BE201 – MARKETING
CHAPTER 2 – CONSUMER BUYING BEHAVIOR
CONSUMER BEHAVIOR – RATIONAL OR EMOTIONAL ?
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Initially, consumers were generally thought to act rationally, according to neoclassical economics
o Individually acting to maximize their satisfaction/utility
o Consumers were thought to measure whether the functionality outweighed the costs
Although, in the Soviet Union, the people would strive to possess the best things available, e.g., certain
televisions
Today, people (at least those living in advanced economies) are more likely to indulge sociopsychological buying or emotional buying motives
o This goes beyond the satisfaction of material needs
o Also, we consider e.g., how things make us feel, not only their function
PROPOSITION ACQUISITION
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What are customers thinking when deciding whether or not to buy an offering?
o We need to know how offerings move from organizations to consumers
o Transvections: Transactions between various buyers and sellers as raw materials transform
into a final product, which is moved down the supply chain
o Next, at the end-user component of the buyer-seller relationship, we have the customer
perspective
This is called the consumer proposition acquisition process, which is divided into six distinct stages
THE CONSUMER PROPOSITION ACQUISITION PROCESS
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This consists of six distinct stages, and the process is iterative, meaning each stage can lead back to
previous stages or move forward to the next stage
S TAGE 1: M OTIVE DEVELOPMENT
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The process begins when we decide that we wish to obtain an offering, involving the initial recognition
that we need to solve a problem
For this, we must be aware of the problem
Could be either a routine or unique event
S TAGE 2: I NFORMATION GATHERING
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We seek alternative ways to solve our problem
Could be by talking to friends, or by reading online, magazines, etc.
This seeking for an alternative solution could be an active search (that is, an overt search) or passive
(that is, we’re not actively looking, but we’re open for ways to solve our problem
The search may be internal, that is, we consider what we already know, or external, that is, seeking
advice and information
S TAGE 3: P ROPOSITION EVALUATION
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Once we have all necessary information, we evaluate alternative propositions, but first we must
determine the criteria used to rank them
o Criteria may be rational, e.g., based on cost, or irrational, e.g., based on desire or intuition
A consumer is said to have an evoked set of products in mind when evaluating
o Could be e.g., a range of destinations
S TAGE 4: P ROPOSITION SELECTION
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We now select the offering we evaluate best fitting our needs
o We could buy from a different place from where we acquired information, therefore,
proposition selection is a separate stage from the proposition evaluation stage
o In more complex experiences, e.g., a holiday, consumers might choose different items, booking
a hotel separately from the flight tickets
S TAGE 5: A CQUISITION /P URCHASE
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Once selection has been made, different approaches might exist
o This could be a routine purchase, meaning we don’t usually get too involved in the decisionmaking process, unless changed circumstances
o Could also be a specialized purchase, meaning we usually get more involved in the purchase
process – this is the case for many infrequent purchases
S TAGE 6: R E - EVALUATION
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According to the theory of cognitive dissonance, we’re motivated to re-evaluate of beliefs, attitudes,
etc. if the position we hold on to them is different from the position we held at an earlier period owing
to some intervening event, circumstance, etc.
This difference in evaluations, termed cognitive dissonance, is psychologically uncomfortable, we may
e.g., feel foolish or regretful for a purchasing decision
o We thus get motivated to reduce this anxiety by redefining our beliefs, attitudes, etc.
To reduce cognitive dissonance, we may try:
o Selectively forgetting information
o Minimizing the importance of the matter
o Selectively exposing ourselves to information that agrees with us
o Reversing the purchasing decision
If we really like our purchase, we might
o Decide to repurchase it – display loyalty
o Encourage others to also buy it – advocacy stage (common in UCG = user-generated content)
Evaluating UCG is an important element of contemporary marketing research, referred to as social
media listening
Different types of influencers during different stages of the proposition acquisition process
o Key influencers – with their own blogs/many followers on Twitter/etc., but unlikely to know
the consumer personally
o Social influencers – people within the consumer’s social network, whom they might know,
communicating via e.g., Twitter
o Known peer influencers – family members, part of the consumer’s “inner circle”
Our purchase decisions also depend on which cognitive system is dominant at the time of choice
o System 1 thinking: fast, instantaneous, intuitive reactions; ensures you react appropriately to
instant danger
o System 2 thinking: responsible for deliberate thought processes and analytical thinking; will
help solving a math problem, decide on a car model
o Both models demand the same mental energy to work appropriately
PERCEPTIONS, LEARNING, AND MEMORY
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Often, consumers don’t understand marketer-conveyed messages, due to not having received,
comprehended, or remembered those
Consumer understanding depends on how effectively the message is transmitted and perceived
PERCEPTIONS
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Selective exposure: The process of distinguishing meaningful from non-meaningful information
As consumers, we’re interested in certain types of offerings that are relevant to us when we receive
marketing messages
We may also expose ourselves selectively though the media we choose to read or watch
Advertisers label the concept of personal importance attached to a message as involvement
o Important as it explains a person’s receptivity to communications
o People can be segmented into high-, medium-, and low-involvement groups
o This interests us since we want to alter their perceptions of particular offerings
Another way to display how people think about particular offerings is called perceptual mapping
o Position the product in the minds of specific target audience groups
o Then they must understand the nature of the group’s subculture
o Brands can thrive or die based on how their customers perceive them
L EARNING AND M EMORY
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Consumers continually learn about new offerings, their relative performance, and new trends, through
a process by which we acquire new knowledge and skills, attitudes, etc.
There are different theories of human learning
o Classical conditioning
▪ Occurs when unconditioned stimulus becomes associated with the conditioned
stimulus, that is, we learn by associating one thing with another
▪ Frequently used in marketing, e.g., sounds in commercials
o Operant conditioning
▪ Subjects would act on a stimulus from the environment
▪ The resulting behavior was more likely to occur if this behavior was being reinforced
▪ Reinforcement through punishment or reward, depending on whether one wants
more or less of the behavior
o Social learning
▪ Argues that we can delay gratification and dispense our own rewards or punishment
▪ As a result, we have more control over how to react to stimuli, not blindly following
our instinctual drives
▪ We can reflect on our own actions and change our future behavior
▪ We thus learn not only from how we respond to situations, but also how others
respond to situations
▪ In other words, we learn by observing others’ behavior – role models important
o Memorization processes affecting consumer choice
▪ Factors affecting recognition and recall – information-processing times differ between
the two
▪ The importance of context – memorization is strongly associated with the context of
the stimulus, so information available in memory will be inaccessible in the wrong
context
▪ Form of object coding and storage – we store information in the form it’s presented
to us, either by object (brand) or by dimension (offering attribute)
▪ Load-processing effects – more difficult to process information when we’re presented
with much information at once
▪ Input mode effects – short-term recall of sound is stronger than short-term recall of
visual input if the two compete for attention
▪ Repetition effects – recall and recognition increase the more a consumer is exposed
to them
PERSONALITY
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How and what we buy is based on our personalities
Personality is the aspect of our psyche that determines how we respond to our environment in a
relatively stable way over time
There are two main approaches: the Trait approach, and the Self-concept approach
T HE T RAIT APPROACH
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Categorizes people into different personality types, or so-called traits
Categorized using bipolar scales
o Sociable – Timid
o Action-oriented – Reflection-oriented
o Stable – Nervous
o Serious – Frivolous
o Tolerant – Suspicious
o Dominant – Submissive
o Friendly – Hostile
Researchers talk about the “big five” personality dimensions
o Extraversion – sociable, fun-loving, etc.
o Openness – original, creative, etc.
o Conscientiousness – careful, reliable, etc.
o Neuroticism – worrying, nervous, etc.
o Agreeableness – soft-hearted, sympathetic, etc.
Certain personality types prefer different brands
Various companies use personality as a segmentation criterion
T HE S ELF - CONCEPT APPROACH
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People also buy offerings because of what the brand represents to them and its relation to the buyers’
perception of their own self-concept or personality
In luxury goods market, buyers are typically divided into two categories
o Those who made their purchases based on product quality, aesthetic design, motivation to
impress others
o Those who buy the goods based on what they symbolize to them, as an expression of their own
values
MOTIVATION
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Abraham Maslow suggested a hierarchical order of human needs, where the lower needs are to be
satisfied first, then move towards the higher needs
Still debate about whether consumers are motivated by rational or irrational motives
Needs are claimed to being either
o Latent – hidden, our subject is unaware of their need
o Passive – cost of acquisition exceeds, for the moment, the expected satisfaction derived from
the acquisition
o Active – the subject is both aware of their need and expects the perceived benefits to exceed
the likely cost of acquisition
When our needs are active, they can arise either through habit or through the brand selection process
(picking)
Can be motivated either by intrinsic (a consumer likes a product) or extrinsic (e.g., a friend suggested a
product) evaluations, or both
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Extrinsic reasons for purchase can be divided into
o Economic – expenditure of time, money, effort into purchasing and consuming an offering
o Technical – the offering’s perceived quality of performance
o Social – the extent the offering will affect a consumer’s self-esteem or personal worth in
relation to others
o Legalistic – demands from others, that are perceived as legitimate
o Adaptive – a form of social learning, concerned with imitating others, seeking expert advise
T HEORY OF PLANNED BEHAVIOR
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Theories of motivation in marketing help us understand why people behave as they do
The theory of planned behavior explains that behavior is brought about by our intention to act in a
certain way
The intention to act is affected by the attitude a subject has towards a particular behavior, and by the
subjective norm
THE IMPORTANCE OF SOCIAL CONTEXTS
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Although our own personality and other characteristics impact how we handle offerings, those of others
also affect how we consume offerings
Our internal perspective is determined not only by our own thoughts and personality structures, but
also those of others
O PINIONS , ATTITUDES AND VALUES
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Opinions are quick responses to opinion poll questions, or instant responses to questions from friends
o Held with limited conviction because we usually haven’t developed an underlying attitude to
the issue
o Opinions are cognitive, that is, based on thoughts
Attitudes are held with greater degree of conviction, over a longer duration, and are more likely to
influence behavior
o Attitudes are affective, that is, linked to our emotional states
Values are held even stronger than attitudes, linked to conscience, developed through familial
socialization processes, culture, and religious influences
o Values are conative, that is, linked to our motivations and behavior
G ROUP INFLUENCE
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Consumers learn through imitation, that is, social learning, e.g., copying our parents and friends
We may compare our opinions, attitudes, values, and behavior patterns with those reference groups
Group membership can exert a positive effect with the group, that is, one’s individual patterns are
congruent with the group
S OCIAL GRADE
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A system of classification of consumers based on their socio-economic grouping – classifying the
population by the type of work/occupation of the household’s chief income earner, that is, the member
with the largest income
There’s a widely held belief that consumers make purchases based on their socio-economic position
within society and that different social classes have different self-images, social horizons, and
consumption goals
L IFESTYLE
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The manner in which the individual copes and deals with their psychological and physical environment
on a day-to-day basis
An example of a segmentation of a wine market is
o Conservative, knowledgeable wine drinkers
o Enjoyment-oriented social wine drinkers
o Basic wine drinkers
o Mature time-rich wine drinkers
o Young professional wine drinkers
To generate clusters of consumers according to different lifestyle types, marketers typically ask
questions around their lives
L IFE STAGE
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Marketers frequently hypothesize that people at certain stages of life purchase and consume similar
kinds of offerings
C ULTURE AND E THNIC GROUPS
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In a globalized society, marketers are increasingly attuned to recognizing cultural differences between
and within societies
Culture can be defined as an overall set of beliefs, values, and norms that are inherited or learned by
members of the group, and which regulate behavior
If the group is sizable enough, the marketer has an opportunity to see different similarities in needs,
different from the rest of the population
One way of dividing ways for a country with ethnic marketing opportunities is the following four
strategies
o Total standardization – use the existing marketing mix, without modifying to the ethnic market
o Product adaptation – use the existing marketing mix, but adapt to the ethnic market in question
o Advertising adaptation – use the current marketing mix, but adapt the advertising, particularly
the use of foreign languages
o Ethnic marketing – use a totally new marketing mix
CHAPTER 3 – MARKETING RESEARCH AND CUSTOMER INSIGHT
DEFINITIONS OF MARKETING RESEARCH AND CUSTOMER INSIGHT
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Marketing research generates information to provide management with sufficient insight to make
informed decisions
o Follows the premise that organizations must understand the motivations, desires, and
behaviors of their customers in order to survive and thrive
o Undertaken to determine the structural characteristics of the industry on concern, e.g.,
demand, market share, customer characteristics, etc.
o Characterized by being systematic, following set steps
D EFINITIONS IN MARKETING RESEARCH
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Big data
o The systematic gathering and interpretation of high-volume/velocity/variety information using
cost-effective forms of information processing
Customer insight
o Knowledge about the customer that is valuable for the firm
Market research
o Systematic gathering and interpretation of information about individuals or organizations using
the statistical and analytical methods and techniques
Marketing analytics
o Involves the discovery and communication of meaningful patterns in data from metrics like
traffic, leads, sales, advertising, etc. Can be defined by the use of mathematical distributions,
statistical sources, or analytical techniques for their construction
Marketing research
o The function that links the consumer, customer, and public to the marketer through
information – information used to identify and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions; monitor marketing performance; and
improve understanding of marketing as a process
THE CUSTOMER INSIGHT PROCESS
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Understanding customers is at the core of the marketing concept and the basic idea is that timely,
continuous marketing information should be used to support decision-making
Customer insight is typically derived through fusing together knowledge from a range of sources,
including industry reports, sales force data, competitive intelligence, customer relationship
management (CRM) systems data, employee feedback, etc.
One must distinguish between the high-tech and low-tech sources of insight
o High-tech sources include quantitative marketing research, customer data-base analysis, and
big data
o Low-tech sources include qualitative market research, casual observations, mystery shoppers,
and employee feedback
o Typically, both of these are used
A customer insight can be said to be of value if it’s rare, difficult to imitate, and of potential use to
formulate management decisions
It has been suggested that CEOs, CMOs, researchers, and insight managers need to:
o CEOs and CMOs need to recognize the importance of supporting the insight process, ask
“helicopter” questions, demand evidence-based answers, and not guessing answers
o Researchers should view themselves as problem-solvers, not reporters, and try to gain casual
understanding, not on describing attitudes, and on changing the marketing situation
o Insight managers should challenge strategic assumptions of the organization, challenge the
“obvious” solution since it’s often wrong, and analyze and combine all existing relevant data
The information obtained through marketing research, competitive intelligence, and internal sources is
typically integrated into a marketing information system (MIS), which provides a formalized set of
procedures for generating, analyzing, sorting, and distributing information to decision-makers
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The kind of information marketers need includes
o Aggregated marketing information in quarterly annual summaries
o Aggregated information around offerings or markets (e.g., sales data)
o Analytical information for decision models (e.g., SWOT, segmentation analyses)
o Internally focused marketing information (e.g., sales, costs, marketing performance indicators)
o Externally focused marketing information (e.g., macro and industry trends)
o Historical information (e.g., sales, profitability, market trends)
o Future-oriented marketing information (e.g., horizon scanning information)
o Quantitative marketing information (e.g., costs, profit, market share, customer satisfaction,
NPS)
o Qualitative marketing information (e.g., buyer behavior, competitor strategy information)
This information could be provided on a continuous and/or ad hoc basis
COMMISSIONING MARKET RESEARCH
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Much market research is not conducted in-house by marketers
o When commissioning research, a client determines whether or not to commission an agency,
consultant, field, etc., or a data preparation and analysis agency
o Agents are shortlisted according to some criteria and asked to make a presentation of their
services, visits are made to their premises for quality checks, and previous reports are assessed
o They might request permission to interview or obtain references from previous clients
o Evaluation criteria may include:
▪ The agency’s reputation
▪ The agency’s perceived expertise
▪ Whether the study offers value for money
▪ The time taken to complete the study
▪ The likelihood that the research design will provide insights into the management
problem
o Shortlisted agencies are given a preliminary outline of the client’s need in a research brief
T HE MARKETING RESEARCH BRIEF
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Is a formal document prepared by a marketer (client) and submitted to the marketing research agency
The typical contents of a research brief include:
o A background summary
o The management problem
o The marketing research questions
o The intended scope of the research
o The tending procedures (that is, how agencies will be selected)
THE MARKETING RESEARCH PROCESS
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There are numerous basic stages that guide a marketing research project
The first and most crucial stage involves problem definition and establishing the information needs of
the decision-makers
o Allows the organization to assess its current position, define information needs, and make
informed decisions about its future
The marketing research process is divided into 5 stages
S TAGE 1: P ROBLEM DEFINITION
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Defining the management problem and writing the research brief, often described in vague terms, due
to uncertainty about what information the organization requires
Provides the researcher with relatively little depth of understanding of the situation
o Allows the researcher to translate the management problem into a marketing research
question, typically with a number of sub-questions
Example of a management problem
o Sales at the new store have not met management expectations, possibly due to the emergence
of a new competitor
o Sub-questions
▪ Has customer disposable income declined in the area?
▪ Is a new competitor taking away customers?
▪ Are customers tired/bored of the current product range?
▪ Are customers conducting more of their shopping online?
▪ Were management expectations set too high and/or market potential overestimated?
Once the agency discusses the brief with the client, the agency provides a detailed outline of how they
will investigate the problem, called the research proposal
o Will typically involve the following content
▪ Executive summary
▪ Background
▪ Objectives
▪ Design
▪ Personnel specification
▪ Schedule
▪ Costs
▪ References
S TAGE 2: D ECIDE THE RESEARCH PLAN
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Once the marketing research questions have been decided, it’s time to develop a research plan
Researchers must consider what type of research is needed
o Exploratory research: Used when little is known about a particular management problem, and
it needs further exploration; enables the development of hypotheses or new concepts
o Descriptive research: Focuses on accurately describing the variables being considered, such as
market characteristics or spending patterns, in key customer groups
o Causal research: Used to determine whether one variable causes an effect in another variable;
uses experimental or longitudinal studies; researchers will typically manipulate a specific
variable (cause) thought to influence important outcomes (effect)
When conducting research, we can either use what’s already known, or devise research that creates
new knowledge
o Primary research – Research conducted for the first time, involving collection of new data for
the purpose of a particular project
o Desk research (also known as secondary research) – gaining access to the results of previous
research projects; can be cheaper and more efficient
o Sources of secondary data include:
▪ Government sources
▪ The internet
▪ Company internal records
▪ Professional bodies and trade associations
▪ Market research companies
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At the outset of a research project, we might consider whether to use qualitative or quantitative
research, or a combination
o Qualitative research – denotes research methodologies relying on small samples, using open
and probing questions set out to uncover underlying motives and feelings; data is then
interpreted focused on meanings, and is typically quite hard to replicate; typically intended to
provide insights and an understanding of the problem setting
o Quantitative research – used to elicit responses to predetermined standardized questions from
many respondents; involves collecting information, quantifying the responses as frequencies
or percentages, and analyzing them statistically; commonly used in descriptive and causal
marketing research, and replication is highly desirable; more structured than qualitative
Key differences
Characteristic
Qualitative
Quantitative
Purpose
Oriented towards discovery and
exploration
Oriented towards cause and effect
Procedure
Emerging design; merges data collection
and analysis
Predetermined design; separates data
collection and analysis
Emphasis
Meaning and interpretation
What can be measured
Role of
researcher
Involved; used as a “research
instrument”
Detached; uses standardized research
instruments
Unit of analysis
A holistic system
Specific variables
Size of sample
Involves a small number of respondents,
<30
Involves a large number of respondents, >30
Sampling
approach
Uses purposively selected samples
Uses probability sampling techniques
FIGURE 1 - QUALITATIVE AND QUANTITATIVE RESEARCH METHODS COMPARED
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The client may also have specific budget constraints or know which particular approach it intends to
adopt; however, the choice primarily depends on the circumstances of the research project and its
objectives
To design the research project, once we know what type of research to conduct, we should consider
o Who to question and how
o What methods to use
o Which types of questions are required
o How the data should be analyzed and interpreted
The design involves determining how each of the following components interrelates with each other
o Research objectives
o Sampling method
o Interviewing method
o Research type and methods
o Question and questionnaire design
o Data analysis
To determine whether or not we know have the “right” data, we must determine
o Its validity – do the data correctly describe the phenomenon?
o Its reliability – would the data be replicated in a future repeat study of the same type?
S TAGE 3: D ATA COLLECTION AND SAMPLING
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This stage involves the conduct of fieldwork and data collection
o We send out questionnaires, or run online focus group sessions, or conduct an ethnographic
study, etc.
o Procedures might relate to how to ask questions to the respondents, how to select an
appropriate sample, and how to pre-code the questionnaire answers (quantitative), or the
answers arising from open-ended questions (qualitative)
In qualitative research, samples are often selected on a convenience or judgmental basis
In quantitative research, we might use either probability or non-probability methods, including:
o Simple random sampling – sample is selected to correspond to the individual population
elements
o Systematic random sampling – where population elements are known, and after the first
sample, taking the nth sample
o Stratified random sample – where specific characteristics are used, e.g., gender, age, to be
representative for the population
Non-random methods include:
o Quota sampling – where criteria such as gender, age, etc. are used to restrict the sample, but
the selection of the sample unit is left to the judgement of the researcher
o Convenience sampling – where no such restrictions are placed on the selection of the
respondents, and anybody can be selected
o Snowball sampling – where respondents are selected from rare populations, e.g., highperformance car buyers
S TAGE 4: D ATA ANALYSIS AND INTERPRETATION
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This stage comprises data input, analysis, and interpretation
o Important to be aware of and counter different biases that might affect the conclusions drawn
o How the data are input depends on the type of data collected
▪ Qualitative data – usually alphanumeric – is often entered into computer software
applications
▪ Quantitative data analysis uses statistical analysis packages
Because market research methods are aids to managerial decision-making, the information obtained
needs to be valid and reliable, since company resources will be deployed on that basis
To determine how reliable the data are, we can
o Conduct a study again over two or more time periods to evaluate data consistency; this is
known as a test-retest method
o Divide the responses into two random sets and testing the sets independently using t-tests or
z-tests
Qualitative research data usually focuses less on reliability and validity, and more on the generation of
ideas and formulation of hypotheses
S TAGE 5: R EPORT PREPARATION AND PRESENTATION
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The final stage is to report the project’s results and the presentation of the findings of the study to the
external or in-house client
o Should be presented free from bias
Must be presented in a format meaningful to the manager or client who initially demanded the data
Usually, agencies and consultants prepare their reports using a basic pro-forma template
CHAPTER 4 – THE MARKETING ENVIRONMENT
UNDERSTANDING THE EXTERNAL ENVIRONMENT
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Can be challenging for two reasons
o Some elements of the external environment, while not having immediate impact on the
organization’s performance, can radically change market conditions in the long term
o Even when managers are clear that the factors in the external environment are important, it’s
often not possible to control them in any way
Companies thus have to monitor the external environment to assess the level of risk associated with
their business activities
To make sense of the external environment, we use the well-known acronym PESTLE.
o The easiest and most popular framework for examining the external environment
o Six dimensions: Political, Economic, Socio-cultural, Technological, Legal, Ecological
PESTLE
T HE P OLITICAL ENVIRONMENT
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Relates the interaction between business, society, and government
o Often linked to the legal environment
Helps us evaluate the conditions that lead to the development of laws and their enactment
Can detect signals concerning potential legal and regulatory changes, and thus have a chance to impede,
influence and alter that legislation
The political environment is uncontrollable in many ways, but there are circumstances where an
organization can affect the legislation
Properly undertaken business-government relations can be a source of sustainable competitive
advantage
o That is, organizations can outperform others if they can manage their relations with
government and regulatory bodies
Companies often respond to political pressure due to concern that otherwise their activities could
instead be regulated by legislation
Few firms actually have the ability to understand and influence legislation, due to it being a very
technical area
Business-government relations might be conducted in several ways
o Lobbyist firms with key industry knowledge, can be engaged either permanently or as needed
o Public relations (PR) consultancies can be commissioned for their political services, with MPs
or others with high degree of political influence often serving as directors, advisers, etc.
o A politician may be paid a fee to give political advice on matters important to the company,
where this is legal
o An in-house PR manager might handle government relations directly
o An industry association might be contacted to lobby on behalf of members
o A politician may be invited to join the board of directors, board of trustees, etc. of a company
to help the company develop its business-government relations
Organizations often collaborate to influence governments, through e.g., industry or trade bodies
T HE E CONOMIC ENVIRONMENT
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Companies and organizations must develop an understanding of the economic environment, because a
country’s economic circumstances have impact on them
The economic environment of a firm is affected by the following
o Wage inflation – Annual wage increases depend on supply of labor in the sector
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Price inflation – How much consumers pay for goods and services depends on the supply rates
of those
o GDP per capita – The combined output of goods and services in a particular nation is a useful
measure for determining relative wealth between countries
o Income, sales, and corporation taxes – These taxes substantially affect how we market different
offerings
o Exchange rates – Important when operating in foreign markets or holding financial reserves in
other currencies
o Export quota controls and duties – Restrictions on the amount of goods and services any
particular firm can import
Rather than comparing costs for individual products, economists prefer to calculate prices for a
particular basket of goods, and compare the cost of that basket between countries
o This is known as the Purchasing power parity (PPP) exchange rate
o Allows us to compare relative costs between countries
If inflation drives consumer prices higher in a particular country, this will typically trigger a fall in sales
During a recession, prices will typically fall due to consumers purchasing less and saving more
T HE S OCIO - CULTURAL ENVIRONMENT
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Lifestyles are constantly changing, and consumers’ preferences change over time
Companies must then recognize changes in the socio-cultural environment, and adapt or change their
offerings
Here, firms must consider changing nature of households, demographics, lifestyles, and family
structures, and also changing values in society
Changes in population proportions impact an organization’s marketing activity
o E.g., there will be significant changes as a result of rise in life expectancy in many Western
countries, which will imply growth in e.g., medical, and financial services, but decline in e.g.,
car sales
o The most sensible plan for companies is to plan ahead, and aim for the best diversification
strategy, to minimize potential disruption
T HE T ECHNOLOGICAL ENVIRONMENT
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The emergence of new technologies has affected most businesses
Examples are technologies that impact productivity and business efficiency, e.g., changes in energy,
transportation, information, and communication technologies (ICT)
New technology also changes the way in which companies go to market
Technology changes particularly affect high-tech industries, where firms must decide whether they wish
to dominate the market by pushing their own technology standards
The phenomenon crowdsourcing is about identifying a task or group of tasks currently conducted inhouse, and then release the tasks to a “crowd” of outsiders
For most firms, the risk of investing in radical or cutting-edge technologies is high because the potential
benefits and unsubstantiated, which gives them a reason to be concerned about the impact of
technological changes on their product’s life cycle
T HE L EGAL ENVIRONMENT
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Covers every aspect of an organization’s business, since laws, regulations, etc. on business activities are
enacted in most countries
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Cover topics such as product safety, packaging, labeling, advertising, etc.
T HE E COLOGICAL ENVIRONMENT
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Today, the concept of marketing sustainability is well-established, with increasing number of consumers
expressing concern about companies’ ecological impact
o E.g., increasing demand for organic food, better welfare for the animals, interference with
natural processes
A company can adopt one of four different green market strategies
o Eco-efficiency – Improved processes to achieve resource productivity and better utilization of
by-products; e.g., recycling
o Beyond compliance leadership – Demonstrate the company’s ecological credentials through
e.g., certifications
o Eco-branding – Differentiating products to promote environmental responsibility
o Environmental cost leadership – Offerings that provide greater environmental benefits at a
lower price
ENVIRONMENTAL SCANNING
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The process of gathering information about a company’s external events and relationships to help top
management in making decisions and developing a course of action is referred to as Environmental
scanning, which is the internal communication of external information about issues that may potentially
influence an organization’s decision-making process
We can gather information in environmental scanning exercises using company reports, newspapers,
industry reports, government reports, etc.
“Soft” personal sources of information obtained through networking, such as contacts at trade fairs, are
also important, particularly for competitive, legal, and regulatory information – can be crucial in fastchanging environments
The process where companies scan the environment typically involves three stages
o Stage 1: Data gathering – focus is principally, but not exclusively, on data gathering
o Stage 2: Environmental interpretation/analysis – focus is principally, but not exclusively, in
interpreting gathered data
o Stage 3: Strategy formulation – focus is principally, but not exclusively, on strategy formulation
During each of the three stages, there’s also some activity in the two other stages, so that each of the
three dominates at any one time
Some companies have developed a proactive approach by considering potential scenarios that their
company might face in the future
o Historically, companies focused on developing scenarios based on their probability and then
developed different courses of action depending on changes in the environment
Recent perspectives on scenario planning emphasize the following
o Dedicating specific resources to scenario planning and updating those constantly
o Engaging a broad range of internal and external stakeholders in the development
o Challenging the assumptions in the scenario to spot potential flaws
It is important to spot weak signals early on, that is, potential changes in the operating environment
that receives limited attention due to being inconsistent with the dominant culture
Scanning and understanding the external environment within the PESTLE framework will reveal
different influences and trends within different industries and sectors, thus important to realize that
different industries will focus on different issues within the framework
UNDERSTANDING THE PERFORMANCE ENVIRONMENT
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Performance environment – sometimes called microenvironment – consists of those organizations that
either directly or indirectly influence an organization’s operational performance
Encompasses not only competitors, but also suppliers and other organizations, e.g., distributors, who
all contribute to an industry’s value chain
There are three main types
o Those companies that compete against the organization in the pursuit of its objectives
o Those companies that supply raw materials, goods, and services, and those that operate as
distributors, dealers, and retailers, all of which have the ability to directly influence the
organization’s performance
o Those companies that have the ability to indirectly influence the organization’s performance
in the pursuit of its objectives, which organizations often supply services, such as consultancy
or financial services
Knowledge about the performance arena allows organizations to choose how and where to operate and
compete, given limited resources
ANALYZING INDUSTRIES
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An industry is composed of various organizations that market similar offerings
We should review the “competitive” environment within an industry to identify the major competitive
forces, to then assess their impact on an organization’s present and future competitive positions
Porter suggests that competition in an industry is a composite of five main competitive forces
o The level of threat that new competitors will enter the market
o The threat posed by substitute products
o The bargaining power of buyers
o The bargaining power of suppliers
o The intensity of rivalry between the current competitors
Together they make up Porter’s Five Forces
As a general rule: the more intense the rivalry between industry players, the lower their overall
performance
N EW ENTRANTS
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Industries are seldom static: companies and brands enter and exit industries all the time
A new entrant could be a potential threat
When examining an industry, we should consider whether economies of scale are required for
successful performance within it
New entrants may be restricted as a consequence of government and regulatory policy, or many be
frozen out of an industry because of the capital requirement necessary to set up business
Companies may also be locked out because companies within a market are using proprietary offerings
or technologies
S UBSTITUTES
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In any industry, there are usually substitute offerings that perform the same function or meet similar
needs
Could in the long run replace current offerings, therefore they’re a threat
Levitt claimed that many companies fail to recognize the competitive threat from newly developed
offerings
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In analyzing our place in an industry, we should consider what alternative offerings exist in the
marketplace that also meet customer needs
B UYERS
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Companies should ask themselves what percentage of their sales a single buyer represents
o If the answer is a high percentage, then they have larger bargaining power
A buyer may also increase bargaining power through backwards integration, that is, moving from buying
from suppliers to producing the goods themselves
A buyer’s bargaining power is also influenced by how price-sensitive a particular company is
o In case of high price-sensitivity, but still many competitors, they are likely to switch suppliers
rather than be loyal to one
When analyzing an industry, we must understand that bargaining power that buyers have over their
suppliers because of this can impact on the price charged, volumes sold, revenue earned, etc.
S UPPLIERS
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Any industry should determine how suppliers operate and the extent of their bargaining power
We should also consider whether or not the suppliers are providing unique components, which may
enhance their bargaining situation
In some industries, suppliers increase their market dominance by forward integration, that is, e.g.,
setting up a retail outlet facility to sell its own products directly
o Allows companies to better control their supply chain, sell at lower prices, increase sales, etc.
C OMPETITORS
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To analyze an industry, we must understand how the companies within that particular market operate
We must outline each company’s structure, current and future developments, the company’s latest
financial results
o We would be interested in market volumes and shares for each competitor, since it’s a key
indicator of company profitability and return on investment
Five key questions to analyze a firm’s competitors
W HO ARE OUR COMPETITORS ?
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Competitors are those providing offerings that attempt to meet the same market need as us
Two main approaches can be identified
o Firms need to be aware of their direct competitors (offer similar offerings to the same target
market, or a product in the same category, but to a different segment); and
o their indirect competitors (address the same target market, but provide a different offering to
satisfy the market need)
By understanding who the main competitors are, it becomes possible to make judgements about the
nature and intensity of the competition
W HAT ARE THEIR STRENGTHS AND WEAKNESSES ?
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It’s important to gather information about each competitor’s range of offerings and their sales volumes
and values, their profitability, prices, discount structures, etc., and a range of other factors
As this information accumulates over time, we use it to understand two issues
o What are the competitor’s strengths and weaknesses?
o How might we avoid the areas in which the competitor is strong, and exploit its weaknesses?
The overall task is to determine what competitive advantage a competitor might have, and whether this
can be sustained, imitated, or undermined
W HAT ARE THEIR STRATEGIC GOALS ?
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Contrary to popular belief, profit is not the single overriding strategic goal for most organizations
Firms develop a range of goals, encompassing ambitions, etc.
It’s difficult to develop a full understanding of a competitor’s strategic goals, and it can be inferred only
from a competitor’s actions
W HICH STRATEGIES ARE THEY FOLLOWING ?
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Once a competitor’s goals are understood, it becomes easier to predict what their marketing strategies
are likely to be
Those can be considered by means of two main factors
o Competitive scope – the breadth of the market addressed, is the competitor attempting to
serve the whole market or specific segments, or a single niche segment?
o Positioning – brands can be positioned in markets according to the particular attributes or
benefits a brand offers, this approach requires a focus on reducing costs and expenses
H OW ARE THEY LIKELY TO RESPOND ?
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Understanding the strategies of competitors helps to alert us whether they are intent on attack or
defense, or how they might react to different strategies initiated by others
Some market leaders believe that an aggressive response is important, otherwise their own leadership
may be undermined
There are a range of responses a firm may use, reflecting organizational objectives, leadership styles,
etc.
SUPPLIERS AND DISTRIBUTORS
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Not only competitors can influence competition, suppliers can also do this
Outsourcing concerns the transfer of non-core activities to an external organization that specialize in
this, these things are often not core activities, but still constitute an important part of the value they
offer
Similar changes have occurred in terms of a manufacturer’s marketing channel
o Now common to find high levels of integration between manufacturer and its distributors,
dealers, and retailers
o The strength of these relationships needs to be accounted for, and considering how market
performance may be increased/decreased due to them
CHALLENGING AN INDUSTRY
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While analyzing an industry is important, sometimes it’s best to look for ways to redefine an industry,
especially when the industry doesn’t meet customer needs
o This has been defined as “red oceans”, with hostile marketplaces, and little prospect to growth
o It’s argued that companies should avoid these industries altogether, and aim for
reconfiguration that allows them to create an entirely new market space – a “blue ocean”
UNDERSTANDING THE INTERNAL ENVIRONMENT
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An analysis of the internal environment is concerned with understanding and evaluating the capabilities
and potential of the products, systems, humans, etc.
This analysis shouldn’t focus only on the relative strength and weakness of a particular resource, it’s
also important to those of competitors, and how a company is able to manage and develop the
resources going forward
Attention is to be given to two main elements: products and finance, within portfolio analysis
PORTFOLIO ANALYSIS
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When managing a collection or portfolio of offerings, understanding the performance of an individual
offering can often fail to give appropriate insight: what is really important is an understanding of the
relative performance of the offerings
One popular way to assess the variety of businesses/offerings that an organization has involves creating
a two-dimensional graphical picture of the comparative strategic positions
o One such matrix is the Boston Box, with the two key variables market growth and relative
market share
o These are divided into four categories
Rate of market growth
(high-low)
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Stars
Question marks
Cash cows
Dogs
Relative market share (high-low)
Divestment doesn’t occur just because of low share
Portfolio analysis is an important tool because it draws attention to the cash flow and investment
characteristics of each of the firm’s offerings, and thus indicates how financial resources can be
maneuvered to attain optimal strategic performance long term
P ORTFOLIO ISSUES
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Portfolio analysis is an important guide to strategic development, if only because it answers questions
such as
o How fast will the market grow?
o What will be our market share?
o What investment will be required?
o How can we create a balanced portfolio from this point?
CHAPTER 5: MARKETING STRATEGY
MARKETING METRICS
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The implementation of any marketing plan is incomplete without methods to control and evaluate its
performance
Measures that will measure the plan’s result must be stated in the plan
o Enables adjustments if the plan doesn’t perform as expected
The marketing process is a political process whereby scarce resources are allocated within the company
o Where a department can demonstrate effectiveness of resources previously used, it’s far more
likely to receive a budget increase in the future
The controls used to measure the effectiveness of the implementation process are referred to as
marketing metrics
There has been a move towards setting key performance indicators (KPIs) against which companies
measure their progress to determine whether or not they have improved
Some examples of marketing metrics are
o Profit/Profitability
o Sales
o Operating margin
o Awareness
o Market Share
o Number of new products
o Relative price
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Customer satisfaction
Customer advocacy
Distribution/Availability
MANAGING AND CONTROLLING MARKETING PROGRAMS
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Traditionally, companies have tried to maximize marketing effectiveness, that is, they have measured
share growth, revenue growth, market position, and marketing efficiency
One problem is that whilst marketers often consider strategy formulation to be problematic, they don’t
see strategy implementation as an issue, and managers often assume that implementation follows
strategy as a sequential process, when they’re often interlinked
CHAPTER 6: MARKET SEGMENTATION AND POSITIONING
THE STP PROCESS
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STP process – a method by which the whole market I subdivided into different segments, denotes the
Segmentation, Targeting, and Positioning process
Marketers use STP to identify whom, out of all their potential customers, they should focus on – that is,
the most attractive and accessible groups of customers or segments
Also used to identify new products and service opportunities, to develop suitable positioning and
communication strategies, and to allocate scarce resources
KEY BENEFITS OF THE STP PROCESS
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Enhancing a company’s competitive position, direction, and focus for marketing strategies
Examining and identifying market growth opportunities in terms of new customers, growth segments,
or proposition uses
The effective and efficient matching of company resources to targeted marketing segments, promising
greater return on marketing investment (ROMI)
THE CONCEPT OF MARKET SEGMENTATION
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Market segmentation – the division of a mass market into distinct and identifiable groups, or segments,
each of which defined by common characteristics and needs, and with similar responses to marketing
actions
Example: four main segments in the consumer photography market
o The slow photography segment – consumers who share pleasure associated with the creation
and capture of an image as much as the photo itself
o The fast photography segment – speedy creation and consumption of images, most images are
used for immediate communication, often through social media
o The casual photography segment – occasional photos to capture memories
o The intelligent photography segment – people who wish to blend the capture of high-quality
images with social and memory-keeping purposes
Purpose of market segmentation: ensure that elements of the marketing mix meet the needs of
different customer groups
o Because companies have finite resources, it’s not feasible to produce all required offerings for
all the people at the time, but rather to provide selected offerings to selected groups of people
most of the time
o Enables the most effective use of the company’s finite resources
Market segmentation is related to product differentiation as follows:
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A product differentiation strategy involves highlighting a product’s attributes and features to
emphasize the differences between it and – hence distinguishing it from – those of competitors
or other product offerings
o A market segmentation strategy requires focus on particular segments or groups of customers
who share similar needs or characteristics
Market segmentation was proposed as an alternative development strategy in markets in which a few
competitors were selling an identical product – that is, imperfectly competitive markets
o When many actors sell identical products, market segmentation and product differentiation
produce similar results, because competitors imitate each other’s strategic approaches more
quickly and product differentiation approaches meet marketing segment needs more closely
Illustrations
o Product differentiation approach
New offering
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Promotion
Offering
Place
Price
→
New segment
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New segment
Market segmentation approach
New offering
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Promotion
Offering
Place
Price
THE PROCESS OF MARKET SEGMENTATION
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Two main methods for market segmentation
o The Build-up method – approaches the task from the perspective of identifying markets that
consist of customers who are similar
o The Breakdown method – identifies those groups that share particular differences
o The second method is the most established approach
o The first seeks to move beyond the individual level, where all customers are indeed indifferent,
to a more general level of analysis based on identifying similarities
In business markets, segmentation should reflect the relationship needs of the organizations involved
o However, problems remain concerning the practical application and implementation of B2B
segmentation
o Managers frequently report that the analytical processes are reasonably clear, but it’s unclear
how they should choose and evaluate the various market segments in the first instance
o Segmentation was developed in an era that was more good-centric, rather than the servicedominant logic that exists today
o Market segmentation programs should always use up-to-date customer data
MARKET SEGMENTATION IN CONSUMERS MARKETS
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To segment customer markets, we use market information based around key customer-, product-, or
situation-related criteria
These are classified as segmentation bases and include
o Profile criteria – e.g., who are my market, and where are they?
o Behavioral criteria – e.g., where, when, and how does my market behave?
o Psychological criteria – e.g., why does my market behave that way?
o Fourth segmentation criteria: Contact data – the customer’s name and full contact details
beyond only their postcode
Consumer criteria
Behavioral
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Purchase/transaction
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Consumption/usage
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Media usage
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Technology usage
Psychological
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Lifestyle
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Personality
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Perceptions
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Attitudes
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Motives
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Benefits sought
Who, how, where & when
Why & who
FIGURE 2 - SEGMENTATION CRITERIA FOR CONSUMER MARKETS
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Profile
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Demographic
Socio-economic
Geographic
Who & where
When selecting different segmentation bases, the trade-off between data acquisition costs and the
ability of the data to predict customer choice behavior should be considered
o Demographic and geo-demographic data are relatively easy to measure and obtain; however,
these bases suffer from low levels of accuracy in predicting consumer behavior
o Behavioral data – e.g., product usage, purchase history, and media usage – provide more
accurate means of predicting behavior, although are more costly to acquire
PROFILE CRITERIA
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One way of segmenting consumer markets is to use profile criteria to determine who consumers are
and where they are located
This uses
o Demographics methods, e.g., gender, age, race, gender identity
o Socio-economic, e.g., social class, income levels
o Geographic location, e.g., postcodes
For example, a utility company might segment to households by geographical area to assess regional
brand penetration, or an insurance company might segment by age, employment, income, and asset
net worth to identify attractive market segments
DEMOGRAPHIC
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Demographic variables relate to age; gender/gender identity; family size and life cycle; generation;
income; occupation; education; ethnicity; nationality; religion; and social class
Indicate the profile of a consumer and are useful in media planning
Age is a common way of segmenting consumer markets – e.g., targeting children for candy and toys,
since their needs and tastes are different from those of older people
Segmenting by gender has also traditionally spawned a raft of offerings targeted uniquely at women
(beauty products, hair care, clothes, etc.), and uniquely targeted at men (deodorants, beverages,
magazines, etc.)
Income, or socio-economic status, is an important demographic variable because it determines whether
a consumer can afford an offering
LIFE CYCLE
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Life-stage analysis posits that people have varying amounts of disposable income and different needs
at different times in their lives
o Example: supermarkets may develop offerings targeted at singles with high disposable income,
e.g., ready meals, and offerings targeted at families with lower disposable income, e.g.,
multipacks
One modern lifecycle classification is TGI (Target Group Index), which classifies 12 or 13 life-stage groups
based on age, marital status, household composition, and children
GEOGRAPHICS
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A geographical approach is useful when there are clear locational differences in tastes, consumption,
and preferences
Markets can be considered by country or region, size of city or town, postcode, population density, etc.
Also important for retail location, advertising and media selection, and recruitment
G EO - DEMOGRAPHICS
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A natural outcome when combining demographic and geographic variables
One of the best-known UK geo-demographic systems is ACORN, which breaks people into groups based
on postcode, and then further broken down into 18 groups and 62 types
o Affluent Achievers
o Rising Prosperity
o Comfortable Communities
o Financially Stretched
o Urban Adversity
o Not Private Households
PSYCHOLOGICAL CRITERIA
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Used for segmenting consumer markets, and includes the types of benefits sought by customers from
brands in their consumption choices, attitudes, and perceptions
Also includes psychographic criteria, or the lifestyles of customers – e.g., “extrovert”, “fashion
conscious”, “high achiever”
BENEFITS SOUGHT
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Based on the principle that we should provide customers with exactly what they want, based on the
benefits they derive from a particular proposition
o Consider both rational and irrational benefits
o For example, airlines often segment differentiating first-class passengers from economy-class
passengers
Example: Youth participation market in Ireland
o The enthusiast
o The social competitor
o The healthy looker
o The reluctant exerciser
P SYCHOGRAPHICS
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Rely on the analysis on consumers’ activities, interests, and opinions to understand consumers’
individual lifestyles and behavior patterns
Includes understanding the values that are important to different customer types
BEHAVIORAL CRITERIA
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Product-related methods of segmenting consumer markets include using behavioral methods – e.g.,
product usage, purchase, and ownership
Observing consumers as they use products and offerings can be an important source of ideas
Furthermore, the markets for existing offerings can be signaled
U SAGE
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A company might segment a market based on how often a customer uses its offerings, categorized into
high, medium, and low users
Can usually be investigated from three perspectives
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The social interaction perspective examines the symbolic aspects of usage and the social
meanings attached to the consumption of socially conspicuous offerings
o The experimental consumption perspective examines the emotional and sensory experiences
that result from usage, e.g., satisfaction, fantasy, feelings, and fun
o The functional utilization perspective assesses the functional usage of products and their
attributes in different situations
Service providers often segment markets based on their customers’ purchase behavior
T RANSACTION AND PURCHASE
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The development of electronic technologies has facilitated a rapid growth in the collection of consumer
purchase and transactional data
Examples of technologies
o EPOS – electronic point of sale
o Standardized product codes
o RFID – radio frequency identification
Companies have the ability to monitor purchase patterns in various regions, at different times, etc.
Transactional and purchase information is very useful for marketers to assess who are their most
profitable customers
M EDIA USAGE
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It’s well-established to segment markets y frequency of readership, viewership, or patronage of media
vehicles
Can provide insights into whether a publisher attracts and retains customers who are more or less
responsive to an advertiser’s communication
Furthermore, differences in frequency may lead to differences in response to repeated passive ad
exposures, competing ads, and prior ad exposure
SEGMENTATION IN BUSINESS MARKETS
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B2B market segmentation is the identification of a group of present or potential customers with some
common characteristic which is relevant in explaining and predicting their response to a supplier’s
marketing stimuli
Two main groups of interrelated variables used to segment B2B markets
o Organizational characteristics – e.g., organizational size and location (sometimes called
firmographics
o Characteristics surrounding the decision-making process
ORGANIZATIONAL CHARACTERISTICS
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Concern the buying organizations that make up a business market
There are a number of criteria that can be used to cluster organizations
o Size
o Geography
o Market served
o Value
o Location
o Industry type
o Usage rate
o Purchase situation
Organizational criteria
Firmographic
Economic
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Size
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Revenue/turnover
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Age/Life cycle
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Profit
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Industry (SIC codes)
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Budget
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Type/Role
FIGURE 3 - SEGMENTATION BY ORGANIZATIONAL CHARACTERISTICS
Geographic
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Local
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National
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Multinational
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Global
O RGANIZATIONAL SIZE
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By segmenting by size, we can identify particular buying requirements
o Large organizations may have particular delivery or design needs based on volume demand
o Also, requirements to be able to provide offerings e.g., at a low price, etc.
G EOGRAPHICAL LOCATION
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Geo-targeting is one of the more common methods when segmenting B2B markets, often used by new
or small organizations to establish themselves
Becoming less useful because the internet cuts across geographic distribution channels
SIC C ODES
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Standard Industrial Classification
Used to designate different industrial markets
Easily accessible and standardized across most Western countries
Some argue that SIC codes contain categories that are too broad to be useful
o Thus, have received limited application
o Still provide some preliminary indication
More commonly, companies segment B2B markets using industry types (so-called verticals)
CUSTOMER CHARACTERISTICS
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Concern the buyers within the organizations that make up a business market
Numerous criteria could be used to cluster organizations, including by decision-making unit, by
purchasing strategies, by relationship type, attitude to risk, choice criteria, and purchase situation
D ECISION - MAKING UNIT
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An organization’s decision-making unit may have specific requirements that influence purchase
decisions in a specific market
These characteristics can be used so segregate groups of organizations for particular marketing
programs
o Might be based on closeness and level of interdependence existing between the organizations
o Could be varying degrees of willingness to experiment through new acquisition of new
industrial offerings, and in attitude towards risk
The starting point of any B2B segmentation is a good database or customer relationship management
(CRM) system
C HOICE CRITERIA
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Business markets can be segmented based on the specifications of offerings they choose
o Example: an accountancy firm could segment its clients by those that seek compliance-type
accounting offerings
Companies don’t necessarily need to target multiple segments
P URCHASE SITUATION
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Companies sometimes seek to segment on the bases of how organizations make purchases
The following three questions should be considered
o What is the structure of the buying organization’s purchasing procedures?
o What type of buying situation is present: new task, modified rebuy, or straight rebuy?
o What stage in the purchase decision process have target organizations reached?
TARGET MARKETS
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The second important part of the STP process is to determine which of the segments uncovered should
be targeted and made the focus of a comprehensive marketing program
o Ultimately decided by managerial discretion and judgement
For market segmentation to be effective, DAMP can be applied
o Distinct – is each segment clearly different from other segments?
o Accessible – can buyers be reached through appropriate promotional programs?
o Measurable – is the segment easy to identify and measure?
o Profitable – is the segment sufficiently large to provide a stream of constant future revenues
and profits?
Another approach to evaluating market segments uses a rating approach for different segment
attractiveness factors, such as market growth, segment profitability, segment size, competitive
intensity, and the cyclical nature of the industry
o Each rated on a scale of 0-10 and loosely categorized in the high, medium, or low columns
o Then, the importance of each factor must be determined
o This generates a segment attractiveness evaluation matrix
Decisions need to be made bout whether a single offering is made available to a range of segments, or
a range of offerings to multiple segments or a single segment, or whether one offering should be
presented to a single segment
o Whatever the decision, a marketing mix strategy should be developed to meet segment needs,
which should reflect the organization’s capabilities and competitive strengths
Key questions about the marketing mix include the following
o How can the segment(s) be reached with appropriate communications?
o What is the media consumption pattern of the target audience?
o Where can they gain access to our offerings to purchase them?
o Does the offering need to be adapted for different segments and should it be prices the same
or differently for all segments?
TARGETING APPROACHES
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Once segments are identified, an organization selects its preferred approach to targeting
o The undifferentiated approach – when there’s no delineation between market segments and
the market is viewed as one mass market with one marketing strategy; used for markets in
which there are little/no segment differentiation, e.g., petrol
o The differentiated targeting approach – when there are several market segments to target, all
being attractive to the marketing organization; a marketing strategy for each segment is
needed
o A concentrated marketing strategy (niche marketing strategy) – used when there are only few
market segments; adopted by firms with limited marketing funds, or who prefer a very
exclusive strategy towards the market
o A customized targeting strategy – involves developing a strategy for each customer, rather
than each segment; predominates in B2B markets with high value and/or highly customized
products (e.g., custom made cars)
SEGMENTATION LIMITATIONS
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Whilst market segmentation is a useful process for organizations to divide customers into distinct
groups for resource allocation purposes, it has been criticized
o The process approximates offerings to the needs of customer groups, not individuals, and
therefore, a customer’s needs are not fully met
o There’s insufficient consideration of how market segmentation is linked to competitive
advantage. The product differentiation concept is linked to the need to develop competing
offerings, but market segmentation doesn’t stress the need to segment on the basis of
differentiating the offering from competitors
o It’s not clear how valuable segmentation is to managers, suitable processes or models for
measuring the effectiveness of market segmentation should be offered whenever
segmentation research exercises are undertaken. Segmentation plans can frequently fail to
overcome segmentation implementation barriers, including
▪ Infrastructure barriers – include culture, structure, and the availability of resources,
which may prevent the segmentation process from even starting
▪ Process issues – include lack of guidance, experience, and expertise, which can
hamper how segmentation is undertaken and managed
▪ Implementation barriers – include questions such as, “if a new segmentation model is
developed, how do organizations shift to using that new model?”. This may require a
move away from a business model based on offerings, towards one based on
customer needs
POSITIONING
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Having segmented the market, determined the size and potential of market segments, and selected
specific market targets, the final stage of the STP process is to position a brand within the target
market(s)
Positioning is the means by which offerings are differentiated from one another to give customers a
reason to buy and it encompasses two fundamental elements
o The first concerns the attributes, the functionality, and the capability that a brand offers
o The second concerns the way in which a brand is communicated and how customers perceive
the brand relative to competing brands
Positioning concerns an offering’s attributes and design – that is, how the offering is communicated and
the way in which these elements are fused together in customers’ minds
At a simple level, the positioning process begins during the selection of target market(s)
o Key to this process is identifying those attributes considered to be important by consumers; by
understanding that, it becomes possible to see how a brand’s attributes can be adapted and
communicated to be more competitive
PERCEPTUAL MAPPING
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Understanding the complexity associated with the different attributes and brands can be made easier
by developing a visual representation of each market
This is known as perceptual mapping, which visualize how different brands are perceived according to
the key attributes that customers value
o Example: champagne can be mapped based on “Mellow-Zesty” and “Baked fruit-Fresh fruit”
C-D MAPS
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One of the issues associated with these conventional approaches to positioning is that brand
performance cannot be incorporated and is measured separately to positioning in most organizations
In response to this, the C-D (centrality-distinctiveness) map was developed, incorporating the following
dimensions
o Centrality – concerned with the extent to which a brand is most representative of their type or
category
o Distinctiveness – refers to a brand’s individuality and the extent to which it is positioned away
from direct competition of popular central brands
Centrality
Distinctiveness
Unconventional
Brands with unique, distinctive
characteristics that separate them from
the “traditional” products
Tesla, Norwegian Airlines
Aspirational
Brands that are highly differentiated and have wide appeal,
commonly commanding higher prices than other brands
BMW, Heineken
Peripheral
Brands that are seldom recalled by
consumers as a first choice, with little
distinguishing them
Kia, Aldi
Mainstream
Tend to be the first ones that come to mind when consumers
think of the category. Often low distinctiveness, which
reduces their capacity to command a premium price
Ford, Miller Beer
FIGURE 4 - C-D MAP
POSITIONING AND REPOSITIONING
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Understanding brand positioning helps marketers to improve a brand’s performance by modifying the
market communications used to support a brand
Repositioning revolves around an offering and the way in which it is communicated, although carries
risks
The following four methods outline ways to approach repositioning
o Change the tangible attributes and then communicate the new proposition to the same market
o Change the way in which a proposition is communicated to the original market
o Change the target market and deliver the same proposition
o Change both the proposition (attributes) and the target market
CHAPTER 8: NEW PROPOSITION DEVELOPMENT AND INNOVATION
THE THREE LEVELS OF A PROPOSITION
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When people buy propositions, they don’t just buy the functional aspect that it offers, also other factors
are involved in the purchase
To understand the different elements and benefits that make up a proposition we refer to three
different proposition components
o The core proposition consists of the core benefit or service; may be functional benefit, or an
important emotional benefit
o The embodied proposition consists of the physical good or delivered service that provides the
expected benefit; consists of many factors, such as the features, capability, design, packaging,
brand name
o The augmented proposition consists of the embodied offering plus all those other factors that
are necessary to support the purchase and any post-purchase activities, such as credit and
finance, training, delivery, installation, guarantees, and overall perception of customer service
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When these levels are brought together, it’s hoped that they will provide customers with a reason to
buy and keep buying
The development of the Internet, social media, and other digital technologies have impacted on the
nature of the offering and the benefits accruing from using it
o This has opened up opportunities for organizations to redefine their core and actual
propositions, often by supplementing “information” about the offering
o Another approach has been to transform current offerings into digital offerings
Several ways for digital value to help augment the proposition
o E.g., by coordinating activities to engage the customer through an increasingly digital purchase
journey
Also increasing recognition for the need for customer input into the design and development of new
products, often called co-production or co-creation
CLASSIFYING PHYSICAL PROPOSITIONS
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Two main ways to classify physical offerings
o Consumer offerings
o Business-to-business (B2B) offerings
Some offerings can be classified as both
CONSUMER GOODS
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The first way of classifying consumer goods is to consider them in terms of their durability
o Durable goods, such as bicycles, music players, and refrigerators, can be used repeatedly and
provide benefits each time
▪ Often high levels of consumer involvement, due to high perceived risk in these
decisions
o Non-durable goods, such as yoghurt and newspapers, have a limited duration (that is, they are
perishable), and are often only used once
▪ Often low levels of involvement, and the buyer is seldom concerned what product
they buy, due to low perceived risk
o Services are intangible propositions that cannot be stored
Goods can also be classified by how and where consumers buy them, which enables development of
more appropriate marketing strategies
o Convenience products are non-durable and bought because the consumer doesn’t want to put
much effort into the decision. They are characterized by routinized response behavior, and
they are inexpensive and bought frequently
o Shopping products are not bought as frequently, and consumers thus don’t have up-to-date
information when making these decisions. They require some search for information, but
sometimes not much at all. Consumers give more time and effort into these purchases, since
they perceive the risk level to be higher
o Specialty products represent high-risk purchases, and they are very expensive, and bought
infrequently (maybe only once). People plan these purchases carefully, search intensively for
information, and are often concerned only with a particular brand
o Unsought products refer to offerings that people don’t normally anticipate buying nor indeed
want to buy. Often consumers have little knowledge or awareness about the market, and find
out about them only when the need arises
BUSINESS PRODUCTS
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Unlike consumer goods, business propositions are generally bought on a rational basis to meet
organizational goals
Used either to enable the organization to function smoothly, or they form an integral part of the
products, processes, and services supplied for resale
These are classified in six main categories
o Equipment goods cover two main areas concerning the everyday operations
▪ Capital equipment goods are buildings, heavy plant, and factory equipment required
to build or assemble products. They require substantial investment, are subject to
long planning processes, and involve many different people in procurement
▪ Accessory equipment goods should support the key operational processes and
activities of the organization. Typically include photocopiers, computers, office
furniture, etc. These items cost less than capital equipment goods, have shorter
expected lifetime, and are often portable
o Raw materials are the basic materials used to produce finished goods. Minerals, timber, food
staples, etc. are included here. Bought in large quantities, and often negotiated heavily
o Semi-finished goods are raw materials that have been converted into a temporary state. For
example, iron ore is converted into metal sheets that can be used in a car and aircraft, etc.
o Maintenance, repair, and operating (MRO) goods are those products, other than raw materials,
that are necessary to ensure that the organization continues to function. For example,
maintenance and repair goods, light bulbs, and USB drives
o Component parts are finished complete parts, bought from other organizations, which
components are then incorporated directly into the finished product
o Business services are intangible services used to enhance the operational aspect of
organizations. Commonly include management consultancy, finance, and accounting
PRODUCT RANGE, LINE, AND MIX
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To meet the needs of different target markets, most organizations offer a variety of products and
services
To make sense of, and understand, the relationships between one set of products and another, several
terms have emerged
Example: Samsung Electronics Co. Ltd
Product term
Product item
Explanation
A distinct single product within a product line, e.g., Galaxy S8
Product line
A group of closely related products – related through technical, marketing, or user considerations, e.g., all
three Galaxy S8 phones
Product mix
The total number of product lines offered by an organization, e.g., all the mobile devices, televisions, print
solutions, etc.
Product line
length
The number of products available in a product line, e.g., all three products available within the Galaxy S8
range
Product line
depth
Product mix
width
The number of variations available within a product line, e.g., the five trim colors of the Galaxy S8
The number of product lines within a product mix
PRODUCT LIFE CYCLES
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Underpinning the concept of the product life cycle is the belief that offerings move through a sequential,
pre-determined pattern of development, similar to the biological path that life forms follow
This pathway consists of five different stages
o Speed of movement through the stages varies, but
each product has a limited lifespan
o Although the life can be extended, for example
by introducing new use-areas, the majority of products
have a finite profit-generating period
o There’s some evidence hat electronic goods manufacturers
are adding built-in obsolescence
Just as the nature and expectations of customer groups differ
by stage, so do the competitive conditions
o This means that different marketing strategies need to be
deployed at particular times so as to maximize financial returns
Not all products follow the product life cycle
o Some offerings die out at the end of the introduction stage, as it becomes clear that there’s no
market to sustain them
o Some offerings follow the path and then hang around, sustained by heavy advertising and sales
promotions
o Some offerings grow very quickly and fade away rapidly
The brands of many fast-moving consumer goods (FMCGs) are sustained through a supermarket listing,
and losing the shelf space to a competitor is difficult to accept
o Supermarkets often terminate an underperforming brand unless the brand presents a suitable
variant capable to replace the ailing product
The product life cycle concept is useful since it allows for marketing managers to strategies and tactics
to meet the needs of evolving conditions and circumstances; it is clear, simple, and predictable
The product life cycle model works reasonably well as a model when the environment is relatively stable
and not subject to dynamic swings or short-lived customer preferences
SERVICE-DOMINANT LOGIC
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Some researchers believe that products alone are not capable of meeting all of a customer’s needs,
particularly in B2B markets
For business customers to derive value from a product, they need to use it, and that often requires a
level of integration or coordination with a supplier’s processes and systems
o This is argued to suggest the need for a proposition more like a service than a core product
offering
Since marketing is a customer management process, this entails not only proposing how an offering will
be of value to the customers, but also enabling and supporting the customers to create value
This notion that all propositions really embody a service is referred to as the service-dominant logic
(SDL) approach
The SDL concept has been criticized for being of little practical use to marketers, but has also generated
important discussions about how organizations and their customers work together to co-create new
propositions, and that they are inherently a service offering
DEVELOPING NEW PROPOSITIONS
DEVELOPING NEW PHYSICAL PROPOSITIONS (GOODS)
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One of the key concepts of the product life cycle is that products don’t last forever; their usefulness
diminish at some point, and eventually nearly all come to an end
Reasons for this could be quick technology changes, shorter life cycles, increased (global) competition,
etc.
A key management task is therefore to maintain control of the organization’s range or portfolio or
products
“New” propositions have to be considered, developed, planned, and introduced; to ensure a stream of
propositions, companies have three main options
o Buy in finished products from other suppliers, perhaps from other parts of the world, or license
the use of other products for a period of time
o Develop products through collaboration with suppliers or even competitors
o Develop new products internally, e.g., through R&D departments
About 95% of new products fail, which has three main reasons
o No markets exist for the product
o There is a market need, but the product fails to meet customer requirements
o The product’s ability to meet market need is not adequately communicated to the target
market
FIGURE 5 - NEW PRODUCT DEVELOPMENT PROCESS
THE NEW PRODUCT DEVELOPMENT PROCESS
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The process (NPDP) is a generalization; in practice, actions can overlap, or even occur out of sequence
Apart from some minor issues, the NPDP is the same for both consumer and business markets
Often referred to as a stage-gate model
I DEA GENERATION
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Ideas can be generated through customers, competitors, research data, social media, R&D, etc.
Companies should foster a culture that encourages creativity, and supports people with new ideas
S CREENING
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All ideas need to be assessed so that only those who meet specified criteria are advanced
Key criteria include the fit between the proposed new idea and the overall corporate strategy, and the
views of customers, which can be determined by concept testing
B USINESS PLANNING AND MARKET ANALYSIS
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Business development is crucial, since it will indicate the potential and relative profitability of the
product
To prepare the plan, information about e.g., size, shape, and dynamics of the market must be
determined, the resultant profitability forecasts will be significant in determining how and when (if at
all) the product will be developed
P RODUCT DEVELOPMENT AND SELECTION
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In many organizations, several product ideas are considered simultaneously, and it’s management’s task
to select those that have commercial potential
There’s a trade-off between the need to test and reduce risk, and the need to go to market and drive
income to get a return on the product
Prototypes and test versions are developed for those who are selected for further development, and
those are then subjected to functional performance tests, etc.
T EST MARKETING
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Before committing a new product to a market, most organizations decide to test market the finished
product, by piloting the product under real-market conditions, many of the genuine issues perceived by
customers can be raised and resolved
Can be undertaken using a particular geographical region or specific number of customer locations
Intention is to evaluate the product and the whole marketing program under real working conditions
Test marketing enables the product or marketing plan to be refined and adapted in the light of market
reaction
Criteria for measuring success and failure include measures based on
o Customer acceptance
o Financial performance
o Product-level measures
o Firm-level measures
C OMMERCIALIZATION
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To commercialize a new product, a launch plan is required, which considers the needs of distributors,
end users, marketing communication agencies, and other relevant stakeholders
Any perceived rigidity in this formal process should be disregarded
Many new offerings come to market via rather different routes, at different speeds, and at different
levels of preparation
DEVELOPING NEW SERVICE PROPOSITIONS
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Three service innovation strategies have been distinguished
o Established services within competitive markets
▪ Often generated under intense competition to improve operational efficiency
o Incremental service innovation targeting value-added propositions
▪ Working together, the service provider and the client can produce more effective
solutions
o Radical service innovation, which aims to produce completely novel offerings
▪ Concerned with value creation generated through novel/unusual service concepts
▪ Requires new technologies, offerings, or business concepts, and involves radical,
system-wide, changes in existing value systems
ENHANCING PHYSICAL PROPOSITIONS THROUGH SERVICE DEVELOPMENT
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Helpful to view proposition innovation in the light of the product-service spectrum
Services don’t always need to be seen purely as an extension or add-on to a product offering; they can
also be a way of creating value opportunities for clients
Service innovation can be considered in four stages of solution management maturity
o Stage 1: Services are used as aftersales support for goods, e.g., parts and repair services, and
service innovation is framed around maintaining the good and ensuring customer satisfaction
o Stage 2: Characterized by aftersales services designed to complement the core element of the
proposition, and here, the service should improve customer satisfaction with existing goods,
increase loyalty, and may generate additional purchases
o Stage 3: The portfolio includes a full line of services and goods designed to provide a clearly
differentiated offering aimed at solving clients’ lifecycle problems. Goods are still core to the
company, and end users may not see any difference between goods and services
o Stage 4: Firms seek to integrate the services dimensions as part of their total offer. Known as
servitization, this involves the provision of an integrated bundle of goods-service solutions for
the entire life cycle of their customers. These solutions are developed collaboratively with
clients, and thus require a deep understanding of the customer’s overall business
SERVICE DEVELOPMENT
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As distinctions between what is a product and what is a service blur, the traditional distinction between
product development and service development is becoming increasingly artificial
Managers responsible for new service development should establish a system that incorporates a
formal procedure for generating and evaluating new service ideas, a drawing-board approach for
identifying and designing the necessary service elements and ideas, and testing of new services with
customers and frontline staff
An organization’s development processes should become more formal as the project progresses, have
well-established idea-screening processes, and have a system to ensure staff are trained properly
Some services undergo beta-testing, where a version is made available to customers, and any
imperfections are identified and removed, before the final version is launched
If organizations are to improve the effectiveness of their service development processes, they should
o Leverage their employees’ skills, resources, and experiences in the new process
o Develop more customer-oriented services
o Undertake an interdisciplinary approach to marketing, bringing together marketing,
operations, and innovation staff
THE PROCESS OF ADOPTION
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The process where individuals accept and use new propositions is referred to as adoption
The different stages are sequential, and characterized by the different factors involved in each stage
FIGURE 6 - THE PROCESS OF ADOPTION
K NOWLEDGE
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During this stage, the consumers become aware of the new proposition
They have little information, and have yet to develop attitudes towards the product
P ERSUASION
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Characterized by consumers becoming aware that the innovation may be of use in solving a potential
problem
Consumers become sufficiently motivated to find out more about the proposition’s characteristics
D ECISION
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Individuals develop an attitude toward the proposition, and reach a decision about whether or not the
innovation will meet their needs
I MPLEMENTATION
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Users try the innovation for the first time
Sales promotions often offer samples for free
Individuals accept or reject the innovation
C ONFIRMATION
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When an individual successfully purchases the proposition on a regular basis, without the help of sales
promotions, etc.
DIFFUSION THEORY
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Consumers may have both functional and emotional motives when purchasing
Different attitudes to risk, levels of education, experience, and needs, mean that different groups of
customers adopt new propositions at varying speeds
The rate at which a market adopts an innovation is referred to as the process of diffusion
There are five main categories of adopters
o Innovators – Kick-start the adoption process, being people who like new ideas, and are often
financially strong and more likely to take risks. A person being an innovator in one category
doesn’t mean they are an innovator in another
o Early adopters – These people will stimulate word-of-mouth communication; thus, they should
be targeted by market communications. They enjoy being at the leading edge of innovation
o Early majority – More risk-averse people, who require reassurance that the offering works, and
tend to wait for prices to fall
o Late majority – People who are skeptical of new ideas and adopt new offerings only because
of social or economic factors
o Laggards – People who are suspicious of all new ideas, and their opinions are hard to change
CHAPTER 9: PRICE AND CUSTOMER VALUE DECISIONS
THE PRICE ELASTICITY OF DEMAND
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First developed in the field of economics, but also useful in marketing
Helps understanding how demand shifts with changes in price
o The data needed to determine price elasticities requires detailed research of price and quantity
changes over time
Price elasticity is affected by factors such as
o Brand characteristics
o Category characteristics
o General economic conditions
o Etc.
Price elasticity of demand is defined by
o
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𝜂=
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
When the percentage change in price is positive, the percentage change in quantity is negative, and
conversely
o Thus, the price elasticity of demand is always negative
o The price elasticity for most goods is between -9 and -1
o Average price elasticity is -2,62
We can refer to three main extremes
o Unit price elasticity (𝜂 = −1): A 10% increase/decrease in price produces a 10%
decrease/increase in quantity demanded
o Zero price elasticity of demand (𝜂 = 0): Demand does not change in any way with price
changes
o Infinite price elasticity of demand (𝜂 = ∞): Consumers will buy as much as they possibly can
at a particular price, but at higher price, the quantity demanded falls to zero, and at a lower
price, the demand rises without limits
Governments use price elasticity data to determine which offerings to tax
o E.g., petrol and tobacco are taxed because higher prices (due to higher tax) have lesser impact
on quantity supplied
Marketing managers should therefore seek to understand whether their offerings are price elastic or
inelastic, because they can then predict how price changes will affect the total quantity supplied
THE CONCEPT OF PRICING AND COST
PRICING
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In marketing terms, we consider price to be the amount the customer has to pay or exchange to receive
an offering
The notion of pricing an offering is often confused with other key marketing concepts, particularly cost
and value
PROPOSITION COSTS
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To price properly, we need to know what the offering costs us to make, produce, or buy
Cost represents the total money, time, and resources sacrificed to produce or acquire an offering
Typically, a firm determines what its fixed costs are, and what its variable costs are for each proposition
THE RELATIONSHIP BETWEEN PRICING AND PROPOSITION COSTS
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Costs should be substantially less than the price assigned to a proposition, otherwise the firm will not
sell sufficient units to make long-term profits
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑉𝑜𝑙𝑢𝑚𝑒 𝑠𝑜𝑙𝑑 ∗ 𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒
𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠
The price at which a proposition is set is important because increases in price have disproportionately
negative effects on profit
Whenever possible, we should aim to increase prices, but deciding how to price a proposition is
complex, and customers don’t want to pay more
To cost and price each individual product:
o We first need to determine costs, that is, allocating fixed costs
o Once fixed costs are allocated, and variable costs determined, we set its initial price
o Costs of components, and other costs, change constantly
o Since we can’t change the price at every such change, we need to determine at which point we
need to change the price
To increase accuracy of cost data, we need to spend more time collecting and analyzing it, which is a
trade-off between the benefits and costs of data storage, collection, and processing
o More difficult when the organization is split into separate profit centers selling on other
divisions within the same company, especially when these adopt ineffective transfer pricing
mechanisms
Not only costs matter, demand might also change as customers’ desires change
o We should also consider customers’ price perceptions when setting price levels
CUSTOMER PERCEPTIONS OF PRICE , QUALITY , AND VALUE
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Marketers are concerned with how individuals react to the way offerings are priced
Here, we must consider individual price perceptions of proposition quality and value, and their
relationship to customer response
P ROPOSITION QUALITY
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Quality is important when setting price levels
Quality is defined as the standard of something, a distinctive attribute or characteristic of the offering
Quality is multifaceted (comprises different functional and non-functional needs) and multilayered
(comprises degrees of satisfaction)
o Because each person has their own definition of quality, we prefer to talk about perceived
quality
T HE RELATIONSHIP BETWEEN QUALITY AND PRICING LEVELS
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There’s an assumption that as price increases, so does quality, and this generally holds
o However, this is category-dependent, and there is only a weak relationship
o This is based on the assumption that prices are determined by market forces, which doesn’t
always hold
T HE RELATIONSHIP BETWEEN PERCEIVED VALUE , PRODUCT QUALITY , AND PRICING LEVELS
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Value is defined as the regard something is held to deserve; importance, worth, or usefulness of
something; principles or standards of behavior; one’s judgement of what’s important in life
Often expressed as: Value = Quality/Price = Quality rating per unit of currency
o Related version replaces quality with “benefits”
o Indicates that to raise value, we must either lower price or increase quality
Quality is not well defined, it is a rating, or a customer’s perceived reference price, etc.?
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An alternative equation to calculate value: Value = Perceived benefits – Perceived price
o The customer receives value if the perceived benefits outweigh the price
INFLUENCES ON CUSTOMER PRICE PERCEPTIONS
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How we perceive prices as customers can be summarized in a theoretical framework, where price
perceptions are based on a variety of antecedents
o Once we see a price, we make a judgement, which is a newly formed price perception, which
affects our willingness to pay, which affects our purchase behavior
o Price perceptions are affected by prior beliefs, prior knowledge or reference prices, prior
experiences, etc.
o We compare prices we see with internal reference prices (price knowledge gained from
experience) and external reference prices (what others tell us prices should be, e.g., price
comparison websites)
FIGURE 7 - A FRAMEWORK FOR PRICE PERCEPTION FORMATION
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Price perception formation is influenced by exposure to reference prices, quality perceptions, brand
awareness, brand loyalty, product familiarity, etc.
Price perceptions affect customers’ willingness to pay
Actual purchase behavior is influenced by purchase intention, contextual factors, promotions,
perceptions of store quality, and whether the shopping is online or not
In other words, the framework indicates that once the purchase behavior occurs, there’s a recalibration
of customer’s price perception because new purchase experiences and information provide the stimulus
for that recalibration → the process is cyclical
W ILLINGNESS TO PAY
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Key question: why do some consumers see one proposition’s price as fair, and others don’t?
If we price according to customer needs, we should understand which customers think a particular price
is fair to pay, or what they expect to pay, or what they think others would pay
P RICE CONSCIOUSNESS
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We also need to know whether customers are conscious about prices in a particular category
o Most people don’t have a good knowledge of prices
o Our experience is limited to previous actual or considered purchases
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If people don’t know the reference prices of particular offerings, they cannot determine their fairness
P RICING CUES
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Estimating reference prices is subject so seasonality for some items, including flowers, fruit, and
vegetables
For others, quality and size of items are not universal across companies’ offerings
Pricing cues include things such as sales signs, odd-number pricing, the purchase context, and price
bundling
o Sales signs act as cues, indicating bargaining availability, which seduces the customer to buy,
suggesting that an item is desirable and may not even be available if not bought quickly
o Odd-number pricing; we perceive e.g., $34 to be more expensive relative to a reference price
(in this case 30), but e.g., $39 as cheaper than a reference price of 40
o Purchase context is another key factor, our perception of risk is greater if we are continually
reminded of it, than if we consider it only at the point of purchase, which can not only influence
demand, but also drive consumption
P RICE BUNDLING AND REBATES
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Marketers highlight their prices to customers by bundling other products and services into an offering
to make the prices look more reasonable
o Magazines often bundle gifts with the magazine – pure price bundling
o Fast food restaurants often have package deals – mixed price bundling
Price bundling can also mean that the company simply gives the customer a rebate – that is, given
money back
o Credit card companies often offer cashback schemes on money spent on their credit card as a
proportion of the total amount spent
PRICING APPROACHES
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Price setting depends on various factors, including how price affects demand, how sales revenue is
linked to price, how cost is linked to price, how investment costs are linked to price
o The relationship between price and sales revenue follows a bell curve
o The relationship between cost and price Is linear
o The relationship between price and investment cost is like a down staircase
There are broadly four types of underlying price approach
o The cost-oriented approach – prices set based on costs
o The demand-oriented approach – prices set based on price sensitivity and demand
o The competitor-oriented approach – prices set based on competitors’ prices
o The value-oriented approach – prices set based in what customers believe to offer value
T HE COST - ORIENTED APPROACH
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Advances the idea that the most important element of pricing is the cost of the component resources
that constitute the offering
Can be used for services, in a B2B context, or in a product context
The marketer sells output at the highest price possible, regardless of the buyer’s preferences or costs
One approach to determining price is mark-up pricing, often used in the retail sector
o Operates on the basis of a set percentage mark-up, and when used, the cost-oriented method
leads to the use of list prices, with a single price for all customers
This approach means that we have to use a mark-up pricing approach
In some industries, prices are based on fixed formulae, set with a supplier’s costs in mind
T HE DEMAND - ORIENTED APPROACH
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With this approach, the firm sets prices according to how much customers will pay
Prevalent in marketing services, but could be used in B2B or consumer marketing contexts
Airlines use this approach, where customers pay different amounts for seats with varying levels of
service attached
Companies using this pricing should be wary of overcharging their customers, especially where
customers’ requests are urgent; when companies set charges that are perceived to be unfair, they are
liable to claims of price gouging
T HE COMPETITOR - ORIENTED APPROACH
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Companies can also set prices based on competitors’ prices, also known as the going rate
Used in B2B, services and consumer marketing contexts
The advantage here is that when your prices are lower than those of the competition, customers are
more likely to purchase from you
Price guarantee schemes provide customers with peace of mind of knowing that the price paid is
competitive
T HE VALUE - ORIENTED APPROACH
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Even in e.g., the consumer durables category, where we might expect customers to be less pricesensitive, firms have long practiced pricing approaches with customers’ considerations in mind
We term this the value-oriented approach, because prices are set based in the buyers’ perceptions of
specific product or service attribute values, rather than on the basis of costs or competitors’ prices
In this approach, deciding what is of value tot the customer is determined using customer research
o The result may be that the company does not necessarily offer a cheaper price, in fact it could
mean a higher-priced offering
PRICING STRATEGIES AND OBJECTIVES
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Whilst companies might use a variety of pricing approaches to set their prices over the long term, they
also need to understand how they might set their prices in the shorter term
Companies tend to establish their pricing strategy based around what their pricing objectives are
There are four main pricing strategies
o Premium pricing – focuses on pricing an offering to indicate its distinctiveness in the
marketplace
o Penetration pricing – refers to setting the price low relative to the competition to gain market
share
o Economy pricing – involves setting the prices at a bare minimum to attract price-sensitive
customers
o Price skimming – occurs when the price is initially set high and then lowered in sequential steps
Companies’ pricing objectives may relate to other objectives, for example to maximize profit, or achieve
a satisfactory level of profits or sales
LAUNCH PRICING
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When launching new offerings, organizations tend to adopt one of two classic pricing strategies
o In the first approach, they charge a lower price in the hope of generating a large volume of
sales and recouping their R&D investment that way
o With the second approach, they charge an initially high price and reduce price over time,
recouping R&D investment from sales to the group of customers who are prepared to pay the
higher price
CHAPTER 10: PRINCIPLES OF MARKETING COMMUNICATIONS
DEFINING MARKETING COMMUNICATIONS
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Can be defined as a management process by means of which an organization attempts to engage with
its various audiences
By conveying messages that are of significant value, the organization encourages audiences to offer
attitudinal and behavioral responses
Three main aspects
o Engagement – What are the audience’s communications needs and is it possible to engage
with them on their terms, using one-way, two-way, or dialogic communications?
o Audiences – Which specific audience(s) do we need to communicate with, and what are their
various behavior and information-processing needs?
o Responses – What are the desired outcomes of the communication process? Are they based
on changes in perception, values, and beliefs, or are changes in behavior required?
Engagement deals with the way in which communication influences its audiences, and what to expect
is largely dependent on the decisions made with regard to the target audience and target responses for
different activities
THE SCOPE OF MARKETING COMMUNICATIONS
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Promotion – one of the 4Ps of the marketing mix, and focuses on the communication of a proposition
to its target market
o Used to communicate the elements of an organization’s offerings to target audiences
o The offer might be a product, a service, or the organization itself as it tries to build reputation
Marketing communications is mainly concerned with the way in which audiences are encouraged to
perceive an organization/its offerings
o Should be regarded an audience-centered activity
o Five common tools of marketing communications: Advertising, sales promotion, personal
selling, direct marketing, and public relations (PR)
o Also, a range of media, e.g., TV, radio, press, are used to convey different messages to target
audiences
Those tools, media, and messages are not the only sources of information for consumers; there is also
implicit and important communication through the other elements of the marketing mix (e.g., high price
symbolizing high quality), as well as unplanned or unintended experiences (e.g., empty stock shelves or
accidents leading to negative perceptions) in relation to the offer
The below figure highlights the breadth and complexity of managing marketing communications:
FIGURE 8 - THE SCOPE OF MARKETING COMMUNICATIONS
HOW MARKETING COMMUNICATION WORKS
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Ideas of how advertising, then promotion, and now marketing communications works have been a
constant source of investigation, endeavor, and conceptual speculation
o It would not be true to suggest that a firm conclusion has been reached
o However, some ideas have stood out and played a more influential roe in shaping our ideas;
some of them are presented here
COMMUNICATION THEORY
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Communication theory is important because it helps to explain how and why certain marketing
communication activities take place
o The process by which individuals share meaning
o Necessary to interpret the meanings embedded in messages, and to be able to respond to
those
Communication that travels only from the sender to the receiver is essentially a one-way process, and
the full communication process remains incomplete
o This is known as a linear model
When communication gives the opportunity for the receiver to respond, and thus become a sender, and
back again, this is known as two-way communication, and represents a complete communication
episode
In marketing communication, we will consider three main models
o The linear model
o The two-step model
o The interaction model
T HE LINEAR MODEL
FIGURE 9 - LINEAR MODEL OF COMMUNICATIONS
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Regarded as the basic model of mass communications
Can be broken down into a number of phases, each with distinct characteristics
o Encoding is the process by which the source selects a combination of appropriate words,
pictures, etc. to represent the message to be transmitted; packaged in such away that they can
easily be unpacked and understood. The goal is to create a message that is capable of being
easily comprehended by the receiver
o Once encoded, the message must be put into a form that is capable of transmission; channels
may be personal or non-personal
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When the receiver has seen, heard, etc. the message, the decoding occurs, that is, they unpack
the message; thus, decoding is the part of the communication process where the receiver gives
meaning to the message
o Feedback is another part of the response process, where it’s transmitted that the message is
not only received, but also correctly decoded; although an essential part of successful
communication, feedback through mass media is generally hard to obtain
o Noise is concerned with those influences that distort information and thus make it hard for the
receiver to correctly decode and interpret the message as intended, e.g., if a phone rings, or
someone rustles papers during a sensitive part of a film, the receiver is distracted from the
message
o The final component of the linear model is the realm of understanding, which is an important
element in the communication process, since it recognizes that successful communications are
more likely to be achieved when the source and receiver understand each other; this
understanding concerns attitudes, perceptions, behavior, and experience the values that both
parties bring to the communication process. Effective communication is more likely when
there’s some common ground, that is, some “realm of understanding between the source and
receiver”
One of the problems with the linear model is that it ignores the impact that other people can have on
the communication process; people are not passive, they actively use information, and the views and
actions of other people can impact on the way in which information is sent, received, processed, and
given meaning
Another difficulty is that the model is based on communication through mass media
The model was developed at a time when first radio, and then TV, were the only media available, which
is not longer the case. Therefore, the linear model is no longer entirely appropriate
T HE TWO - STEP MODEL OF COMMUNICATION
FIGURE 10 - THE TWO-STEP MODEL OF COMMUNICATIONS
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We know that people can have a significant impact on the communication process, and hence we have
the two-step model, sometimes referred to as the influencer model
The model compensates for the linear, or one-step, model because it recognized the importance of
personal influences when informing and persuading audiences to think or behave particular ways
The model depicts information flowing via various media channels to particular types of persons, to
whom other members of the audience refer for information and guidance
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Two main types of influencers
o Opinion leader
o Opinion former
Both have enormous potential to influence audiences
T HE INTERACTION MODEL OF COMMUNICATIONS
FIGURE 11 - AN INTERACTION MODEL
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Similar to the two-step model, with the important difference that in this model, the parties are seen to
interact among themselves and communication flows among all members in a communication network
o Mass media is thus not the only source of communication
Unlike the linear model, where information flows from the source to the receiver through channels, the
interaction model recognizes that messages can flow through various channels, and people can
influence the direction and impact of a message
o Not necessarily one-way, but interactive communication that typifies much of contemporary
communications
Often, campaigns use audience participation measures, such as liking or sharing in social media
o This interaction between people is a good demonstration of the interaction model in practice
Interaction is about actions that lead to a response, and much attention is now given to the interaction
that occurs between people
o However, care needs to be taken, since the content of an interaction may be based on an
argument, a statement of opinion, or a mere casual social encounter
Dialogue occurs through reasoning, which requires both listening and adaption skills
o At one time, interaction occurred only rally through personal selling, but now it’s possible to
interact, and thus build mutual understanding, with consumers through the internet or other
digital technologies
P ERSONAL INFLUENCERS
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Two main types
o Opinion leaders
o Opinion formers
o Also, social media has led to word-of-mouth among regular consumers becoming even more
influential
O PINION LEADERS
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Some individuals hare more predisposed than others towards receiving information, and then
reprocessing it
These individuals were found to be more persuasive than information received directly from the mass
media
These people are known as opinion leaders, and have the characteristic of belonging to the same peer
group as the people they influence
Opinion leaders have a greater exposure to relevant media and thus have more knowledge with the
category of offering
o Non-opinion leaders – that is, opinion followers – turn to opinion leaders for advice and
information
o Opinion leaders are also more gregarious and self-confident, and more confident in their roles
as influencers
o Thus, it’s not surprising that marketing communication strategies are targeted at opinion
leaders, since they will influence others
O PINION FORMERS
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The other type of independent personal influencer is the opinion former
They’re not part of the same peer group as the people they influence
o Rather their defining characteristic is that they exert personal influence because of their
profession, authority, education, status, etc.
o These are often consulted as experts when people buy offerings
Organizations target their marketing communications at opinion leaders and formers to penetrate the
market more quickly than relying on communicating directly with the target audience
In addition, references need to be made to spokespersons
Some potential problems
o Whether the celebrity fits the image of the brand, and whether the celebrity will be acceptable
to the target audience, both now and later
o The impact the celebrity has relative to the brand; danger that the celebrity will be
remembered but not the brand, and thus, the celebrity becomes the “proposition”
W ORD OF MOUTH
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Doesn’t involve any payment for media, it’s given freely through conversation
Can be defined as “interpersonal communication regarding products or services where the receiver
regards the communicator as impartial”
Personal influence is important, since these recommendations are perceived as objective and unbiased
Can be used either as information inputs prior to purchase, or support and reinforcement of a purchase
decision
For many organizations, it’s important to direct messages at people who are predisposed to discussing
its content, because they will likely propel word-of-mouth recommendations
o Thus, the target of some campaigns isn’t necessarily the target market, but those who are most
likely to give their opinion and influence those
MARKETING COMMUNICATION THEORY
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There’s no coherent theory or model explaining how marketing communications or advertising works
The first idea was based on how personal selling process works; the AIDA model states the need to
create awareness to then generate interest, and drive desire, from which action (sale) emerges, and this
model has become extremely well-known, and is used by many practitioners
o The model is generally correct, but fails to provide insight about how advertising works
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A later model is referred to as the hierarchy of effects (HoE) model, which assumes that a prospect must
pass through a series of steps before a purchase will be made
o It assumes – correctly – that advertising cannot generate an immediate sale, because there are
a series of thought processes that need to be fulfilled prior to it; these steps are represented
below
FIGURE 12 - STAGES IN THE HIERARCHY OF EFFECTS MODEL
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These models are known as hierarchy of effects models because the effects (on audiences) are thought
to occur in a top-down sequence
This has several drawbacks
o People don’t always process information, nor do they always purchase offerings following a
series of sequential steps
o Questions about what actually constitutes adequate levels of awareness, comprehension, and
conviction
THE STRONG AND WEAK THEORIES OF ADVERTISING
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As advertising cannot be assumed to work in only one particular way, the explanations are divided into
the strong and weak theories
T HE STRONG THEORY OF ADVERTISING
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Advertising has a strong effect because it can persuade people to buy offerings that they would not
previously purchase
The theory proposes that advertising is capable of increasing sales for the product class
o Achieved through the use of manipulative and psychological techniques, deployed against
large passive customers, who are either incapable of processing information intelligently, or
have little or no motivation to become involved
This interpretation is a persuasion view and corresponds very well to the HoE models referred to earlier
o Persuasion occurs by moving buyers towards a purchase by easing them through a series of
steps, prompted by appropriate messages
This theory has close affiliation with an advertising style that is proposition-oriented, in which features
and benefits are outlines clearly for audiences
T HE WEAK THEORY OF ADVERTISING
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Contrary to the strong perspective, the weak theory proposes that a consumer’s brand choices are
driven by purchasing habit rather than by exposure to promotional messages
o Advertising is thus considered a weak force
Uses a framework called awareness-trial-reinforcement (ATR), which is considered a more appropriate
interpretation of how advertising works
o Awareness is required prior to any purchase being made, although time between awareness
and action varies
o A few people will be sufficiently intrigued for trial of the offering
o Reinforcement follows, to maintain awareness and provide reassurance to help customers to
repeat the pattern of thinking and behavior
o Advertising’s role is thus to breed brand familiarity and identification
Advertising is according to this theory employed as a defense, to retain customers and increase brand
usage, to reinforce existing attitudes, not necessarily change them
A COMPOSITE APPROACH
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Most of the models so far have their roots in advertising
To establish a model of marketing communications, we need a different perspective, that draws on the
key parts of all the models
o Possible since the three key components of the attitude construct lie within these different
models
The three stages of attitude formation are
o We learn something (cognitive or learning component)
o We feel something (affective or emotional component)
o And then we do something based on our attitudes (behavioral or conative component)
The HoE models and the strong theory contain this sequential approach of learn-feel-do
o The weak theory places greater emphasis on familiarity and reminding (awareness) than on
other components
o This can be modeled both as a linear model and as a circular model
L EARN
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Where learning is the priority, the overall goal should be to inform or educate the target audience
If the offering is new, it’s important to make the target audience aware of the offering’s existence, and
inform them of the brand’s key attributes and benefits
Common use for advertising because is has the capacity to reach both large and targeted audiences
Additional tasks include showing the target audience the ways a brand is superior to others
F EEL
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Once the audience is aware of a brand and knows something about how it might be useful, it’s important
that they develop a positive attitude towards the brand
o Can be achieved by imbuing the brand with a set of emotional values that is thought will appeal
to the audience
Marketing communications should be used to involve and immerse people in a brand
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Most organizations find that to be successful. They need a broader set of tools and that the goal is to
change the behavior of the target audience
o May be to buy the brand, or often to visit a website, order a brochure, fill in a form, etc.
o This is referred to as call to action
When the accent is on using marketing communications to drive behavior, direct-response marketing
can be effective
However, sales promotion, direct marketing, and personal selling are particularly effective
THE ROLE OF MARKETING COMMUNICATIONS IN MARKETING
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Used to achieve one of two principal goals
o The first concerns the development of brand values
o Brand communication seeks to make us think positively of a brand, and helps us remember and
develop positive brand attitudes, to encourage repurchases
o The second goal is to use communications to make us behave in particular ways
o We should use the money to encourage people to behave differently
The success of marketing communication depends on the extent to which messages engage their
audiences, which may fall into three main groups
o Customers – These may be consumers or end-used organizations
o Channel members – Each organization is part of a network of other organizations, e.g.,
suppliers, retainers, etc.
o General stakeholders – Refers to organizations and people who either influence or are
influenced by the organization, e.g., shareholders, financial community, or employees
Thus, marketing communication involves not only customers, but also a range of other stakeholders
o Can be used to reach consumers as well as business audiences
MARKETING COMMUNICATION TASKS
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Digitalization has had a large impact on marketing communications, over the past decade, there have
been sizable changes to the way the marketing communications industry is structured
o One of the most important: several powerful and dominant industry groups, e.g., WPP, News
Corporation
The changing industry is a response to several variables – particularly developments in technology, the
configuration of the communications mix, and media used by organizations
Despite constant changes, the task of marketing communications has remained the same
Fundamentally, marketing communications can be used to engage audiences by undertaking one of the
tasks in the DRIP model
o Differentiate – when there’s little that separates brands, they must position themselves as such
o Reinforce – communications may be used to remind people of a need they might have of the
benefits in the past – also possible to provide reassurance
o Inform – one of the most common uses of marketing communications – making consumers
aware of features and benefits of an offering – used to educate
o Persuade – communication might attempt to persuade current and potential customers of the
desirability of entering into an exchange relationship
CHAPTER 11: CONFIGURING THE MARKETING COMMUNICATIONS MIX
THE ROLE OF THE MARKETING COMMUNICATIONS MIX
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The marketing communications mix consists of five main tools, four forms of messages, and three types
of media
FIGURE 13 - THE MARKETING COMMUNICATIONS MIX
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Traditionally, we could use a fairly predictable and stable range of tools and media
However, there has been some major changes in the environment and in the way in which organizations
communicate with their target audiences
This expansion of the media is referred to as media fragmentation
People have also developed a new way to spend their free time; they’re no longer restricted to a few
media
o This expansion is referred to as audience fragmentation
Internet enables opportunities to engage consumers at different points in their day and at different
stages in their purchase decision-making journeys
SELECTING THE RIGHT TOOLS
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One of the challenges of marketing communications managers is how to select the right mix of tools for
each communication task
Although the tools can be seen as independent entities, each with its own skills and attributes, a truly
effective communication mix occurs when tools complement each other and work interactively
ADVERTISING
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The role of advertising has always been on the notion of clients renting media time or space
Unfortunately, many forms of marketing communications are invariably seen by the public as
advertising
Advertising was once understood as a non-personal form of communication, where clearly identifiable
sponsors pay for a message
o Several problems with this definition
Also said to be a paid mediated form of communication designed to persuade the receiver to take
action, now or later
Since then, advertising has evolved with changing technology, economic development, and shifting
societal and cultural values
Today, it can be argued that advertising is not only about paid media, doesn’t always seek only to
persuade audiences, and the source isn’t always identifiable
SALES PROMOTION
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Sales promotion offer a direct inducement or an incentive to encourage customers to buy an offering
Can be targeted at customers, distributors, agents etc.
Concerned with offering the customers additional value to induce an immediate sale
o Might well have taken place without the presence of an incentive; the inducement only brings
the time of sale forward
o Key forms: sampling, coupons, deals, contests, etc.
PUBLIC RELATIONS
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Public relations are used to influence the way in which an organization is perceived by various groups
of stakeholders, e.g., employees, the public, supplying organizations, etc.
Does not require the purchase of airtime or space
These types of messages are low cost and perceived to be extremely credible
PR attempt to integrate its own policies with the interests of stakeholders, and formulates and executes
a program of action
Key types of PR include media relations, lobbying, investor relations, and corporate advertising
DIRECT MARKETING
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The primary role of direct marketing is to drive a response and shape the behavior of the target audience
with regard to a brand
Achieved through sending personalized and customized messages, often requesting a call to action
Used to create and sustain a personal and intermediary free communication with customers, potential
customers, etc.
One key benefit of direct marketing is the limited communication wastage, the precision associated with
target marketing means that the message is sent to the target audience and no one else
PERSONAL SELLING
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Personal selling involves interpersonal communication through which information is provided, positive
feelings developed, and behavior stimulated
An activity undertaken by an individual representing an organization, or collectively in the form of a
sales force
Highly potent communication form because messages can be adapted to meet the requirements of both
parties
o Objections can be overcome, information can be provided in the context of the buyer’s
environment, and conviction and power of demonstration can be brought to the buyer upon
request
MARKETING COMMUNICATIONS MESSAGES
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From a receiver’s perspective, the process of decoding and giving meaning to messages is affected by
the volume and quality of information received, and the judgement they make about the methods and
how well the message is communicated
To be successfully processed, messages should reflect a balance between the need for information and
the need for pleasure or enjoyment in consuming the message
Four main forms of message content can be identified
INFORMATIONAL MESSAGES
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Messages can be categorized as either proposition-oriented and rational, or customer-oriented and
based on feelings and emotions
As a general guideline, when audiences experience high involvement, the emphasis of a message should
be on the information content, with the key attributes and associated benefits emphasized
Also, more common for products that fulfill functional needs, e.g., toothpaste
EMOTIONAL MESSAGES
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When audiences experience low involvement, messages should attempt to gain emotional response
More common with products that fulfill hedonic needs
There are situations where both rational and emotional messages are needed to make purchase
decisions
The presentation of messages should reflect the degree to which factual information or emotional
content is required for a message to engage an audience
USER-GENERATED CONTENT
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The development of social media has enabled individuals to communicate with organizations, etc.
The content can be about brands, experiences, or events
o Developed by and shared among individuals
o Referred to as user-generated content
Three main element that characterize UGC
o The content is freely accessible to the public
o The material demonstrates creativity
o The material should be amateur in nature
BRANDED CONTENT
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Refers to the use of entertainment material that features a single company or brand
Can enable conversations, particularly in social media, and serves to raise a brand’s profile and its
credibility
One of the earliest forms is customer publishing, where organizations publish magazines with content
of interest to their customers
Today, consumers use a variety of platforms and devices, thus a need to develop content for use across
the web, etc.
Provides an opportunity to integrate material, and allows customers to form a coherent or
interconnected experience with a brand
THE MEDIA
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Once a client has decided to use a particular message, decisions need to be made about how and when
it’s conveyed to engage target audiences
Huge and expanding range of media available, and making sure the right mix of media channels is used
is becoming increasingly challenging
The development of digital media has had a profound impact on the way in which client organizations
communicate with their audiences
Generally, a trend to reduce the amount of traditional media used and increase the amount of digital
online and mobile media
AN OVERVIEW OF EACH CLASS OF MEDIA
B ROADCAST
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Advertisers use broadcast media because they can reach mass audiences with their message at a
relatively low cost per target reached
Allows to add visual and/or sound dimensions to their messages
o Helps them demonstrate the benefits of using a particular offering, and can bring life and
energy to an advertiser’s message
These are dimensions that the print media find difficult
P RINT
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Newspapers and magazines are the two main medias
Very effective at delivering messages to target audiences, because it allows explanation in a way that’s
not possible with most other media
May be in the form of a picture/photograph, or as written words that argue why an offering should be
chosen
O UT - OF - HOME
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OOH/outdoor medias consist of three main formats
o Street furniture (e.g., bus shelters)
o Billboards
o Transit (e.g., buses, taxis, metro, etc.)
Key characteristics: observed by their target audiences at locations away from home, and normally used
to support messages transmitted through primary media
o OOH media can thus be considered secondary, but important
D IGITAL
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Generally, most traditional media provide one-way communications, whereby information passes from
source to receiver
o Little opportunity for feedback, let alone interaction
Digital media enables two-way communication, with information flowing back to the source and again
to the receiver
These interactions are conducted at high speed and low cost, usually with great clarity
Space is unlimited
I N - STORE
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Two main forms
o Point-of-purchase (POP) displays – most frequently used is window displays, floor and wall
racks
o Packaging – has to preserve and protect product, but also has significant communication role
Primary objective: get attention from shoppers and stimulate them to make purchases
Content can be controlled easily
O THER
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Two main medias can be identified: cinema and ambient
THE CHANGING ROLE OF THE MEDIA
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The continuing proliferation of the media has led to increasingly complex media landscape
This makes decisions about which combination of media channels should be used more challenging
Digital media has enabled more accurate, more realistic, and faster campaign measurement
USING MEDIA FOR BRAND BUILDING OR DIRECT RESPONSE
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For a long time, commercial media have been used to convey messages designed to develop consumers’
attitudes and feelings towards brands
o Referred to as attitudinal response and concerns building a brand over long term
Today, many messages are designed to provoke audiences into responding, either physically,
cognitively, or emotionally
Therefore, attitude and behavioral oriented communications require different media
POEM – a classification of the media by source
o Paid-for
o Owned
o Earned
Direct-response media are characterized by the provision of a contact mechanism, e.g., phone number
o Enables receivers to respond to messages
Direct-response (DR) media formats
o Digital media
o Telemarketing
o Carelines (customer service)
o Radio and TV
o Print
o Door-to-door
One aspect crucial to the success of a direct-response campaign is not the number of sales, but the
conversion of leads into sales
o Means that the infrastructure to support these activities must be thought through and
implemented
How much of a firm’s media budget should be directed towards brand-building activities and how much
should be generating short-term responses?
o Answer rests with an understanding of the campaign goals and media characteristics
o Those with broad media reach, e.g., TV, are best for brand-building
o Those that enable tight targeting, e.g., telemarketing, are more appropriate for short-term
selling to narrow audiences
o Average 60:40
OTHER PROMOTIONAL METHODS AND APPROACHES
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Numerous other instruments that organizations can use to reach their audiences
o Can be regarded as secondary tools that are used to support the primary mix, although they
can be used in their own right as stand-alone methods of communications
Sponsorship is generally associated with PR, but has strong associations with advertising
o Considered alone, can be defined as a commercial activity whereby one party permits another
an opportunity to exploit an association with a target audience in return for funds, services, or
resources
o Brand placement is another form of sponsorship, and represents a relationship between
film/TV producers and managers of brands – allows to present their brand “naturally” in a film
or entertainment event
o Designed to increase awareness, develop positive brand attitudes, and potentially lead to
purchasing activity
Field marketing – about providing support for the sales force and merchandising personnel. One of the
tasks is concerned with getting free samples of a product into the hands of a customer, another is to
create an interaction between the brand and a new customer
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Exhibitions – held both for consumer and B2B markets. Organizations benefit from meeting their current
and potential customers, developing relationships, demonstrating products, etc.
Viral marketing – based on the credibility and reach associated with the word-of-mouth
communications. Uses internet to persuade or influence an audience to pass along the content to others
CHAPTER 12: DIGITAL AND SOCIAL MEDIA MARKETING
DIGITAL MARKETING
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Digital marketing is the management and execution of marketing using digital, electronic technologies
and channels – e.g., Internet, email, wireless media
It is an established, and increasingly important, subfield of marketing
Extends beyond Internet marketing, which is one form of digital marketing specific to the use of
Internet-only technologies, in that it makes use of a range of different electronic technologies and
channels, e.g., mobile telephony, digital display advertising, and the Internet of Things
Some terms relating to digital marketing
o Digital marketing – Management and execution of marketing using digital technologies and
channels
o Direct marketing – A specific form of marketing that attempts to send its communications
direct to consumers using addressable media such as post, Internet, email, and telephone and
text messaging
o Interactive marketing – Marketing that moves away from a transaction-based effort to a
conversation and can be described as a situation or mechanism through which marketers and
customers interact, usually in real time. Not all electronic
o E-marketing – Process of marketing accomplished or facilitated through the use of electronic
devices, applications, tools, technologies, platforms, and/or systems. Not limited to one
specific type
o Mobile marketing – A set of practices that enable organizations to communicate and engage
with their audience in an interactive and relevant manner through and with any mobile device
or network
o Social marketing – Marketing designed to influence the behavior of a target audience in which
the benefits of the behavior are intended by the marketer to accrue primarily to the audience
or the society in general and not the marketer
o Social media marketing – A form of digital marketing that describes the use of the social web
and social media for marketing activities. Not the same as social marketing
Digital marketing is continuously changing, initially, the Internet played a key role in the digitalization of
marketing
Over the past years, social media and mobile have driven its development, and we see how AI,
automation, and voice search are increasingly impacting on digital marketing
SOCIAL MEDIA MARKETING
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“Social media” refers to a group of Internet-based applications that allow the creation and exchange of
content between people
Includes a wide range of online word-of-mouth forums, e.g., blogs, company-sponsored discussion
boards, chat rooms, etc.
Social media has had a major impact on marketing; which is an argument based on two main changes
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The first is about power, social media enables users to generate, share, etc. content at their
own discretion, which means content is created by users rather than by companies. The
proliferation of UGC means that consumers have become increasingly influential. Social media
allows consumers share their opinions and experiences to a broad audience, thus shifting
power from marketers to consumers
o The second shift is about control. Where marketers have traditionally been in charge of the
messages they communicate, this is no longer the case, since consumers now have both the
ability to create and modify their content, but also have a voice in reacting to product offers
and marketing that they do/don’t like
This changing power and control over communication clearly shows how social media marketing is not
about mass marketing, but about facilitating conversations around the organization/brand/individual
o Engaging in this requires trust and transparency, and involves authentic engagement in a real
two-way dialogue
Social media Is not only impacting on where managers spend their budgets, but also challenging how
they communicate, share information, and create or produce an offering
HOW DIGITALIZATION IS TRANSFORMING MARKETING
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The changing nature of the socio-technical environment means that many marketing executives must
reconsider how brand management and marketing activities more generally need to change to suit the
digital environment
o Digital channels operate differently, and consumers’ behaviors that are shaped will affect
behavior in traditional media
Digital marketing is not independent of other marketing principles (pricing, distribution, customer
service, etc.). Integrating digital marketing into marketing research, marketing communication plans,
channel distribution plans, etc. requires detailed consideration if it should be effective
Digital technology has the potential to transform marketing at its core
o Companies that integrate digital technology perform significantly better financially
Four key characteristics for digitally advanced companies are identified:
o Strategy – 90% of online leaders have digital initiatives integrated into their strategic planning
process, not added as a bolt on
o Culture – 84% of companies indicate risk-aversion, but companies with a different mentality
adopt a fail-fast-forward mindset, where they push a product into the market, gauge interest,
collect customer feedback, and iterate. Emphasis on failing often and succeeding early
o Organization – Leading companies use non-traditional structures, digital talent acquisition, and
management to execute their digital vision
o Capabilities – Digital leaders make decisions based on data and build capabilities that connect
people, processes, and technology across all channels that engage with consumers. 80% of
digital leaders effectively invest in their digital information technology (IT) infrastructure to
support growth
Thus, it’s clear that mastering digital marketing is vital to succeed in the contemporary marketplace ,
and that is, interesting digital technology and media into all corporate activities
DIGITAL MARKETING COMMUNICATIONS
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Investments in digital marketing communications are growing rapidly
Focus on using Internet-only technologies
Not all digital marketing communications fit the traditional definition of advertising as paid placements
INTERNET ADVERTISING COMMUNICATIONS
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Refers to a form of marketing communication that uses the Internet for the purpose of advertising,
regardless of what device is being used for access
Typically, involves marketers paying media owners to carry the marketers’ messages on the owners’
websites
o Payment is impression-based, performance-based, or straight revenue share
o Aim: increase website traffic and/or engage product trial, purchase, and repeat purchase
Major considerations when using Internet advertising
o Cost – Internet adverts are still relatively cheap compared to traditional advertising
o Timelines – Can be updated at any time with minimal cost
o Format – these ads are richer, using text, audio, graphics, animation, etc.
o Personalization – can be interactive and targeted at specific interest groups/individuals
o Location-based – by using wireless technology, Internet ads can be targeted at consumers
wherever they are
o Intrusive – some Internet ad formats are seen as intrusive and suffer more complaints
Recent developments in Internet ads focus on programmatic buying, where advertising is planned,
analyzed, and optimized via demand-side software interfaces and algorithms
SEARCH MARKETING COMMUNICATIONS
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The growth in digital content available through the Internet has given rise to a number of interactive
decision aids used to help users to locate data, information, and/or an organization’s digital objects
The two main types of decision aid are search directory (that is, web directory), and a search engine
o A search directory is a human-edited database of information, where websites are listed by
category and subcategory, with categorization based on the whole website, rather than
keywords or only one page
o A search engine operates algorithmically, or use a mix of algorithmic and human input, to
collect, index, store, and retrieve information on the web, making the information available to
users in a manageable and meaningful way, in response to a search query
Search engines have evolved significantly over the years, where it previously was mainly based on
keywords, to now taking more things into account
Given its central role in consumer online behavior, it’s also central in many digital marketing strategies
Some methods of search engine marketing (SEM) include
o Paid listings – also called pay-per-click (PPC), refers to payments made for clicks on texts that
appear on the top/side of the results for specific keywords. Higher pay → higher position
o Contextual search – a form of targeted advertising, with ads appearing on websites. Ads are
selected and served by automated systems based on the content displayed to the user. It scans
the entire website for keywords, and returns ads based on what the user is viewing
o Paid inclusion – occurs when a search engine company charges fees related to inclusion of
websites in its search index. Some organizations mi paid inclusion with organic listings, while
others do not allow paid inclusion to be listed within organic lists
o Site optimization – occurs when a website’s structure and content is improved to maximize its
listing in organic search engine results pages using relevant keywords or search phrases.
Payments are made to optimize a site to improve the site’s ranking in SERPs
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All these methods allow marketers to match users with content according to their interests
Search engines and directories take a different approach, but what unites them is that search marketing
is one of the most cost-effective methods of digital marketing, although it’s declining slightly in
importance
EMAIL MARKETING COMMUNICATIONS
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Email is one of the most frequently used digital marketing tools
When used properly, email goes beyond sending a sales message, it also helps create trust, retain
customers, build customer referrals, and generate revenues
Email marketing tends to be appreciated by consumers
Importantly, with email marketing, the communicator sends the message only to those who have
agreed to receive messages
o Easy to use, and cost little to send
To design a successful campaign, marketers need to think carefully about the target audience and their
willingness to receive emails
o By law, users must be offered the opportunity to unsubscribe in each email
Using an email system that allows tracking and reporting on all elements of the campaign allows
marketers to closely test and monitor different email marketing strategies in terms of when and how
often to send them, what to offer, what to write, etc.
SOCIAL MEDIA MARKETING COMMUNICATIONS
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Social media marketing describes the use of the social web and social media or any online collaborative
technology for marketing activities
Includes both the creation and curation of corporate or brand profiles and content on social media
Social media advertising (SMA) refers to advertising delivered on social platforms, including social
networking and social gaming websites
Marketers are increasingly investing in social networks, video-sharing sites, image-sharing sites,
blogging platforms, and microblogs
Important to keep in mind that social media come in many different variations and that SMA strategies
need to be adjusted to the type of consumer engagement taking place on the platform
o Social media doesn’t create conversations, it only supports them
o By understanding this, businesses can open up interactions with individuals and communities
Some marketing activities that can stimulate conversations are
o Networking platforms
o Blogs and social media tools to engage customers
o Using both Internet and traditional promotional tools to engage customers
o Supplying information on e.g., correct/alternative usage
o Offering exclusivity
o Designing offerings from the perspective of the consumers’ desired self-images
o Demonstrating support for causes that people value
o Creating memorable stories
Paid media placements online and offline have been found to be important for getting conversations
going
The options available for SMA differ between platforms, and are constantly changing
E VALUATING SOCIAL MEDIA MARKETING COMMUNICATIONS
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Many marketers still struggle with evaluating these activities
Since social media is increasingly used as part of the marketing manager’s planning, there’s an increasing
need to understand whether what marketers do in social media works or not
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Web activity is very measurable because web users leave traces of their presence
However, the process of measuring this requires a systematic approach
An example of a framework for evaluating social media:
o Step 1: Set out campaign objectives, that is, identify specific and clear evaluation objectives
that are aligned with marketing objectives
o Step 2: Identify key performance indicators (KPIs) that fit with the objectives set
o Step 3: Identify metrics to be used to assess the selected KPIs
o Step 4: Collect and monitor the previously identified metrics and KPIs from relevant social
media channels
o Step 5: Report results, compile he KPIs and metrics into presentable format
o Step 6: Make a decision based on gained insights
The framework can be applied either to social media campaigns run for a limited or unlimited time
CONTENT MARKETING COMMUNICATIONS
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Content marketing Is an approach to marketing communication in which brands create and disseminate
content to consumers with the intention that the content will generate interest, engage consumers, and
influence behavior
Most digital marketing communication activities discussed so far rely on consumers actively deciding to
take part in marketing
o E.g., search engine marketing requires consumers to actively click on a link and social media
marketing relies on consumers actively engaging content created by brands
This means that marketers are increasingly pressured to create online content that consumers value,
and these activities are often referred to as content marketing
The intention here is to create content that has value for the receiver, thereby pulling the consumer
toward the brand
There are many ways of creating such value
Successful content marketing depends on a marketer being able to balance the needs of the brand and
the needs of the receiver
o Typically requires contextual aspects, e.g., timing and place
o Marketers must design content that is not highly persuasion-oriented
MOBILE MARKETING COMMUNICATIONS
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Mobile marketing refers to the set of practices that enables organizations to communicate and engage
interactively with their audiences by means of any mobile device or network
With added benefits of store-and-send technology giving the option of message storage, mobile
marketing is quick and inexpensive, and reaches markets wherever they are
Just as with traditional advertising, mobile ads rely on several different ad formats, with display and
search advertising being the largest
The growth is driven by consumer adaption of smartphones, and increasingly, we can access digital
technologies, share information, socialize, etc. online
Current changes in behavior clearly show that mobile is taking over more and more of consumer online
searches, and that marketers need to consider how to stay relevant and accessible at different stages
in the consumer decision process
From a consumer perspective, app usability depends on five factors: user-friendliness, personalization,
speed, fun, and omnipresence
Location-based marketing has long been expected to be the next big thing, but adaption has been slow,
and location-based marketing only makes up a small part of total mobile investments
o May be explained by technological problems, resulting in low accuracy
o Thus, we can expect a faster pace in the next few years when accuracy improves
CHAPTER 13: BRANDING DECISIONS
WHAT IS A BRAND ?
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A brand can be distinguished from its proposition or unbranded commodity counterparts by the
perceptions and feelings that consumers have about its attributes and performance
Brands are products and services that have added value
o This value has been deliberately designed and presented to augment a product with
associations that are recognized by, and are meaningful to, customers
Although managers have to create, sustain, protect, and develop the identity of the brands for which
they are responsible, it is customer perception, the use of senses, and the meaning and value that
customers give to the brand that are important
o Thus, both managers and customers are involved in the branding process
Although brands are generally considered important, there is a lack of common definition
o One common definition is that a brand is a name, symbol, words, or mark that identifies and
distinguishes a proposition or company from its competitors, but brands consist of much more
than these identification elements
o Brands make promises to customers in a way that differentiates the offered products or
services from competing alternatives
o From this, it can then be concluded that a brand comprises both brand awareness
(identification), and brand attitude or brand knowledge (differentiation) as defining elements;
the latter is also often referred to as brand associations
Brands have characters, that set them apart from the competition n the consumers’ minds
To develop character, it’s important to understand that brands are constructed of two main types of
attributes
o Intrinsic attributes – The functional characteristics of a proposition, e.g., shape, performance,
and physical capacity. If any of these change, the proposition is directly altered
o Extrinsic attributes – Refer to those elements that, if changed, don’t alter the material
functioning and performance of the proposition itself. These include devices e.g., brand name,
marketing communications, packaging, price, mechanisms that give meaning to the brand
Buyers often use the extrinsic attributes to help them to distinguish one brand from another, because
it’s sometimes difficult to make decisions based on the intrinsic ones alone
WHY BRAND?
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Brands represent opportunities for both consumers and organizations to buy and sell products and
services easily, more efficiently, and relatively quickly
Benefits for the consumer include
o Help people identify their preferred offerings
o Reduce level of perceived risk
o Help gauge quality
o Reduce amount of time spent making proposition-based decisions
o Provide psychological reassurance or reward
o Inform about the source of an offering
Brands help customers identify the offerings they prefer to use to satisfy their needs and wants, and
equally to avoid the offerings they dislike
Consumers experience a range of risks when buying different things
o Financial risks
o Social risks
o Functional risks
Branding helps reduce those risks
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Manufacturers and retailers use brands because
o Increase the financial valuation of companies
o Enable premium pricing
o Helps differentiate one proposition from competitive ones
o Can deter competitors from entering the market
o Encourage cross-selling to other brands owned by the manufacturer
o Help develop customer trust, loyalty, and repeat-purchase behavior
o Help in the development and use of integrated marketing communications
o Contribute to corporate identity programs
o Provide some legal protection
Branding is an important way in which manufacturers can differentiate their brands in crowded
marketplaces
o Enables buyers to recognize the brand quickly and make fast, unhindered purchase decisions
o One of the brand owner’s goals is to create strong brand loyalty to the extent that customers
always seek out that brand
One of the strongest motivations for branding is that it can allow manufacturers to set premium prices
o Allow brand managers to reinvest in brand development, which in some markets is important
for the brand to stay competitive
o However, should not be assumed that establishing a brand will automatically lead to success
HOW BRANDS WORK: ASSOCIATIONS AND PERSONALITIES
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The development of successful brands requires customers to be able to make appropriate brand-related
associations
o Normally, these should be based on utilitarian functional issues, as well as emotions and
feelings towards a brand
The main dimensions of brand associations can be referred to as brand image, perceived quality, and
brand attitude
Brand associations can also be divided into physical and non-physical attributes and benefits
Many brands are imbued with human characteristics, which leads to them being identified as having
brand personalities
Marketing communications play an important role in communicating the essence of a brand’s
personality
o By developing positive emotional links with a brand, consumers are reassured
Development of brand personalities means marketing managers can position their brands using
motional attributes and hence develop stronger consumer-brand relationships
o These associations may enable consumers to construe a psychosocial meaning associated with
a particular brand
The idea that consumers may search for brands with personalities that complements their self-concept
is quite established
This emotional and symbolic approach is intended to provide consumers with additional reasons to
engage with a brand
To measure brand personality, we can use the Brand Personality Scale
o Sincerity (wholesome, honest, down-to-earth)
o Excitement (exciting, imaginative, daring)
o Competence (intelligence, confidence)
o Sophistication (charming, glamorous, smooth)
o Ruggedness (strong, masculine)
Various studies have found that consumers choose brands that reflect their own personality
They prefer brands that project a personality that is consistent with their self-concepts
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Customers assign a level of trust to the brands they encounter, preferred brands signify a high level of
trust and indicate that the brand promise is delivered
o One way of achieving enhanced trust is to use labels, logos, etc. to represent a brand’s values,
associations, and source
BRAND NAMES
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Choosing a brand name is a critical foundation stone, because it should ideally allow the brand to be
easily recalled, strategically consistent, distinctive, and meaningful
Sometimes, social pressure, or even crisis, can stimulate a change of name
Brand names need to transfer easily across markets, and to do this successfully, it helps if customers
can not only pronounce the name, but also recall it unaided
Brand names should have some internal strategic consistency and be compatible with the organization’s
overall positioning
Most brands don’t have sufficient financial resources to be advertised on TV or in mainstream media;
hence not possible to convey brand values through imagery and brand advertising
o For these brands, it’s important that the name of the brand reflects the functionality of the
offering itself
Increasingly, brands are being develop through social media, which is essentially about people talking
about brand experiences
TYPES OF BRANDS
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Three main types: manufacturer, distributor, generic
MANUFACTURER BRANDS
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In many markets, and especially the fast-moving consumer goods (FMCG) sector, retailers influence the
way in which a product is displayed and presented
o Thus, manufacturers try to create a brand recognition and name recall by means of their
marketing communications activities with end users
Customers develop preferences based on performance, experience, communications, and availability
DISTRIBUTOR (OR PRIVATE LABEL ) BRANDS
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The various organizations that make up the marketing channel often choose to create a distinct identity
for themselves
Distributor brand refers to the identities and images developed by the wholesalers, distributors, etc.
that make up the marketing channel
The private label strategy potentially offers advantages to the manufacturer, which can use excess
capacity to manufacture such brands, as well as retailers, who can earn a higher margin than with
manufacturer branded goods, and at the same time, develop strong store images
Occasionally, conflict emerges, especially when a distributor displays characteristics that are very similar
to the manufacturer’s market-leader brand
GENERIC BRANDS
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Sold without any promotional materials or any means of identifying the company, with the packaging
displaying only the information required by law
Only identification of product category is required
Since it’s not necessary to pay for promotional support, these bands are sold at prices that are
substantially below prices of normal brands
BRANDING STRATEGIES
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An overall branding strategy can provide direction, consistency, and brand integrity within an
organization’s portfolio of brands
Three core brand strategies: individual, family, corporate
INDIVIDUAL BRANDING
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Once referred to as a multibrand policy, individual branding requires each product to be branded
independently of all the others
One of the advantages is that it’s easy to target specific segments, and to enter new markets with
separate names
o If a brand fails or becomes subject to negative media attention, the other brands are not likely
damaged
FAMILY BRANDING
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Once referred to as a multiproduct brand policy, family branding requires all products to use the
organization’s name, or part of it (e.g., Apple iPhone, Microsoft Windows)
For these types of brands, promotional investments need not be as high
This because there will always be a halo effect across all the brands when one is communicated, and
brand experience will stimulate word of mouth following usage
Line family branding is a derivative policy whereby a family branding policy is followed for all products
within a single line
CORPORATE BRANDING
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Many retail brands adopt a single umbrella brand, based on the name of the organization
This name is then used in all locations, and is a way of identifying the brand and providing a form of
consistent differentiation and a form of recognition
Corporate branding strategies are also used extensively in business markets, e.g., IBM, and in consumer
markets with technical complexity, e.g., financial services
o One risk is that damage to one offering or operational area can cause damage to the entire
organization – similarly to family branding
HOW TO BUILD BRANDS
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The development of successful brands is critical to an organization’s success
Requires marketers to achieve three essential branding activities: enable identification and
differentiation, to maintain consistency, and to communicate the existence and attributes to customers
and other marketing channel audiences
Successful brand building is best accomplished by considering the brand-building process
o Step 1: Enable customers to identify with the brand and help them to make associations with
a specific product class or customer need
o Step 2: Establish what the brand means by linking various tangible and intangible brand
associations
o Step 3: Encourage customer responses based around brand-related judgement and feelings
o Step 4: Foster an active relationship between customers and the brand
FIGURE 14 - BRAND PYRAMID: BUILDING BLOCKS
BRANDING PERSPECTIVES
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There are other approaches to understanding brands and what they represent
o These draw on sociological, psychological, and socio-cultural interpretations about brands and
their consumption
We consider two important perspectives
o The first considers relational issues, and how people are believed to interact with brands and
develop relationships through repeated consumption
o The second reflects contemporary issues about co-creation and customer branding, which
reverses the managerially driven view that brands are only a product of marketers
BRAND RELATIONSHIPS
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Although branding has its roots in identification and differentiation, this perspective considers that a
brand-mark is a relational asset whose value to the firm is contingent on past, present and future
interactions with various firm stakeholders
Originally, relationship marketing was considered to be the most relevant in inter-organizational
relationships
o Here, management of relationships between buying and selling organizations is considered
valid and appropriate, more than in the relationship between an organization and a consumer
o This changed when studying consumers who think about brands as if they were human
characters (personification of brands)
Six factors that characterize the quality of brand relationship
o Love and passion
o A connection between the brand and self
o A high degree of interdependence
o A high level of commitment
o Intimacy
o A positive evaluation of brand quality
Fournier believes that it’s important to understand consumer-brand relationships, and that, by
understanding how consumers interact with brands and the meaning that brand represents to people
through consumption, marketing theory and practice can be advanced
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One important finding of Fournier concerns the meaning that consumers attribute to brands and how
it differs from meaning intended by brand managers
o This has been developed in many areas, including B2B markets, in which it’s now recognized
that both sellers (suppliers) and buyers (their customers) and other stakeholders co-create
brand meanings
The increasing UGC in the form of blogs, tweets, wikis, and social networks now enables consumers to
assume a greater role in defining what a brand means to them, which they can now share with their
friends and family, rather than the organization itself
The control of brands has shifted from brand owners to consumers, as they redefine what brands mean
to them, etc.
Another relational perspective is use of semiotics (the science of signs) to create a model that considers
the different components of the relationships among them
o They attempt to integrate the multiple facets of the brand concept and, in doing so, define
three main brand dimensions: the identity sign itself, the marketing object to which the sign
refers, and the market response to the sign
o One of the points they make is that brands today are largely regarded as socio-cultural concepts
in which relational and community issues replace the former power-based managerial
perspective whereby brand managers assumed control over a brand
CHAPTER 14: PRINCIPLES OF CUSTOMER MANAGEMENT
MANAGING MARKETING CHANNELS
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Two main issues associated with the management of marketing channels: the design of the channel, its
structures, and activities; and the relationships between channel members
CHANNEL DESIGN
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The design of an appropriate channel – that is, its structure, length, and the membership and their roles
– varies according to context
o E.g., channels required to support a new product or start-up are different from those required
to modify an existing structure to adapt to changing market conditions
The channel design decision process requires three key decisions
o The Distribution intensity decision – That is, the level of purchase convenience required by the
different customer segments to be served
o The channel configuration decision – That is, the number and type of intermediaries necessary
to deliver products to the optimum number of sales outlets
o The multichannel decision – That is, the number of different types of channels to be used
This helps us determine what is the most effective and efficient way of getting the offering to the
customer
K EY CONSIDERATIONS
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When designing distribution channels, we need t consider a variety of factors to ensure that the channel
suits the organization’s objectives
Three broad elements to be considered
o Economics requires us to recognize where costs are being incurred and profits are being made
in a channel to maximize our return on investment
o Coverage is about maximizing the offering’s availability in the market for the customer,
satisfying the desire to have the offering available to the largest number of customers, in as
many locations as possible, at the widest range of times
o Control refers to achieving the optimum distribution costs without losing decision-making
authority over the offering – that is, how it’s prices, promoted, and delivered in the distribution
channel
By covering a wide range of delivery times and locations by means of intermediaries, organizations
sometimes sacrifice some control in decision-making
o Intermediaries start changing the price, image, and display as they seek to maximize sales of a
whole range of products
o If selling at many retailer locations, an organization may find that their prices are lowered by a
lot, damaging their brand image. But if they stop selling at those retailers, they might lose
market share to competitors
o This faces a trade-off between economics, coverage, and control
D ISTRIBUTION CHANNEL STRATEGY
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When devising a distribution channel strategy, several key decisions need to be made to serve
customers, and to establish and maintain appropriate buyer-seller relationships
o The first decision is selecting how the channel will be structured
o If the channel requires intermediaries, we need to consider the type of market coverage that
we want, the number and type of intermediaries to use, and how we should manage the
relationships between members in the channel
These choices are important, since they can affect the benefits provided to customers
FIGURE 15 - DISTRIBUTION CHANNEL STRATEGY DECISIONS
CHANNEL STRUCTURE
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Distribution channels can be structured in a number of ways
Three main configurations, involving producers, intermediaries, and customers: direct channels (selling
directly to end users); indirect channels (using intermediaries); or multichannel structures (combination
of both
FIGURE 16 - DISTRIBUTION CHANNEL STRUCTURE
D IRECT CHANNEL STRUCTURE
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In a direct channel structure, the producer uses strategies to reach end users directly, rather than
dealing with intermediaries (agents, brokers, retailers, wholesalers)
o Example: Farmers’ markets, where produce is purchased directly from a farmer
Advantages of this structure are that the producer and manufacturer maintain control over its product
and profitability, and build strong customer relationships
This structure is not suitable for all types of products, it is ideally suited for those that require significant
customization, technical expertise, or commitment on behalf of the producer to complete a sale
Efficiency within direct channel structures can be improved in the following ways
o By processing orders and distributing the offering electronically directly to customers – Example
is Adobe, which delivers digitally, increasing cost-efficiency
o Supporting the physical distribution of the product offering directly to customers – One example
is Dell, which sells computer equipment through its own website, using tele sales for product
ordering, and database technology for order processing, tracking, and inventory and delivery
management
The disadvantages of direct channel structure typically include the large amount of capital and resources
required to reach customers
o Means virtually no economies of scale
o Manufacturers may also suffer from offering low variety of offerings
I NDIRECT CHANNEL STRUCTURE
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Indirect channel structures enable producers to concentrate on the skills and processes necessary to
make offerings, and use one or more intermediaries for distribution
M ULTICHANNEL STRUCTURE
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An increasing number of organizations adopt a hybrid or multichannel structure to distribute goods and
services
Here, the producer controls some marketing channels, and intermediaries control others
The benefits of a multichannel structure include
o Increased reach – By utilizing direct networks and the relationships of intermediaries, the
provider can reach a wider target audience
o Producer control – Producers have greater control over prices, communication, and can reach
customers directly
o Greater compliance – Adherence to channel rules is more likely when producers use multiple
intermediaries, and are not perceived to be a (direct channel) competitor
o Optimized margins – Producers can improve margins from the direct channel element and
increase their bargaining power, as they become less dependent on intermediaries
o Improved market insight – Producers can develop better understanding of customer needs
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The use of multichannel strategies has been encouraged by the growth of the Internet, which has
increased the efficiency with which consumers and manufacturers can interact
At the same time, technologies are increasing the efficiency of information exchange between
producers and intermediaries, e.g., through Electronic Data Exchange (EDI), and extranets
Sharing profits among channel members can be a source of conflict, especially when intermediaries
perceive the producer to be a competitor, as well as a supplier
The structure may also confuse and alienate customers, who are unsure about what channel to use
CHANNEL INTENSITY
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Sometimes referred to as channel coverage, channel intensity refers to the number and dispersion of
outlets an end user can use to buy a particular offering
The decision concerns the level of convenience customers expect, and suppliers need to provide to be
competitive
o The wider the coverage, the greater number of intermediaries, which leads to higher costs
associated with the management control of intermediaries
o A decision to introduce a new channel refers to the addition of a new set of internal or external
channel entities to the firm’s existing channel system
▪ Could be a decision to establish its own retail stores or provide e-commerce shopping
facilities
There are three levels of channel intensity – that is, intense, selective, and exclusive
I NTENSIVE DISTRIBUTION
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Involves placing an offering in as many outlets or locations as possible
Used most commonly for offerings that consumers are unlikely to search for and which they purchase
on the basis of convenience or impulse, e.g., magazines, soft drinks, confectionery
Retailers have increased control over the extent to which distribution is intensive
o E.g., supermarkets may limit their shelves to containing the leading brands, despite a new
manufacturer also wanting to be included
S ELECTIVE DISTRIBUTION
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Occurs when a limited number of outlets are used
Customers are actively involved with a purchase, and experience moderate to high levels of perceived
risk; they are thus prepared to seek out suppliers
Those that best match their requirements are successful
Producers determine and control which intermediaries are to deliver the required products and level of
services
Examples: electrical equipment, furniture, clothing, jewelry
An organization might use intensive distribution to increase awareness of its brand, but then move to
a more selective strategy to improve quality and manage costs and price
E XCLUSIVE DISTRIBUTION
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Occurs when intermediaries are given exclusive rights to market an offering within a defined “territory”
Useful where significant support is required from the intermediary, and hence the exclusivity is
“payback” for their investment and support
Examples: high-prestige goods like Ferrari sports cars, designer apparel such as Chanel and Gucci
If an offering requires complex servicing arrangements or tight control, exclusive distribution might be
preferred
The threat of price competition is also diminished, because it would be inconsistent with the positioning
strategy
FIGURE 17 - INTENSITY OF DISTRIBUTION CONTINUUM
TABLE 1 - INTENSITY OF CHANNEL COVERAGE
DISINTERMEDIATION AND RE -INTERMEDIATION
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Disintermediation – concerns a reduction in the number or strength of intermediaries required in a
marketing channel
More specifically, refers to a situation where market intermediaries are either displaced or eliminated,
and manufacturers and buyers trade directly with each other, without agent presence
Discussed whether the rate of disintermediation is increasing, but it’s clear that online technologies and
virtual marketplaces have enabled buyers and sellers to find each other efficiently across both B2B and
consumer sectors
The assumption underlying increasing disintermediation is that if producers could reach customers
directly, they would no longer need intermediaries – or at least not so many
Although there are significant number of customers who like buying directly, many customers value and
prefer the role of traditional intermediaries for certain purchases
Such is the value of some intermediaries to both customers and producers that there has been a trend
towards re-intermediation – that is, the introduction of additional intermediaries into the distribution
channel
o Digitalization seems to have led to a kind of re-intermediation opening up for new types of
intermediaries, such as price comparison websites
MANAGING RELATIONSHIPS IN THE CHANNEL
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An important managerial issue concerns channel relationships
Because channels are open social systems, some level of conflict between channel members is inevitable
Conflict follows a breakdown in the levels of cooperation between channel partners, and may affect
channel performance
Channel conflict can be defined as the perception on the part of a channel member that its goal
attainment is being impeded by another, with stress or tension as the result
Channel conflict may involve intermediaries on the same level (tier), e.g., between retailers or between
agents → horizontal conflict
May also occur between members on different tiers, e.g., involving a producer, wholesaler, and a
retailer → vertical conflict
If strategies to prevent or avoid conflict have failed, it’s necessary to resolve the conflict that erupts
o The chosen strategy is shaped by the prevailing corporate culture, attitude towards risk, and
the sense of power that exists within coalitions
TABLE 2 - CONFLICT RESOLUTION STRATEGIES
CHAPTER 15: SERVICES AND RELATIONSHIP MARKETING
THE UNIQUE CHARACTERISTICS OF SERVICES
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The services sector can be very diverse, with a variety of sectors
A service can be defined as
Any act or performance offered by one party to another that is essentially intangible.
Consumption of the service does not result in any transfer of ownership, even though the service
process may be attached to a physical product.
TABLE 3 - SERVICE SECTORS
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Services are considered to be characterized by five distinct characteristics: intangibility, perishability,
variability, inseparability, and lack of ownership
FIGURE 18 - THE FIVE CORE CHARACTERISTICS OF SERVICES
I NTANGIBILITY
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The purchase of products involves the use of most of our senses; we can touch, see, smell, hear, or taste
products before we buy them
o E.g., when purchasing a phone, we can see the physical product and its attributes, test its
functionality, feel the weight, etc.
o These are important decision cues
However, if we decide to buy additional insurance, this will be shown on the receipt, but it cannot be
touched, seen, etc.
o Services are intangible, and they are delivered and experienced only post-purchase
Intangibility doesn’t mean customers buy services without their senses; rather, it means that they use
substitute cues to help them make these purchasing decisions, and reduce the uncertainty, because
they cannot see, touch, etc. the product
Two types of cues can be identified
o Intrinsic cues – Drawn directly from the “service product” itself, and are regarded as difficult to
change
o Extrinsic cues – Said to surround the “service product” and can be changed relatively easily
P ERISHABILITY
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A bottle of shampoo benefits from being available until it’s sold, even if e.g., the store closes for the
night; this is not the case with services
Once a train departs, those seats are lost and can never be sold
o This is referred to as perishability – that is, services cannot be stored either prior or after the
service encounter, they are manufactured and consumed simultaneously
The reason why e.g., seats remain empty is due to variations in demand, which may be the result of
changes in the environment, and may follow easily predictable patterns of behavior
One of the tasks of service marketers is to ensure the number of seats, and forever-lost revenue, is
minimized
o If demand is predictable, level of service capacity can be varied, e.g., longer trains
o Demand can also vary unpredictable, where the challenge is to provide different levels of
service at short notice
One main way that demand patterns can be influenced is through differential pricing
o By lowering prices to attract customers during quieter times, and raising prices where demand
is at its highest, demand can be levelled, and marginal revenues increased
V ARIABILITY
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An important characteristic of services is that they are produced and consumed by people,
simultaneously, as a single event
o Thus, exceedingly difficult to standardize the delivery of services for even the same customer
on consecutive occasions
o Also, difficult to deliver services for even services to that they always meet the brand promise,
especially because these promises often serve to frame customer service expectations
If demand increases unexpectedly, and there’s insufficient capacity to deal with the excess number of
customers, service breakdown may occur
o Example: A flood of customers to a restaurant may extend waiting times of those already
seated, and then, one cannot provide the reproduceable service level
There has been substantial criticism of some organizations who have located their call centers offshore
to lower cost
o These strategies sometimes fail due to insufficient training/product knowledge with the new
provider, or understanding problems
o This can result in customers defecting to competitors
The variability of service doesn’t mean that planning is a worthless activity, by anticipating situations
where service breakdown may occur, the potential harm can be mitigated
I NSEPARABILITY
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Products can be built, distributed, stored, and eventually consumed at a time specified by the ultimate
end user
Services, however, are consumed at the point of production, that is, service delivery cannot be
separated or split out of service provision or service consumption
This means that consumers come in contact with the service providers, and there must be interaction
between them
o The interaction is especially important, not only to the quality-of-service production, but also
to the experience enjoyed by the customer
These service experiences highlight service delivery both as a mass service experience, and as a solo
experience
o The differences between the two impacts on the nature of the interaction process
o In a mass service experience, the other members of the audience have the opportunity to
influence a customer’s perceived quality of the experience – audiences create atmosphere, and
this may change positively or negatively
o Interaction within the solo experience allows the service provider to exercise greater control,
if only because they can manage the immediate context within which the interaction occurs,
and not be unduly influenced by wider environmental issues
o Opportunities exist for flexibility and adaption as the service delivery unfolds
o Example: a check-in operator for an airline is not influenced by other major events during the
interaction, and can adapt a tone of voice, etc. to meet the needs of particular travelers
One final aspect of variability concerns the influence arising from the mixture of customers present
during the service delivery
o If the mix is broad, service may be affected because the needs of different groups have to be
attended by the service provider
L ACK OF OWNERSHIP
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Services cannot be owned, since nothing is transferred during the interaction or delivery experience
Although legal action often occurs with a service, there’s no physical transfer of ownership as when a
product is purchased
In the case of loyalty programs, e.g., frequent flyer programs, the service provider actively promotes a
sense of ownership
o By creating customer involvement and participation, customers can develop an attitude based
around their perceived right to be a part of the service provider
While the characteristics have proven to be useful to describe key differences between products and
services, they’re not always applicable
o E.g., because of digital technologies, it’s not possible to widely distribute services that
previously needed to be created on one specific occasion, on one specific location
o Thus, inseparability and perishability not always applicable
The characteristics should be considered general guidelines that apply in many situations, rather than
definite prescriptions
CHAPTER 16: BUSINESS-TO-BUSINESS MARKETING
WHAT IS BUSINESS-TO-BUSINESS MARKETING ?
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In a number of ways, B2B marketing is fundamentally different from consumer goods or services,
because organizational buyers do not consume the offerings themselves
Unlike consumer markets, where the offerings are consumed individually, invariably by the people who
buy them, the essence of business markets is that organizations, rather than individual people,
undertake the act of purchase
Far larger than the consumer market, the business market comprises many types and sizes of
organization
o Each organization interacts with a selection of others, and they form relationships of varying
significance and duration
Although organizations are often structurally and legally independent entities, a key characteristic is
that they’re interdependent – that is, the have to work with other organizations to achieve their goals
THE CHARACTERISTICS OF BUSINESS MARKETS
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Business markets are characterized by a number of distinct factors, but the main ones are the nature of
demand the buying processes, international dimensions, and the relationships tht develop between
organization in the process of buying and selling
THE NATURE OF DEMAND
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There are three key aspects of demand in business markets
o Derivation
▪ Demand is ultimately derived from consumers
▪ Even though each product can be the result of hundreds of organizations interacting,
it’s the end consumer ho actually stimulate the production
o Variance
▪ Demand is variable since consumer preferences and behavior fluctuate
▪ Can cause chain effects, e.g., increased demand for train journeys can lead to
decreased petrol prices
o Elasticity
▪ Demand is essentially inelastic; if suppliers raise their prices, most manufacturers will
try to absorb the increases into their own cost structures, either to avoid letting their
customers down in the short term, or because they’re tied into fixed-price contracts
▪ Incorporating these price increases, at least over short-to-medium term, means that
there is price inelasticity
THE BUYING PROCESSES
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Organizations’ buying processes differ in a number of ways from those of consumers
These differences are a reflection of the potentially high financial value associated with B2B
transactions, the product complexity, the typically high value of individual orders, and the nature of risk
and uncertainty
As a result, organizations have developed specific buying processes and procedures, involving large
numbers of people
o The group of people involved in organizational purchasing processes is referred to as a
decision-making unit (DMU), and they make purchases classified as buyclasses, which they buy
under circumstances called buyphases
INTERNATIONAL DIMENSIONS
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In comparison with consumer markets, B2B marketing is easier to conduct internationally, since the
needs of businesses around the world are more similar to one another than the needs of consumers
o As a result, an increasing number of B2B organizations are moving into international markets
o This is often enabled by advances in technology, allowing organizations to cover a greater
geographical area
B2B organizations display a lower variety of product functionality and performance, which is partly
because trading associations around the world have agreed standards relating to content and
performance, such as standardized electric socket types
Many industries have commonly agreed standards aiming to facilitate inter-organizational exchange
procedures
RELATIONSHIPS
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In consumer markets, the low perceived value of the offerings and the competitive nature of the market,
which market product substitution relatively easy, make relationships between manufacturers and
consumers relatively more difficult to establish
In business marketing, the interaction between buyers, sellers, and other stakeholders is of major
significance
o The development and maintenance of these relationships is pivotal to success
o Interdependence, collaboration, and in some cases partnership in the development, supply,
and support of products and services is considered a core element of B2B marketing
TYPES OF ORGANIZATIONAL CUSTOMER
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Once known as industrial marketing, B2B marketing has come to recognize the involvement of a range
of other, non-industrial, suppliers, agents, and participants
The government, the non-profit sector, and charities and institutions are responsible for a huge level of
B2B activity
Broad types of B2B organizations
o Commercial: Distributors, original equipment manufacturers, users, retailers
o Government
o Institutions, including non-profits, community-based organizations, hospitals, schools,
government-related organizations, etc.
All these types of B2B organizations buy each other’s offerings
The type of marketing activity used to encourage repeat exchanges between these various types can be
considerable
One common strategy is that they all develop relationships by means of cooperation and collaboration
TYPES OF BUSINESS GOODS AND SERVICE
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Just as there are a variety of organizations in the business sector, so too the offerings are equally varied
and complex
Three principal business types of goods and service
o Input goods – Raw materials, semi-manufactured arts, finished goods
▪ Has been subjected to different levels of processing, and so they lose their individual
identities, and become part of the finished item
o Equipment goods – Otherwise known as capital or investment goods
▪ Necessary for manufacturing and operations to take place. Land and buildings,
computer systems, machine tools, etc.
o Supply goods – Otherwise known as maintenance, repair, and operating (MRO) materials
▪ Goods and services that are “consumables” because they are necessary to keep
production processes and the organization running. E.g., lubricants, paints, screws,
cleaning materials
Most organizations, at various points in their development, have decided whether to make or supply
their own propositions or to buy them in from outsourced providers
o This “make or buy” decision can have long-term effects, not only on the strategic and
operational aspects, but also on the purchasing function and its role within an organization
Outsourcing has become more popular with a wide range of organizations
As a result, companies have adapted their purchasing behaviors accordingly
The development of “lean management” techniques has enabled organizations to concentrate on their
core processes, and to outsource all other activities
o As organizations become “leaner”, they dramatically reduce their use of resources and the
importance of purchasing increases
ORGANIZATIONAL BUYING BEHAVIOR
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Organizations need to appreciate customers’ particular behaviors, purchasing systems, people, and
policies if they are to effect suitable marketing and selling strategies
Two definitions of organizational buying behavior (OBB) reveal important aspects
o Can be defined as
The decision-making process by which formal organizations establish the need for purchased
products and services and identify, evaluate, and choose among alternative brands and
suppliers
Organizational buying behavior concerns purchasing an offer to solve organizational needs, e.g., H&M’s
investments in bringing production to Europe and investing heavily in automation, to remedy the fact
that its supply chain lead times were double those of their rival Zara
Organizational buying behavior is concerned with three key issues
o The functions and processes that buyers move through when purchasing a product for use in
business markets
o Strategy, where purchasing is designed to assist value creation and competitive advantage, and
to influence supply chain activities
o The network of relationships that organizations belong to when purchasing, in that the
placement of orders and contracts between organizations can confirm a current trading
relationship, initiate a new set of relationships, or signal a demise of a relationship
OBB is also about the strategic development of the organization, creating value, and the management
of inter-organizational relationships – all of which are key issues in B2B marketing
Claims have been made that business marketing is increasingly about managing buyers’ experiences and
interactions
o Involves creating expectations (brand promise) and then delivering propositions against these
promises
o Important that a customer’s evaluation is beyond what they expected
o Hollyoake develops these ideas into “ease of doing business” as a measure of the suppliercustomer relationship, and suggests that customer experiences are based on four pillars: trust,
interdependence, integrity, and communication
DECISION-MAKING UNITS
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The purchasing process is the means by which organizations create value
It’s an integral part of an organization’s value at some point
o Although organizations usually designate a “buyer” as responsible for the purchase of a range
of offerings, in reality numerous people are usually involved in the process
o This group of people is referred to as either the decision-making unit (DMU) or the buying
center
o In many circumstances, these informal groupings of people align in varying ways to contribute
to the decision-making process
THE CHARACTERISTICS OF DECISION -MAKING UNITS
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Decision-making units vary in composition and size according to t the nature of each individual
purchasing task
Following people can be identified as part of the buying center
o Initiators – start the whole process by requesting an item for purchase
o Users – use the product once acquired, and evaluate performance
o Influencers – often help establish the technical specifications for the proposed purchase and
help evaluate potential suppliers’ alternative offerings
o Deciders – also known as key decision-makers (KDMs), those who make the purchasing
decisions, and the most difficult to identify, since they may not have formal authority
o Buyers – or purchasing managers, select suppliers and manage the process whereby the
required offerings are procured, but they may not decide on which offering is to be purchased,
but influence the framework within which the decision is made
o Gatekeepers – have potential to control the type and flow of information to the organization
and the members of the DMU
Size and form of the DMU is not static; rather, it can vary according to the complexity of the offering
being considered for purchase and the degree of risk each decision is perceived to carry
Membership of the DMU is far from fixed, and this fluidity poses problems for selling organizations,
since they cannot always identify key members or shifts in policy or requirements
THE PROCESSES IN DECISION - MAKING UNITS
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Organizational buying decisions vary based on the nature of the offering, the frequency, and the relative
value of purchases, their strategic impact (if any), and the type of supplier relationship
Three main types of buying situations
o New task – new, fresh problem to the decision-makers
o Modified rebuy – requirement not new, but is different from previous situations
o Straight rebuy – the problem is identical to previous experiences
N EW TASK
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The organization is faced with a buying situation for the first time
Risk tends to be high, due to little collective experience of the offering being purchased, or the relevant
suppliers
As a result, in complex solution purchasing situations, the number f DMU participants tends to be high
M ODIFIED REBUY
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Having purchased the solution previously, uncertainty is reduced, but not eliminated, so the
organization may request through their buyer(s) that certain modifications be made to future purchases
Fewer people involved in the decision-making process
S TRAIGHT REBUY
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Purchasing department reorders on a routine basis, very often working from an approved supplier list
May be solutions that an organization consumes to keep operating, or low-value materials used within
the operational value-added part of the organization, or low-value services
No other people are involved in the procurement exercise until suppliers try to change the decisionmaking process
Use of electronic purchasing systems has enabled employees to be empowered to make purchases,
although the purchasing managers are still in control
BUYPHASES
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Organizational buying behavior consists of a series of sequential activities through which organizations
proceed when making purchasing decisions
The following series of buyphases is particular to the new task situation, many of these are ignored or
compressed according to the complexity of the offering
N EED / PROBLEM RECOGNITION
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The need/problem recognition phase is about the identification of a gap between the benefits an
organization is experiencing now and the benefits it would like to have
Two broad options for the organization – that is, whether it should outsource the whole, or parts, of the
production process, or build or make the offering itself
P RODUCT SPECIFICATION
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As a result of identifying a problem and the size of the gap, influencers and users can determine the
desired characteristics of the solution needed to resolve the situation
May take the form of either a general functional description, or a much more detailed analysis and the
creation of detailed technical specifications for a particular proposition
This is important, because done properly, it will narrow down the supplier search and save on the costs
associated with evaluation prior to a final decision
S UPPLIER AND PROPOSITION SEARCH
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At the supplier and proposition search stage, the buyer actively seeks suppliers who can supply the
necessary solutions
Two main issues at this point
o Will the solution match the specification and the required performance standards?
o Will the potential supplier meet the other organizational requirements, such as experience,
reputation, accreditation, and credit rating?
Whenever possible, organizations work to reduce uncertainty and risk
By working with other organizations that it knows, of which it has direct experience, and which can be
trusted, the organization can reduce risk and uncertainty
o This highlights another reason why many organizations prefer to operate within established
networks that can provide support and advice when needed, rather than operate individually
E VALUATION OF PROPOSALS
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Depending on the complexity and value of the potential order(s), the proposal is a vital part of the
process, and should be prepared professionally
The proposals from the shortlisted organizations are reviewed in the light of two main criteria
o The purchase order specification
o The evaluation of the supplying organization
If the potential supplier is already part of the network, little research is needed, otherwise, a review
may be necessary
S UPPLIER SELECTION
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The DMU will normally undertake a supplier analysis and use a variety of decision criteria, according to
the particular type of item sought
A further useful perspective is to view supplier organizations as a continuum, ranging from reliance on
a single source to the use of a wide variety of suppliers for the same offering
At the other end of the continuum are organizations that use a single-source supplier, which can have
the objective of building long-term relationships
E VALUATION
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Next, the order is written against the selected supplier, which is then monitored and evaluated against
diverse criteria, such as responsiveness to enquiries, modifications to the specification, and timing of
delivery
When the offering is delivered, it may reach the stated specification, but fail to satisfy the original need
o Then, the specification needs to be rewritten before any future orders are placed
Developments in the environment can impact on organizational buyers and change both the nature of
decisions and the way in which they are made
BUYGRIDS
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When the buyphases are linked to the buyclasses, a buygrid is determined
The buygrid serves to illustrate the relationships between buyphases and buyclasses
o Important because it highlights the need to focus on buying situations or contexts, rather than
on offerings
According to the buyphase model, buyers make decisions rationally and sequentially, but this doesn’t
mesh with practical experience
Many B2B marketing concepts were developed in the pre-Internet era and tend to concentrate on
dyadic (two-party) relationships
o A third dimension can be said to be introduced, making those relationships triadic (three-party)
– namely seller-platform-buyer
PURCHASING IN ORGANIZATIONS
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All organizations have to buy a variety of other companies’ offerings to operate normally and achieve
their performance targets
So far, we set out general principles, types, and categories associated with organizational buying
However, the way in which organizations buy these offerings varies considerably and does not always
fit neatly with the categories presented here
o For many, professional purchasing is not only an important feature, but also an integral part of
their overall operations and strategic orientation
In the past, an organization’s purchasing activities could be characterized as an “order-delivery
response” function
This perspective changed later, and now, organizations reduce the number of their suppliers, sometimes
to only one, and strategic procurement is used to negotiate with suppliers on a cooperative basis to help
build long-term relationships
One main reason for this changed approach was research that showed that business performance
improves when organizations adopt a collaborative, rather than adversarial, approach to purchasing
and account management
o Integral: use of information systems
o Issues that have changed purchasing’s role, e.g., sophistication, increasing competition, etc.
C USTOMER SOPHISTICATION
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Owing to increasing customer sophistication, organizations are trying to differentiate their offerings and
become more specialized
Organization purchasing g has to follow and also be more specialized
o Otherwise → organization will be ineffective
I NCREASING COMPETITION
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Margins erode due to this
Result: more attention to internal costs and operations
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By influencing the purchasing costs and managerial costs, profitability can directly be impacted
o Importance of purchasing policies and procedures increases
D IGITAL TECHNOLOGIES
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The impact of digital technology has been felt across all functions
Digital marketing refers to the use of digital tools, including social media
Encompasses various elements, platforms, etc.
In a B2B context, these instruments allow companies to develop interaction and dialogue between
business and customer networks
Social media presents a major opportunity for the development of inter-organizational relationships
Numbers of social media using companies is relatively small, seldom for business purposes by managers
Social media has increased, but still mainly used by younger salespeople with personal skills migrated
into their work context, rather than those specifically trained
B RANDING
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Despite view of business brands as important assets that enhance customer trust, branding remains
underutilized
The role of branding within business markets seems to be gaining momentum, at a time when digital
marketing has gained stronger presence
In digital environments, the brands should be considered to be the platform for all B2B company’s
actions
Also, branding in industrial contexts provides a means of enabling the integration of different functions
S TRATEGIC ISSUES
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Several strategic issues related to the purchasing activities undertaken
First – “make or buy” decision
Benefits that arise through cooperation with suppliers, and increasing influence of buyer-seller
relationships and “joint value creation” → tighter, more professional, and integrated purchasing
function
Thirdly – the degree of which the purchasing function is integrated
Six principal purchasing strategies
o The price minimizer – sees a buyer increase their efficiency, seeking the lowest priced offering,
done by actively promoting competition among several potential suppliers
o The bargainer – means that the buyer aims to achieve operational efficiency through long-term
collaboration with selected supplier
o The clockwiser – refers to network relationships that function predictably and precisely, just as
a clock; goal is strict efficiency, achieved through vigilant integration of product-based
integrated control systems and IT
o The adaptor – focuses on adapting the manufacturing processes between exchange parties
o The projector – occurs between buyers and sellers who are development partners, can arise
during projects when partners develop their offerings in collaboration, after which the joint
development project is completed, and the partners continue independently
o The updater – based on collaboration in research and development, collaboration is
continuous, and the nature of the relationship is not dyadic, but supply network
DEVELOPING A CUSTOMER PORTFOLIO MATRIX
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Companies have an assortment of customers, many of which vary in terms of their values and
contribution to the supplier
These consumers constitute a portfolio and, although a large portfolio may sound attractive, many
organizations actively seek to reduce their numbers of customers, aiming to increase their efficiency
and profitability
The six core strategies mentioned earlier reflect the complexity and variety of purchasing activities
undertaken by buying organizations
Most supplying ones have a mixture of different types of customers or accounts
Reflects the strength of the relationship between buyer-seller
Sensible to categorize customers to determine their relative profitability, which enables sellers to
allocate resources to customers according to their potential to deliver profits
One useful approach is the customer (or account) portfolio matrix
o Brings together the potential attractiveness and current strength of the relationship between
seller-buyer
o Relationship – incorporates the strengths from a customer’s perspective relative to
competitors
o Customer attractiveness – refers to total revenue spend, average rate of growth, and
opportunities a buyer represents to the seller in terms of profit potential
Position customers or accounts in a matrix
o Sector A – must-have customers, enjoy a close business relationship and are also attractive in
terms of their profit potential. Many of them are assigned key account status, but all represent
investment opportunities and resources should be allocated to develop all
o Sector B – good-to-have customers, are essentially prospects, because although they are highly
attractive relationship with seller is currently weak. Here, marketing resource should be
allocated on a selective basis proportional to the value that each prospect represents
o Sector C – need-to-have customers, relationships are strong, but customers don’t offer strong
potential. Resources need to be maintained
o Sector D – do-not-need customers, little reason to invest, weak relationships, relatively
unattractive in terms of profit potential, may be released to competitors
One benefit – easier to allocate sales channels to customers
In reality, most business customers will use a mixture of online and offline resources wherever possible
and according to their specific needs
Important for selling organizations to identify and allocate the most appropriate set of channels for their
customers
CHAPTER 17: NOT-FOR-PROFIT AND SOCIAL MARKETING
THE KEY CHARACTERISTICS OF NOT -FOR-PROFIT ORGANIZATIONS
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The main characteristics impacting on marketing are the existence of multiple stakeholders, the degree
of transparency expected when working to pursue the organization’s mission, and its dealing with
finances, the presence of multiple objectives in business and social terms, a different orientation
compared to commercial organizations, and different customer perceptions
M ULTIPLE STAKEHOLDERS
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Although NFP or private-sector organizations interact with a range of stakeholders to achieve their
business goals, their focus is on customers and shareholders
Difference: their concern for a wider group of stakeholders
o In private companies: revenue is distributed
o NFPs provide an offering, but their customers or end users seldom pay the full costs incurred,
many NFPs rely on stakeholders to finance their organization’s operations, usually no profits
distributed, because those who fund the NFP don’t require return on their resource provision
Not-for-profits should determine which of the different stakeholders have the most interest in their
activities, and most power to affect their performance
One common method is the stakeholder mapping matrix
o Group A – those with high levels of interest and power, re key stakeholders, which need to be
continuously engaged. Might be funding bodies or powerful regulators
o Group B – those with high interest, but low power, e.g., individual donors, should be informed
about the charity’s activities o maintain interest
o Group C – represents those with high power, but low interest, important for the NFP to increase
information flow to these to increase interest, so they can exert their power in their favor, or
keep them satisfied if they intend to exert their power against the NFP
o Group D – those with little power and little interest
Use of public money or donations in NFPs requires their source and allocation to be understood,
audited, and tracked
M ULTIPLE OBJECTIVES
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In manufacturing etc. sectors, profit is a central overriding goal
Investment decisions are often based on the likely rate of return and resources are allocated according
to the contribution they will make
NFPs have a range of goals, e.g., generating awareness, motivating people to be volunteers, distributing
information, contacting customers, raising funds, allocating grants, lobbying, and increase geographical
spread
O RIENTATION
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As a general rule, rather than manufacturing, distributing, and selling a physical product, NFPs deliver a
service
NFPs need to create positive awareness about their cause etc.
Principal focus: motivate and encourage people to become involved and identify with the aims of the
organization, which might lead to financial contributions
Raising funds is an ongoing critical activity for the NFP sector
C USTOMERS ’ PERCEPTIONS
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Customers of private-sector organizations realize that they contribute to profits in exchange for the
profits
Customers have a choice, and organizations compete to get their attention and money
In the NFP sector, customers don’t always have a choice, donors are free to give to another charity, or
not give
Reality, little practical opportunity to choose among different public service providers, as they can with
private sector
CHAPTER 18: MARKETING, SOCIETY, SUSTAINABILITY, AND ETHICS
UNSUSTAINABLE MARKETING: THE CRITICAL TURN
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Some argue capitalism to be under siege, given that it’s a major cause of social, environmental, and
economic problems
Not all marketing contributions are indeed good
o Need to develop a critical approach to understand marketing discipline
A critical approach to marketing suggests that we consider
o The need to (re-)evaluate marketing activities, categories, and frameworks, and to improve
them so that marketing operates in a desirable manner
o The extent to which marketing knowledge is developed based on out contemporary social
world, e.g., extent to which current marketing knowledge is Western-centric
o How the historical and cultural conditions in which we operate, impact on how we see
marketing as a discipline
o How marketing can benefit from other intellectual perspectives, e.g., social anthropology
MARKETING AS MANIPULATION
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Since its inception, marketing has been charged with the notion that it serves itself, rather than
consumers, and it supports the capitalist, rather than laboring classes
Marketing and public relations (PR) officers certainly do frame their communications to make them
more persuasive
Framing is the action presenting persuasive communication and audiences interpreting that
communication to assimilate it into their existing understanding
o Takes place in relation to situations, attributes, choices, actions, issues, news
The problem arises when framing becomes “spin”, because then marketing promotion becomes
corporate propaganda
COMMODITY FETISHISM
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As a critical perspective, commodity fetishism proposes that society is overly dominated by
consumption and hence fetishizes it
o Marx suggester that prior to industrialization, goods were produced for their use-value, but
after, the social relationship between producer and user changed
o Argued that workers were exploited for their labor, because they became removed from the
product they produced, and were paid a piece rate rather than a share of the financial return
o Felt that the rigid pursuit of capitalism was so doctrinal that it represented a religious aura,
worshipped by those seduced by their perceived value
NEEDS AND CHOICE
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The received wisdom is that marketing works to meet the needs of customer and consumers
However, this notion is also rejected, and it’s argued that people in affluent societies seek more without
gaining any further long-term satisfaction from such consumption, because much of their consumption
is superficial anyway
Because appealing to people’s fantasies and highlighting their imperfections leads to narcissistic
tendencies
Ultimately, the aggregate marketing system distributes anything, including harmful products
Examples of controversial issues
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Is the price paid by companies in wealthier companies for supplies obtained in poorer countries
fair?
o To what extent should cultural propositions and ideas of one country be marketed in
preference to those of another?
These illustrate imbalances in power structures between consumers, producers, retailers, etc.
Although companies are increasingly recognizing the negative impacts they have on society
(externalities), any are also increasingly trying to contribute positively to societal development through
CSR programs
SUSTAINABLE MARKETING
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Supporters of sustainable marketing accept the limitations of marketing philosophy and acknowledge
the need to impose regulatory constraints on marketing, particularly concerning the impact on the
environment
Sustainable economic development (development that meets the needs of current generations without
imposing constraints on the needs of future generations) was first proposed at a UN conference
Sustainability concerns, however, don’t apply only to environmental issues, questionable marketing
practices can lead to significant social harm even when catastrophic environmental consequences are
not at stake
3 Es of sustainable marketing
o Ecological – Marketing should not negatively impact upon the environment
o Equitable – Marketing should not allow or promote inequitable social practices
o Economic – Marketing should encourage long-term economic development as opposed to
short-term economic development
The longer-term thinking led to the development of what is known as the circular economy
o Airbnb is an example of a company encouraging collaborative consumption
CORPORATE SOCIAL RESPONSIBILITY AND STAKEHOLDER MARKETING
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CSR initiatives are increasingly common, and most companies publish annual CSR or sustainability
reports
Despite any obvious return, businesspeople and companies have long given to charity
The rationale for developing CSR initiatives, irrespective of financial contribution, is based around the
following ideas
o Corporations have responsibilities going beyond the production of their offerings at a profit
o These responsibilities involve helping to solve social problems, especially those that the
corporation helped to create
o Corporations have a broader constituency of stakeholders than shareholders alone
o The impacts of corporations go beyond simple marketplace transactions
A central theme of CSR is that corporations have a responsibility to society that goes beyond pursuing
profit
Marketers have echoed this focus on CSR, and some have called for the need to introduce the concept
stakeholder marketing, which explicitly recognizes the important role played by a multiplicity of
stakeholders
Two aspects of the implementation of stakeholder marketing
o The first recognizes the important role of marketing in engaging with stakeholders
meaningfully to define CSR programs
o The second related to the importance of managing stakeholders’ relationships to achieve
superior performance
From a point of view, CSR is necessary to succeed for a firm, since it nurtures the ability to act in harmony
with a firm’s relevant stakeholders
ETHICS AND MARKETING
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Ethics, a sub-discipline of philosophy, can be defined as “the branch of knowledge that deals with moral
principles”
Can be divided into
o Normative ethics – concerned with the rational enquiry into standards of right and wrong, good
or bad, with respect to character and conduct
o Social or religious ethics – concerned with what is right and wrong, good or bad, with respect
to character and conduct. Doesn’t claim to be established merely on the basis of rational
enquiry, and instead makes an implicit claim to general allegiance to something
o Positive morality – a body of knowledge generally adhered to by a social group of individuals,
concerning what is right and wrong
o Descriptive ethics – concerned with the study of the system of beliefs and practices of a social
group from the perspective of being outside that group
o Meta-ethics – a form of philosophical enquiry that treats ethical concepts and belief systems
as objects of philosophical enquiry in themselves
ETHICAL NORMS IN MARKETING DECISION -MAKING
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Norms are suggestions about how we should behave
Professional marketing organizations have a code of professional practice that requires members to
behave and act in a certain manner
In ethics, norms typically comprise five general approaches: deontological ethics, teleological ethics,
managerial egoism, utilitarianism, and virtue ethics
D EONTOLOGICAL ETHICS
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Proposes that the rightness of an action is not determined by the consequences of that action, rather,
emphasizes the importance of codes of ethics, such as those outlined by MRS or ESOMAR
Comprises that we don’t only have a moral duty to ensure customer satisfaction, but also to ensure
integrity in how the offering is produced and marketed
T ELEOLOGICAL ETHICS
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Proposes that the rightness of an action depends on the value of the consequences
An organization is acting morally if it does not intend to harm with its actions, but harm is caused
anyway, or in case of “bad” behavior with “good” consequences
M ANAGERIAL EGOISM
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We assume that manager interests align with owner/director interests
Ethical principle is to maximize shareholder value
Adopting this principle, we conclude that companies should shape their marketing programs in a way
that maximizes shareholder value
However, markets are amoral and the free-market mechanism does not work to promote ethical
decisions
U TILITARIANISM
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Proposes that an action is right if, and only if, its performance is more productive of pleasure or
happiness than alternatives
Arguments concerned with action consequences
Utilitarianism advocates for maximizing the benefits of a certain action for the largest number of people
V IRTUE ETHICS
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In direct contrast to previous ethical theories, virtue ethics stresses the development of virtuous
principles, with “right” character, and the pursuit of a virtuous life
Proposes the development of good character, suggesting that we aim to develop the virtuous
organization
Argued to be a suitable framework for international marketing because it’s compatible with both
Western moral traditions and the Eastern philosophical tradition