is the main purpose of their holiday, and ‘holiday golfers’ who play some golf as just one part of a more general holiday. Questions 1. 2. 3. 4. 5.

What is meant by the term niche marketing? What advantages does Scotland have in term of golf courses? Why is golf tourism important to the Scottish economy? Conduct a brief SWOT analysis for golf in Scotland. What are the two major disadvantages of golfing in Scotland? How would you solve this problem? 6. What evidence can you find that shows golf package deals have room for improvement? 7. What golf segment would you target and why? 8. Golf is one of four key niche markets in Scotland. Can you work out the other three?

Marketing Research Faux Pas Pepsi in Taiwan The advertising slogan “Come alive with the Pepsi generation” was translated as “Pepsi will bring your ancestors back from the dead”.

Toyota’s Fiera In Puerto Rico ‘fiera’ translates to ‘ugly old woman’.

General Motors’ Chevy Nova People laughed at this car when released in Latin America, because ‘Nova’ means doesn’t go in Spanish.

Schweppes Tonic Water In Italy the name was translated at Schweppes Toilet Water.

Gerber in Africa Baby food manufacturer Gerber began to sell products in Africa, using the same packaging for Western markets. Low sales revealed that the other firms used pictures to show what’s inside as many customers cannot read English. KFC in Hong Kong KFC’s ‘Finger Lickin’ Good’ slogan was translated as ‘eat your fingers off’.

Coors in Spain Coors ‘Turn it loose’ slogan translated as ‘You will suffer from diarrhoea’!

Market Research Market research involves collecting, recording and making sense of all the available information which will help a business unit to understand its market. Market research sets out to answer the following questions: • who makes up the target audience? • what do they want? • when do they need it? • where does it sell best? • how can it be taken to them? • why do they want/need it? • what are our competitors doing? • how is our market changing? • Market research helps firms to plan ahead rather than to guess ahead. In business, demand is always changing and therefore it is essential to know how things are changing. Market research requires a special form of skill and therefore market research companies are often employed because they have the necessary experience and also because market research takes up a lot of time.

Methods used in marketing research Data gathering involves collecting as much information as possible about the market, usually before any further steps are taken. It relies on desk research and field research. Data is divided into primary and secondary categories. Primary data are collected in the field. Secondary data are gathered from all the material that is at present available on the subject, and is always studied first when doing desk research. Desk research. This method involves the search for secondary data, whether published or unpublished. A good place to begin is with a company's records of items such as production, sales, marketing, finance and other data. Other sources of secondary data are government publications on the Internet such as the government's Expenditure and Food Survey showing what typical households spend their money on, and Social Trends outlining changes in social patterns in this country. Commercial research organisations such as Mintel also provide market research reports, many of, which are accessible on the Internet. Field research involves the search for primary information. Sampling/sample surveys: Is the most common way to gather field data. It involves taking a census of a small sector of the population which represents all of a particular group, e.g. married working women in Bristol aged 30-45 are taken to represent all urban, married working women in the United Kingdom. Convenience sampling is taking information from any group, which happens to be handy - walking down a high street for example. Judgment sampling is slightly more refined: the interviewer would select high street respondents on the basis of whether or not they appear to belong to a particular segment or the population - say, middle-class business people. Quota sampling deals with specific types of respondents - e.g. female students studying the social sciences. Questionnaires: This is the most popular method of extracting information from people. They are usually conducted by post, telephone or in person. Questionnaires are easy to administer and easy for respondents to deal with. They simplify the analysis of results, and can provide surprisingly detailed information. A useful way of delivering a questionnaire is on-line. One way of doing this is to ask the public to fill in a questionnaire, which then enables them to register for access to a website. However, questionnaires are easy to 'cheat' on and a market research agency will ensure that 'control questions' has been built in to check that the questionnaire has been filed in in a suitable fashion. Postal questionnaires: These are easy to administer but unfortunately they yield a poor response. They are rarely used on their own: more often they are used to support a programme of telephone or personal interviews. Benefits include relatively low cost, no interviewer bias, and reaching people who are otherwise inaccessible. Telephone interviews: These are ideal when specific information is required quickly. However, in the modern age many consumers are reluctant to 'waste' their time on

answering questions on the telephone. As the questioner has little evidence of whom they are speaking to it is easy to get false information. Personal interviews: In a structured interview, the interviewer has to follow a set pattern of questions and responses (e.g. ticking boxes). In semi-structured interviews the order and wording of the questions are laid out in an interview guide but the response is open ended, and the interviewee is allowed to reply in his or her own words. Unstructured interviews are what they sound like - certain topics are covered in a relaxed fashion. Hall test: During this procedure, a number of respondents are invited to attend a fixed location (traditionally a hall from which the term originates) and then are asked to respond to stimuli, usually individually. Observation: Observation is the collection of data through non-verbal means which can stand alone as research on its own or compliment other relevant research. It is the process of recognizing and recording relevant objects and happenings. Quantitative market research - relates to methods such as questionnaires, which can be used to gather a lot of information, but which often used fairly closed responses. Qualitative market research - relates to more intensive methods involving small samples such as a focus group who come together to discuss their feelings about a particular product. Study Questions 1. Compare any 2 methods of market research. 2. Investigate Sampling in more detail and highlight advantages and disadvantages of each type of Sampling. 3. Investigate Hall Testing and Consumer Panels in more detail using either the internet or other available resources and prepare a memo outlining the advantages and disadvantages of each.

Surveys Surveys are used to find out what people think about a wide range of things from food, cosmetics, holidays and cars to politics and how you rate your daily newspaper – in fact, anything at all. Questionnaires, which are basically collections of questions, are carefully constructed for use in surveys. Market research organisations are paid to use questionnaires on behalf of companies that offer many different products and services. These companies need to know customers’ views so that they can improve what they sell. Sometimes interviewers stop people in the street and ask them to fill in questionnaires. This can also be done by post, by telephone and on the Internet. Questionnaires could be useful as part of a Business project. For example, you could use them to: • find out what potential customers think about something you are planning to sell • find out what people think about a range of issues such as smoking, underage drinking, vandalism, public transport. Types of questions There are basically two types of questions: • closed – where you provide a range of answers and the person answering has to choose one or more • open – where the person answering has to make up their own answer. There are several ways to construct closed questions, such as: • yes/no • multiple choice • rating scales. Yes/no questions These are the simplest type of question as there are only two one-word answers, for example:

Do you like chocolate? Yes/no Most of the population would be able to answer this question quite easily, and anyone counting the answers would also find it an easy task.

Multiple-choice questions Usually a question is asked and three or more options are given as possible answers. The person answering chooses one or more of the answers. For example:

What kind of chocolate do you like? • • • •

Milk Plain White Filled

Again, this type of question is fairly easy to answer and the results are easy to add up. Rating scale If you want to find out how strongly people feel about something, it is a good idea to have a rating scale. For example, you can ask:

How much do you like chocolate? Don’t like it 1

Like it a little 2

Like it quite a lot 3

Like it very much 4

I’m addicted 5

The person answering would circle the number that is closest to how they feel about chocolate.

Once more, this type of question is easy to answer and the results are easy to add up. Open-ended questions With this type of question you are inviting the person answering to give his or her own feelings and opinions. For example:

Can you describe your ideal chocolate bar? You could get a very wide range of answers here. There is virtually no limit to the range of flavours, textures and sizes the public could suggest. Chocolate manufacturers could get some very valuable information from a question like this, but it would be a hard task to make some kind of statistical sense out of the answers.

Stick to the rules If you are compiling your own questionnaire, there are some basic rules to follow to make things easier for you and the people answering your questions. Do: • • • • • •

introduce yourself and let people know what the questionnaire is for – i.e. part of a school or college project say ‘please’ and ‘thank you’ – either on the form or in person start with the easy questions requiring the least thought – yes/no questions are good keep it brief – no more than 10 questions so that people answering don’t become bored keep it anonymous - you are more likely to get honest answers if you don’t ask for names make sure all the questions are clear and easy to understand.

Don’t: • ask irrelevant questions – for example, don’t ask for age and date of birth if you only want to find out if they will buy your homemade cakes. When you have written your questionnaire, try it out on one or two people first before you make a lot of copies. Results When you have collected all of your completed questionnaires, you will have to add up the answers and present them in a way that contributes something to your project. There are several ways to express your figures. Fractions for example: One third (1/3) of people answering started smoking before the age of 16. Percentages for example: 90 per cent (90%) of cats thought that our tuna and egg sandwich filling was delicious.

Surveys Create your own questionnaire If you would like some practice in writing questionnaires, choose one of the following subjects and as a group make up a questionnaire of no more than 10 questions: Internet shopping Types of purchases – books, CDs, food, clothes, sites used, amounts spent per month. Culture in your neighbourhood Views on use of museums and galleries, attendance at concerts, plays. Medical services Use of doctors’ surgeries and clinics, use of hospitals, views on quality of service and waiting times. Try the questionnaire on three or four people, collate the results and show them to your teacher.

Market Research Methods Summary Face-to-face interview A personal interview held in the street or home Advantages Disadvantages  2-way communication  Personal interviews can be  researcher can encourage expensive respondent to answer  Researchers have to be  mistakes and selected & trained misunderstandings can be  Home interviews unpopular cleared up right away with consumers

Postal Survey Market researcher sends questionnaire through the post Advantages Disadvantages  Inexpensive  Questions must be simple and  No interviewer training easy to answer needed  Response rate very low, incentives sometimes needed

Focus group

Specially selected groups of people, usually led by a chairperson (facilitator) who puts forward points to encourage open discussion Advantages Disadvantages  Qualitative information  Can be difficult to analyse provided in the form of qualitative information opinions, feelings and  expensive attitudes  Topics can be explored in some depth

Questionnaire Design: Poorly Worded questions Question

Problem and Solution

What type of wine do you prefer?

‘Type’ is ambiguous: respondents could say ‘French’ or ‘Red’, depending on their interpretation. Showing the respondent a list and asking ‘from this list…’ would avoid the problem.

Do you think that prices are cheaper at Asda than at Aldi?

Leading question favouring Asda: a better question would be ‘Do you think that prices at Asda are higher, lower or about the same as at Aldi?’ Names should be reversed for half the sample.

Which is more powerful and kind to your hands: Ariel or Bold?

Two questions in one. Ariel may be more powerful but Bold may be kinder to the hands. Ask the two questions separately.

Do you find it paradoxical that X lasts longer and yet is cheaper than Y?

Unfamiliar word: a study has shown that less than a quarter of the population understand such words as paradoxical, chronological or facility. Test understanding before use.

Memorandum To:

Business Management Students

From:

Mr McGowan

Date:

Today’s

Subject:

Pupil Questionnaire

Your task is to design a basic questionnaire to investigate the eating habits of S1 and S2. Your questions should look at their current eating behaviour in school and what potentially could be their new behaviour (what is it they would like to see?) Remember the questionnaire design tips from the previous page and also concentrate on healthy eating. Good luck!

PAST PAPER QUESTIONS

1 At Christmas time, toy manufactures often face the problem of not being able to obtain stocks of the most popular toys ( eg. PlayStation 2). Toy manufacturers produce updated versions in order to extend their product life cycle. Identify and describe 4 other means of extending the life of a new product. (8 marks) 2 Discuss the factors which would contribute towards a good product mix for an organisation. (5 marks) 3 How can the use of information and communications technology (ICT) support market research? (10 marks) 4 Discuss how the Scottish Tourist Board could make use of the Internet to ‘market’ Scotland? (9 marks) 5 Describe and justify the research method you would employ to find out if visitors to Edinburgh Castle were satisfied with there experience. Your answer should refer to the reliability of the information you have gathered. (10 marks) 6 Select 2 of the following methods of market research and describe each, discussing their advantages and limitations: (i) Face-to-face interviews (ii) Postal survey (iii) Focus group. (8 marks) 7 Distinguish between penetration and skimming pricing.

(8 marks)