MARKETING LECTURES 15, 16, 17 and 18 Difference between Market and Marketing A market is any space within which trade takes place between buyers and sellers for a well defined product. This space can be a produce market, a shop, internationally between countries or over the internet. Marketing is all those activities that facilitate trade. These include activities that identify consumers’ needs such as market research and those activities that satisfy consumers needs e.g., packaging and distribution. Marketing activities therefore support the marketing of goods and services. Institute of Marketing definition of Marketing: the management process responsible for identifying, anticipating and satisfying consumer’s requirements profitably. Marketing Activities Market research – the process of gathering information about potential customers. Packaging – creating a suitable package for product usage and for advertising Branding - differentiating the product of a company from other brands and establishing loyal customers. Pricing - identifying the right price that will encourage sales Advertising – methods used such as the media to inform and encourage the purchase of goods and services Sales promotion – short-term methods used to encourage consumers to buy during a specified period Distribution - methods used to make the product available to consumers. For example wholesale, retail or internet. The Marketing Mix The marketing mix also referred to as the 4 Ps of marketing, categorizes all the various strategies used in the marketing of goods and services. These categories are product, promotion, pricing 1 and place. The purpose of the marketing mix is create perceived value for the customer or target market. (1) (2) (3) (4) Product this includes product designing, packaging, labelling and branding. Promotion advertising, public relations and sales promotions. Pricing includes various pricing strategies and methods. Place distribution of products. Market Research Market research is the gathering, recording and analysing of data to address the marketing problems of a business. Market research must be specific to the problem of a business. The marketing problem must therefore be clearly identified so that the appropriate market research may be conducted. Types of Market Research Consumer Research – garners information on consumers’ feelings, thoughts and reactions towards a company’s good or service. Product Research – determines customer acceptance of the product whether it may be changes in an existing product or a new product. Distribution Research – used to identify the most suitable channel of distribution for particular products based on effectiveness of those channels. Advertising Research- Identifies the most suitable media to present the advertising message. Sales Research- Research on the target market eg size of market, potential, age, sex, income and geographic variables. The Marketing Research Process This consists of five steps: 1. Identifying or defining the problem. 2. Developing information sources. 3. Collecting the information. 4. Analysing the data by using charts and graphs 2 5. Presenting the findings. Reasons for Conducting a Market Research Market research provides managers with current, relevant, accurate and reliable information concerning competitors, advertising, distribution and potential and loyal customers. This information assists managers in making decisions about packaging, product design, pricing, distribution and advertising. Consumer taste – Identification of consumer taste will enable the firm to produce goods and services that will cater to the preferences of the consumer. Eg. Cadbury assortment of chocolates Competition – Identification of the competing firms will allow the firm to adjust its marketing strategy to gain a market advantage. Eg. Sell at lower prices than competitors. Consumer Behaviour – Research on consumer behaviour will allow the firm to adjust their products and services to changes in the factors that influence behaviour. Eg. Increased consumption of fish during the Lenten season. Factors that Influence Consumer Behaviour The following factors will cause consumers to either increase or decrease their demand for a product. -The price of a commodity Consumers can afford to buy more of a good when its price falls and less when its price rises. -The prices of other goods and services (substitutes and complements) Substitute products are those that can be used alternatively as they satisfy the same need for a consumer. For example, a weekly shopper may decide to purchase fish instead of chicken because the price fish has fallen significantly less than the price of chicken. Therefore either fish or chicken will be adequate for dinner. If by the next week the price of fish rises and becomes more expensive than chicken then the consumer will opt for chicken. Complements are goods that are used together e.g. bread and butter. If the price of butter rises then its demand will fall and so will the demand for bread. Conversely if the price of butter falls, its demand will rise and so too will the demand for bread. Income of consumers As income level rises consumers will demand more goods and services 3 -Taste and Preferences A change in consumers taste for goods and services will impact their demand. For example, changes in fashion will result in a drastic decline in demand for an outgoing fashion and a rise in demand for what is trendy. -Quality A Consumer’s main motivation for the purchase of product may be the quality of the product rather than the price. Eg perceived higher quality of Apple products -Expectations of a future Rise in Price If consumers expect the price of a commodity to rise in the near future, they will try to purchase more now, before the price increases. -Brand Loyalty Brand loyalty will ensure a continuous demand for a product regardless of changes in its price or the prices of other goods and services. -Spending Patterns Consumer spending surveys compile information on consumer spending patterns based on income levels. This informs businesses of what goods and services are in demand. -Changes in the size of the population A population decline will cause demand to fall in a particular region. One reason for a population decline in a region is migration. Types of Market Structures The term market structure refers to the level of competition experienced by businesses in an industry. This factor determines the nature of the product sold, how easy it for new businesses to enter that industry and the amount of information available concerning that industry. Monopoly A monopoly exists when only one supplier has control over an entire market for a particular good or service. Examples of monopoly in Caribbean countries are a single electricity and water supplier which may be owned by the government or a private company. The monopolist sells a product for which there are no close substitutes. The monopolist controls the market because it is difficult for other firms to enter such industries. The challenges include high start-up costs and difficulty in obtaining strategic raw materials or information regarding business operation. The monopolist has great market power and can therefore set the price of products sold in the market. 4 Oligopoly Oligopoly describes a market structure in which there are few large firms. They offer the same product for sale and compete aggressively for market dominance. Examples of firms in this market structure are telecommunications and petroleum companies. Entry into this industry is also difficult as start-up costs are very high, there is control of strategic raw material and information is not easily available. Perfect Competition This market structure is characterized by many buyers and many sellers of a product. The product is not unique as it is available from many sellers. Firms in this market structure are price takers as they cannot sell above the price of their competitors. Firms must accept the market’s price as there are several competitors. There is perfect knowledge about the business and there are no barriers of high start-up cost and control of strategic raw materials. Monopolistic Competition Similar to perfect competition this market structure involves many sellers. However, this market structure differs from perfect competition in that each firm sells a branded product. Firms in this market structure are a monopolist for their brand. There is freedom of entry and exist into the industry as there are no barriers such as strategic raw material, very high start –up cost and lack of information. How Price is Determined The price of a good tells us the value of that product in terms of money. A rational consumer will try to get the greatest value for money spent on goods and services. He will therefore weigh and compare the prices of commodities before making a decision to purchase. Prices in a market economy are determined by the level of demand and the level of supply for each particular product. The demand for a particular product is the amount that consumers are willing and able to buy at a given price. The law of demand states that when prices are high demand will fall and when prices are low demand rises ceteris paribus (meaning all other things remaining unchanged.). The supply of a particular commodity is the amount that firms are willing and able to supply at a given price. When prices are high supply will rise and when prices are low supply fall. Suppliers are willing to sell more at higher prices as profits will be high, and unwilling to sell large quantities when prices fall because of low profit margins. The equilibrium price in a particular market is the price at which consumers and suppliers are willing to trade a certain quantity of a commodity. For example, consumers are willing to buy 55 litres of milk at $3 and suppliers are willing to supply 55 litres at that price. If the price increases 5 to $4 there will be a fall in demand to 30 litres as some consumers are not willing to buy milk at this price. Illustrating Price Equilibrium The demand and supply curves are drawn from the demand and supply schedules. Price is measured on the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards from left to right and the supply curve slopes upwards from left to right. The intersection of the two curves indicates the equilibrium price and quantity. Factors affecting changes in demand i. ii. iii. iv. v. Taste and Fashion Climate and Weather Changes in real income Changes in the price of substitutes and complements Expectations 6 vi. Advertising Factors affecting changes in supply i. ii. iii. iv. v. Weather conditions Price in factor input Taxation or subsidy Technology Prices of related commodities The Price Pricing objectives Survival – low pricing Current profit maximisation – price to maximise profit Market share leadership – Low prices to gain market share Product quality leadership – High prices for high quality to cover R&D. Pricing strategies Average cost pricing – total cost/total quantity Break even Analysis – Point of no loss or profit Penetration pricing – low pricing Psychological pricing- High price to gain perceive high value or pricing goods at $10.99 Predatory pricing – eg. price wars to remove competition Limit Pricing – low prices to limit competition Packaging and Presentation of Goods Packaging refers to designing and producing the container that holds the product. A good package must identify, protect and advertise the product. It must also make the product convenient to use. Therefore products such as toothpaste are best packaged in a tube as it has to be squeezed out. Milk must be poured from its container. Egg containers are so shaped to hold them securely. A package must also sell the product. It must first attract customer to buy. It must provide information about the product i.e. ingredients, amount of contents, price, the name and address of the manufacturer and instructions for usage. The brand name is also displayed on the package. 7 Branding A brand is any identifiable feature of a product which makes it different from its competitor. A brand may be a name, term, symbol, design or combination of these. Examples of brand names include: Avon and Colgate. A brand symbol e.g. represents the Nike brand. A branded product will increase the value of the product in the eye of the consumer and enable consumers to recognise a product instantly. Labelling – Labels are important features of a product that provides customers with vital information on grade, product description, ingredients, uses, caution, expiry date, date of manufacture and storage. Copyright, Patent & Trademark Intellectual Property- is any creation of the mind. Songs, books, ideas, machine designs and other inventions are the intellectual property of the person who has designed or created it. Copyrights, patents and trademarks are used to protect the intellectual property of owners. Copyright is a form of intellectual property right that legally protects the creators and innovators of original works. Copyright protects creators’ expressions such as music, painting, movie, photograph, writings etc. Individuals who wish to use works that are copyrighted must request permission from its creator. Copyright law allows creators of original work to be paid for them. Other forms of intellectual property rights are patents and trademark. A Patent is the right granted to the inventor of a process, machine, technique, formula or other composition of matter. It protects innovation. It also excludes others from making and selling that invention for a number of years. For eg. a franchisee receives a special licence to reproduce the product and must pay the fee to the franchisor Trademark legally protects brand names. It gives the seller exclusive rights to use a particular brand name. 8 Product Life Cycle A new product progresses through a sequence of stages from introduction to growth, maturity, and decline. This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the marketing strategy and the marketing mix. The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the graph below: Product Life Cycle Diagram Pre Introduction- Market research and product development Introduction Stage In the introduction stage, the firm seeks to build product awareness and develop a market for the product Growth Stage In the growth stage, the firm seeks to build brand preference and increase market share. Product quality is maintained and additional features and support services may be added. Pricing is maintained as the firm enjoys increasing demand with little competition. Distribution channels are added as demand increases and customers accept the product. Promotion is aimed at a broader audience. Maturity Stage At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The primary objective at this point is to defend market share while maximizing profit. 9 Decline Stage As sales decline, the firm has several options: Maintain the product, possibly rejuvenating it by adding new features and finding new uses. Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche segment. Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the product. Methods of Promoting Sales Promotion includes all forms of advertising, public relations and sales promotion. Advertising is the paid presentation of goods or services through the media for the purpose of encouraging consumer patronage. The media refers to television, radio, magazines, newspapers, billboards, websites etc. The Purpose of Advertising -to attract attention and create awareness -to inform and educate customers -to increase sales -to introduce new products onto the market -build loyalty with customers -to differentiate from competitors Types of advertising Informative Advertising Informative advertising is often used when launching a new product, or for an updated or relaunched product. The objective is to develop initial demand for a good, service, organization, or cause. It is used when a new product is put on the market on when an old product has been relaunched or updated. 10 Informative advertising will tell the consumer and marketplace about the product, explain how it works, provide pricing and product information, and should build awareness for the product as well as the company. The image of the product and the company should be compatible and complementary. There should be enough information to motivate the consumer to take some sort of action. Persuasive Advertising Marketers use persuasive advertising to increase the demand for an existing good, service, or organization. The idea is persuade a target audience to change brands, buy their product, and develop customer loyalty. After the purchase, the quality of the product will dictate whether or not the customer will remain loyal or return to the previous brand. Persuasive advertising is highly competitive when there are similar products in the marketplace, and products are competing for their share of the market. In this situation, the winning product will differentiate itself form the competition and possess benefits that are superior to, or compete strongly with, the competition. Reminder Advertising Reminder advertising reinforces previous promotional information. The name of the product, testimonials of past customers, public response, and sales techniques are repeated in the hopes of reminding past customers and garnering new ones. It is used to keep the public interested in, and aware of, a well-established product that is most likely at the end of the product life cycle. Competitive Advertising Promotes one product over a competitor Defensive Advertising Reacts to competitive advertising to maintain market share. Forms of Advertising Direct Forms Circulars Catalogues Free Samples Souvenirs Word of Mouth Cell Phones Chat room Indirect Forms Press: Newspapers, Magazines, Journals Television, Radio, Website, Social Media Cinema Screens Posters, signs and wallscapes Point of Sale: Speciality shop display Exhibitions, fairs, carnivals Mobile Caravans 11 Sales Promotion Sales promotion is a marketing strategy that is used to induce customers to buy immediately. Examples of sales promotion methods are: a. A sale on items. b. Bargain packs, e.g. ‘two for price of one’. c. Coupons. These are printed in the daily newspaper or magazines. The holders of coupons are allowed a discount on the items bought. d. Games, e.g. guessing riddles e. Contest. Purchasers may receive a prize if they are the winners of a contest. f. Trading Stamps. These are given to purchases with each item bought. Booklets filled with these stamps may be returned by customers for goods, services or money in exchange. This predates the loyalty card. g. Loss–Leader. A loss-leader is a product that is in high demand and is therefore used to attract consumers to a business location by cutting its price very low. The business uses a loss leader to attract large number of persons to its location so that other items will be sold. The profits lost on this product will be made up on the high sales turnover of the other products that will be bought along with the loss-leader. Public Relations Public relations activities are aimed at creating a favourable impression of a business in the eyes of the public. Public includes its customers, its suppliers, the government and the surrounding community. Public Relations activities include sponsorship of local sporting events, press conferences, and donations to charity. Techniques of Selling These are methods used to sell products more effectively by focusing on each customer’s personal needs. Selling techniques include: 1. Personal Selling 2. After-sale services such as warranty and installation 3. Merchandising 4. Good Customer Relations 12 Personal Selling This is the use of sales persons to present and sell goods and services of a firm. Sales persons promote a firm’s goods directly to a specific consumer. They locate new customers, provide display services, demonstrate the use of products, deliver goods, collect payments and provide the firm with feedback After Sales Services Customers are entitled to these services once they have made a purchase. They include delivery, installation and warranty. These services are free and therefore usually encourage consumers to buy. Merchandizing Merchandizing refers to self-service methods of sale. This is used in supermarkets and department stores. It allows for a better display of goods and creates a more comfortable shopping environment. Good Customer Relations Building good relationships with customers ensures customer satisfaction, repeat customers and recommendation to new customers. The sales staff must be trained in the principles of good customer relations. This entails, listening to customers being helpful and polite. Terms of Sale A business establishment may offer its customers various terms to settle accounts i.e the way that payment are made for purchases. Cash This is preferable by most businesses and therefore customers are encouraged to make cash payments. They are usually offered a lower payment amount for goods bought for cash. Credit Customers are allowed to pay at intervals over a short- term, usually one to three months to settle outstanding balances. 13 Hire Purchase Hire-purchase is a long term payment plan e.g. 24 – 36 months. Interest is charged to the customer increasing the amount owed. Cash Discount A cash discount is a reduction in the price of a good that is paid for immediately or over a short period of time by a customer. For example, if a an appliance store offers 5% discount on items bought for cash then 5% of the sale price would be deducted from the actual bill Trade Discount A trade discount is the reduction in the price of a good given by a manufacturer or a wholesaler to a retailer to allow the retailer to make a profit or to encourage bulk buying. Thus if an appliance manufacturer offers 10% trade discount to retailers then 10% of the catalogue price or the quoted price would be deducted from the retailers’ actual bill. Consumer Organizations Consumerism is defined as the education and the protection of consumers to prevent their exploitation. Consumer exploitation includes: overcharging offering poor quality goods and services short measurements and weights Consumerism is practised by various groups in the economy: the government, private institutions, and private firms. Consumerism practiced by the government This is done through various government agencies. These include: 1. The Consumer Affairs Commission – This institution was set up to disseminate information about consumer rights and responsibilities as well as provide consumers with an avenue for redress if they are exploited. Consumer Rights -The right to safety 14 -The right to be informed -The right to choose -The right to be heard -The right to redress -The right to consumer education -The right to a healthy environment Consumer Responsibility -The responsibility to beware -The responsibility to be aware -The responsibility to think independently -The responsibility to speak out -The responsibility to complain -The responsibility to be an ethical consumer -The responsibility to respect the environment and avoid waste, littering and contributing to pollution. 2. The Fair Trading Commission – This agency was set up to administer the fair trading act. It is concerned with matters such as; Tied selling (marrying of goods), misleading advertising (untruths about goods and services presented for sale), untrue sale (an announced sale for which the price of items remain the same).and the use of market dominance to squeeze firms out of the industry (For example, large firms may drop the price of their goods so low that small firms are unable to compete with them.) 3. The Bureau of standards -The bureau carries out regular checks on business enterprises to ensure that goods and services offered for sale meet the standards stipulated by this institution. Functions are as follows: Protect the consumer or user against danger Protect public health or industrial health, welfare and safety Protect the environment To ensure acceptable quality of goods Research in relation to international quality standards 15 Examination and testing of goods Establishment of quality standards Collection and publication of data on specification and standards Advising on quality control systems Certification of goods that meet quality standards 4. The Ombudsman The Ombudsman is a government official who protects the rights of citizens who may suffer any kind of injustice from dealing with a government agency or a government official. For example, the Ombudsman will investigate the death of a loved one due to the negligence of a public hospital. He/she has the power to: to summon witnesses to appear and give evidence under oath to enter and inspect any government department or authority to examine any necessary documents Consumerism practiced by private Institution -Local consumer groups -Radio talk show hosts listens to consumers’ complaints Consumerisms practiced by private firms -Offering warranty/guarantees on items sold -Labels carry information on ingredients, nutritional content and health risks that may be associated with the product. Links in the Distribution Chain Manufacturers must find the most efficient ways of getting the goods manufactured into the hands of consumers. The channels/chains of Distribution Channels of distribution refer to the means by which commodities reach the hands of consumers from the plant of manufacturers. This may be done directly from the manufacturer to the consumer or indirectly through middlemen such as wholesalers and retailers. 16 Types of Channels 1. Direct Channel – Manufacturer – Consumer Goods are bought directly from the producer e.g. purchasing furniture from a manufacturer. 2. Indirect channels (a) Manufacturer – Retailer – Consumer Goods are bought from a middle man e.g. a retailer. Retailers display goods, sell in small convenient quantities and offer credit. They therefore aid manufacturers in moving goods quickly. 3. Indirect channel (b) Manufacturer –Wholesaler – Retailer – Consumer The wholesaler is a second muddle man/link on the chain. The wholesaler purchases in bulk from the manufacturer and stores them in large warehouses. They therefore assists manufacturers by moving large amounts of items from plants. Retailers purchase goods from wholesalers and sell them in smaller quantities to consumers. Wholesaler The wholesaler purchases goods in large quantities from producers and thus assumes some of the risk of the manufacturer such as, warehousing goods. Roles include: Breaking bulk for sale to retailers Warehousing facilities Assumes risk: By buying larger quantities Helps manufacturers advertise goods Key source of market research Maintain price stability by incremental releases of stock onto market Retailer They provide goods directly to the consumer. They possess ownership of the goods and bare all risk of losses should demand fall or taste change. Role: Breaking bulk Provides outlets to targeted markets Provides credit facilities 17 Provides delivery service to customers Gives technical advice on product Provides aftersales service Source of market intelligence Methods of Retailing There are several methods by which retailers can offer items for sale. Community Shops and Convenient Stores These locations tend to serve a particular community. Opening hours include all weekend days, holidays and very late in the evenings. Costs for some commodities that are not government controlled tend to be higher than other types of retail outlets. Community shops in particular cut and shape products to suit customers and offer credit. Department Stores These stores carry a several lines of goods under one roof. A department store may feature a clothing department, household items, stationery, hardware etc. It provides convenience to customers who can pick up several items in one place, and allows the businessman the cost effectiveness of operating several business entities in one location. Mail Order Companies that retail through mail order benefit from reduced operational cost of location and staff. Since display areas are not required only an office and storage facility are necessary for the operation of this business. Orders are made from catalogues and goods are delivered by courier or mailed to customers. This saves time and effort of consumers to visit shopping locations. E-commerce Orders are made by customers over the internet from the websites of businesses. Payments are also made over the internet. Packages are delivered by mail or courier. Tele- marketing Tele –marketers introduce the company’s goods and try to obtain orders via the telephone. Vending Machines These self-service machines are placed at various locations by their owners. Customers are required to place the required funds inside these machines and are then instructed on how to 18 make their choice. The machine then dispenses the product. This type of business is very cost effective as owners may only pay a fee for locating the vending machine. Forms of Transportation Transportation is an integral part of the daily commercial and industrial activities of a country. Transportation moves raw materials from source to manufacturers and finished goods to consumers. It also makes possible overseas trade and thus foreign exchange earnings for an economy. There are various modes/forms of transportation that can be used to transport goods. Commodities may be transported by land, air, sea and pipeline. The mode of transportation will depend on weight and size of the commodities being transported, as well as the urgency for delivery and the transportation costs. Modes/Forms of Transportation Land Road Rail Air Sea Pipeline Land-Road Types of transportation include trucks, vans, cars etc. It is the most popular mode of transport as all types of goods can be transported by road. Road transport is affected by bad roads, traffic congestion and challenging terrain. Lengthy delays can affect perishable goods such as farm produce being transported from rural areas to cities. Land-Rail This is a cheap form of transportation over long distances. Trains are suitable for heavy and bulky things such as bauxite. Trains are a very slow mode of transportation. Air Types of transportation include cargo planes and helicopters. Because of the high cost involved with air transportation it is suitable for important documents and expensive items e.g. jewellery. Sea Cargo ships and barges are some of the types of transportation used for transporting goods by sea. Goods such as oil, bauxite and cars are transported by sea. 19 Pipeline Pipelines are used to transport commodities such as water and gas. High costs are involved in laying pipes initially. However overtime it becomes very economical. Factors that influence Choice of Channel of Distribution 1. 2. 3. 4. 5. 6. 7. Type of product – size, shape, weight, fragility, how expensive Consumers – target market influences the channel Quantity to be delivered – fewer goods would require a wholesaler or retailer. Frequency of delivery- more frequent deliveries would mean longer channel. Location – Remote areas require an agent. Budget- Middleman can absorb cost of transportation Speed – eg perishable items may require quick transport by air. Importance of Transport: It brings goods form producers to final consumers Carries raw materials and crops to factories Helps to minimise inventory holdings and keeps costs down It minimises risk of shutdown of factory if raw materials are not available Reduces expenses and makes goods more competitive internationally It widens the market and demand for the product hence promoting economies of scale and specialisation. It increases employment It brings a variety of products to the consumer Transportation Network Facilities: Refrigeration facilities Adequate dock spaces Adequate parking spaces for aircrafts, lorries and containers Handling and moving facilities eg. forklift Warehousing space The unavailability of the above facilities can seriously hamper transportation and distribution channels. 20 Problems of Distribution Distribution locally is challenged by poor road conditions and difficult terrain especially in the rural areas. Spoilage of perishable goods is very costly and therefore types of transportation used must be equipped to carry perishable goods. Problems encountered in Overseas Transportation The challenges faced in transporting goods internationally will impact foreign exchange earnings. These challenges include: Inadequate facilities for temporary storage eg. warehousing space Inadequate equipment and tools Transport system and networks that do not connect to ports or receiving points and distribution road routes. misdirection of goods – goods mistakenly sent to the wrong destination Poor communication within the distribution network Lack of understanding of customs regulations. flight delays Strikes by airport and ship port workers. narcotics found in containers Pilferage- goods stolen in transit. Measures to mitigate problems of distribution careful checks before loading packages for shipment contingency plan when strikes occur public awareness on the consequences of narcotics found in containers making persons responsible for any goods lost in their care Properly labelled goods Properly educated about laws governing distribution Proper planning and implementation Implementation of good industrial relations practices Ensure adequate funding for equipment and tools Government intervention to improve connectivity of distribution networks. 21
