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Oxford University Press is a department of the University of Oxford.
It furthers the University’s objective of excellence in research, scholarship, and
education by publishing worldwide. Oxford is a registered trade mark of
Oxford University Press in the UK and in certain other countries.
Published in South Africa by
Oxford University Press Southern Africa (Pty) Limited
Vasco Boulevard, Goodwood, N1 City, Cape Town, South Africa, 7460
P O Box 12119, N1 City, Cape Town, South Africa, 7463
© Oxford University Press Southern Africa (Pty) Ltd 2015
The moral rights of the author have been asserted.
Fourth Edition published 2000
Fifth Edition published in 2015
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, without the prior
permission in writing of Oxford University Press Southern Africa (Pty) Ltd, or as
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reprographic rights organisation, DALRO, The Dramatic, Artistic and Literary Rights
Organisation at dalro@dalro.co.za. Enquiries concerning reproduction outside the
scope of the above should be sent to the Rights Department, Oxford University Press
Southern Africa (Pty) Ltd, at the above address.
You must not circulate this work in any other form and you must impose this same
condition on any acquirer.
Marketing 5e
Print ISBN: 978-0-199079-92-6
ePub ISBN: 978-0-199075-78-2
Typeset in Utopia Std Regular 9.5pt on 12pt
Acknowledgements
Publishing manager: Alida Terblanche
Publisher: Janine Loedolff
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Editor: Sarah Floor
Designer: Cindy Armstrong
Indexer: Michel Cozien
Typesetter: Barbara Hirsch
The authors and publisher gratefully acknowledge permission to reproduce copyright
material in this book. Every effort has been made to trace copyright holders, but if
any copyright infringements have been made, the publisher would be grateful for
information that would enable any omissions or errors to be corrected in subsequent
impressions.
Links to third party websites are provided by Oxford in good faith and for
information only. Oxford disclaims any responsibility for the materials contained in
any third party website referenced in this work.
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This edition of Marketing is dedicated to all the
health care practitioners across the globe who
have devoted their professional careers to
finding a cure for diabetes mellitus.
Christo Boshoff
Opgedra aan my seuns Nicol en Dorfling
Nic S. Terblanche
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Abridged Table of Contents
PART ONE Introduction to marketing
CHAPTER 1:
An overview of marketing
CHAPTER 2:
Analysing the external
environment’s influence
on marketing
CHAPTER 3:
Understanding consumer decisionmaking
CHAPTER 4:
Analysing the competitive situation
CHAPTER 5:
Information for marketing
decision-making and marketing
research
CHAPTER 6:
Segmenting and targeting markets
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CHAPTER 7:
Positioning the firm and its
products
PART TWO Implementing marketing mix strategies
CHAPTER 8:
Product decisions
CHAPTER 9:
Developing and managing products
CHAPTER 10:
Marketing channels and the role of
intermediaries
CHAPTER 11:
Marketing communication strategy
CHAPTER 12:
Implementing marketing
communication mix strategies
CHAPTER 13:
Pricing concepts and setting the
right price
CHAPTER 14:
Putting it all together: The strategic
marketing plan
PART THREE Specialised marketing
CHAPTER 15:
Marketing in specialised markets
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CHAPTER 16:
Sustainable marketing
Index
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Table of Contents
PART ONE Introduction to marketing
CHAPTER 1: An overview of marketing
Introduction
What is marketing?
Customer satisfaction
Measuring customer satisfaction
Customer satisfaction or customer dissatisfaction?
The benefits of customer satisfaction and loyalty
The concept of exchange
Marketing management philosophies
Production orientation
Product orientation
Sales orientation
Consumer orientation
Societal marketing orientation
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Relationship marketing orientation
Differences between sales and consumer orientations
A word of caution
Implementing the marketing concept in existing firms
Changes in authority and responsibility
The importance of new opportunities
The firm’s business
The importance of a competitive advantage
The marketing process
The position and role of marketing in the firm
Why are there critics of marketing?
Why study marketing?
Marketing plays an important role in society
Marketing is important to businesses
Marketing offers outstanding career opportunities
Marketing influences your life every day
Looking ahead
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 2: Analysing the external environment’s influence on
marketing
Introduction
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The marketing environment
Marketing’s interaction with the internal and external
environment
Understanding the external environment
Opportunities and threats
Environmental management
Identifying opportunities and threats
Social factors
Consumer values
The changing influence of families and gender
Is it a new social trend or a fad?
Today’s pre-teens: Born to shop
Teenagers: Demanding and opinionated
Generation Y
Generation X
America’s baby boomers and South Africa’s prime timers
Older consumers: Not just grandparents
The Black diamonds
Survivors
Demographic factors
Universal Living Standards Measure
Using LSM and other demographic factors to understand
markets
Education and literacy
Language
Economic factors
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Inflation
Recession
Technological factors
Political factors
Self-regulatory agencies
Legal factors
Central government legislation
Provincial government legislation
International agreements
The marketing implications of legislation
Competitive factors
Physical forces
Climate change
Pollution
Scarce resources
Recycling and non-wasteful packaging
Environmentally-friendly ingredients
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 3: Understanding consumer decisionmaking
Introduction
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The importance of understanding consumer behavior
A model of consumer behavior
The consumer decision-making process
Problem recognition
Information search
Evaluation of alternatives and purchase
Post-purchase behavior
Types of consumer buying decisions and consumer involvement
Factors determining the level of consumer involvement
The marketing implications of consumer involvement
Individual factors influencing consumer buying decisions
Perception
Motivation
Learning
Values, beliefs and attitudes
Personality, self-concept and lifestyle
Social factors influencing consumer buying decisions
Culture
Subculture
Reference groups
Opinion leaders
Family
Social class
The influence of the purchase situation on buying decisions
Buying ‘new-to-the-world’ products
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Buying behaviour and technology
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 4: Analysing the competitive situation
Introduction
Identifying competitors
Approaches to identifying competitors
Using the strategic-group approach to identify competitors
Defining the competitive arena
The four industry structures
The competitive structure of an industry
Threat of new entrants
Threat of substitute products
Threat of buyers’ growing bargaining power
Threat of suppliers’ growing bargaining power
Threat of intense segment rivalry
Analysing key competitors
Understanding current competitors
Size, growth and profitability
Image and positioning strategy
Competitor objectives and commitment
The current and past strategies of competitors
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Competitor culture
Cost structure
Exit barriers
Understanding potential competitors
Entry barriers
Evaluating competitors’ strengths and weaknesses
Step 1: Identify key success factors in the industry
Step 2: Rate the firm and competitors on each KSF
Step 3: Consider the implications for competitive strategy
Anticipating competitors’ actions
Likely reaction patterns of competitors
Direct rivalry among competitors
Deciding which competitors to attack and which to avoid
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 5: Information for marketing decisionmaking and marketing research
Introduction
The need for managerial information
Marketing decision support systems
Database marketing and micro-marketing
The importance of database marketing
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The role of marketing research
The functions of marketing research
The relationship between marketing research and DSS
Management uses of marketing research
Improving the quality of decision-making
Identifying problems
Understanding the market
Fostering customer value and quality
The steps in a marketing research project
Step 1: Define the marketing problem
Step 2: Exploratory research by collecting secondary data
Step 3: Formulate the research objectives
Step 4: Planning the research design
Step 5: Collecting the data
Step 6: Analysing the data
Step 7: Preparing and presenting the report
When should marketing research be conducted?
The characteristics of good research
Why is marketing research criticised?
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 6: Segmenting and targeting markets
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Introduction
The nature of market segmentation
The importance of market segmentation
The criteria for successful segmentation
Bases for segmenting consumer markets
Behavioural segmentation
Geographic segmentation
Demographic segmentation
Psychographic segmentation
Benefit segmentation
Qualifying and determining bases for segmentation
Steps in segmenting a market
Strategies for selecting target markets
Undifferentiated targeting
Concentrated targeting
Multi-segment targeting
Contrasting target marketing strategies
Positioning
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 7: Positioning the firm and its products
Introduction
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Planning a positioning strategy
The nature of positioning
The consequences of failing to select a position
Differentiation – the cornerstone of positioning
Classifying industries according to their potential
for differentiation and competitive advantage
Bases for differentiation
Product differentiation
Differentiation based on services accompanying the product
Personnel differentiation
Image differentiation
Bases for positioning products
The process of positioning a new product or brand
Repositioning a product or brand
The repositioning process
Repositioning in the maturity phase of the product life cycle
Development of a positioning strategy
Typical positioning errors
Tools and approaches to facilitate positioning
Looking back
Summary
Discussion and writing questions
Key concepts
References
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PART TWO Implementing marketing mix strategies
CHAPTER 8: Product decisions
Introduction
What is a product?
Product levels
Classifying consumer products
Types of consumer products
Convenience products
Shopping products
Speciality products
Unsought products
Product items, lines and mixes
Organising related items into product lines
Adjustments to product items, lines and mixes
Branding
Benefits of branding
Features of effective brand names
Branding strategies
Generic products versus branded products
Manufacturers’ brands versus private brands
Individual brands versus family brands
Conditions favourable to branding
Co-branding
Levels of brand familiarity
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Trademarks
Packaging
Packaging functions
Containing and protecting products
Promoting products
Facilitating storage, use and convenience
Facilitating recycling and reducing environmental damage
Labelling
Universal product codes
Product warranties
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 9: Developing and managing products
Introduction
The importance of new products
Categories of new products
The new-product development process
Idea generation
Creativity
Idea screening
Concept development and testing
Business analysis
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The development stage
Test marketing
Commercialisation
Why some new products succeed and others fail
Organising for new-product development
New-product committees and departments
Venture teams and ‘intrapreneurs’
Simultaneous product development
The product life cycle
Stages of the product life cycle
Strategies during the product life cycle
Strategies during the introductory stage
Strategies during the growth stage
Strategies during the maturity stage
Strategies during the decline stage
Evaluating the product life cycle concept
The market acceptance of new products
Diffusion of innovation
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 10: Marketing channels and the role of
intermediaries
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Introduction
The benefits of marketing channels
Providing specialisation and division of labour
Overcoming discrepancies
Providing contact efficiency
The functions of a marketing channel
Marketing channel structures
Utilising alternative marketing channel arrangements
Factors that influence marketing channel strategies
Market factors
Product factors
Producer factors
Levels of distribution intensity
Intensive distribution
Selective distribution
Exclusive distribution
Potential channel conflict
Horizontal conflict
Vertical conflict
Power in the distribution channel
Reward power
Coercive power
Legitimate power
Referent power
Expert power
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Channel leadership
Manufacturers as channel captains
Retailers as channel captains
Wholesalers as channel captains
The importance of physical distribution
The nature of physical distribution subsystems
Warehousing
Materials handling
Order processing
Transportation
Retailing and wholesaling intermediaries
The classification of retail operations
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 11: Marketing communication strategy
Introduction
The role of marketing communication in the marketing mix
The elements of the marketing communication mix
Advertising
Public relations and publicity
Personal selling
Sales promotion
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The marketing communication process
Elements of the communication process
The communication process and the marketing
communication mix
Integrated marketing communications
The objectives and tasks of marketing communication
Informing
Persuading
Reminding
AIDA and the hierarchy of effects
The hierarchy of effects and the marketing communication
mix
Factors affecting the marketing communication mix
Push and pull strategies
Steps in developing the marketing communication plan
Analysing the market
Identifying the target audience
Setting marketing communication objectives
Developing a marketing communication budget
Deciding on a marketing communication mix
Looking back
Summary
Discussion and writing questions
Key concepts
References
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CHAPTER 12: Implementing marketing communication mix
strategies
Introduction
Steps in creating an advertising campaign
Formulating campaign objectives
Making creative decisions
Identifying product benefits
Developing and evaluating advertising appeals
Executing the message
Deciding which advertising media to use
Media evaluation and selection considerations
Media scheduling
Evaluating the advertising campaign
Pre-tests
Post-tests
Public relations
Public relations tools
Managing unfavourable publicity
Sales promotion
The objectives of sales promotion
Tools for consumer sales promotion
Tools for trade sales promotion
Personal selling
Contrasting personal selling with other forms of marketing
communication
Sales tasks
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Steps in the personal-selling process
Sales management
Defining sales objectives and the sales process
Designing the sales organisation
Developing the sales force
Directing the sales force
Evaluating the sales force
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 13: Pricing concepts and setting the right price
Introduction
The importance of price to marketing managers
Pricing objectives
Profit-orientated pricing objectives
Sales-orientated pricing objectives
Status quo pricing objectives
The demand determinant of price
The nature of demand
How demand and supply determine prices
Elasticity of demand
The cost determinant of price
Mark-up pricing
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Profit maximisation pricing
Break-even pricing
Other determinants of price
Stages in the product life cycle
The competition
Distribution strategy
Marketing communication
The relationship between price and quality
How to set a price on a product
Formulating pricing objectives
Estimate demand, costs and profits
Choose a price strategy
The legality and ethics of price strategies
Tactics for fine-tuning the base price
Relationships between products
Pricing during difficult economic times
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 14: Putting it all together: The strategic marketing
plan
Introduction
The nature of strategic planning
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The strategic marketing plan
The value of a strategic marketing plan
The elements of a marketing plan
Defining the business mission
Strategic marketing objectives
Identifying opportunities to utilise
Conducting a situation analysis
Assessing the competitive environment
Strategic windows
Assessing the corporate culture
Opportunity-utilisation strategies
Strategic management tools
Competitive advantage
Setting marketing-strategy objectives
Formulating the marketing strategy
Implementation, evaluation and control of the marketing
plan
Writing the marketing plan
Effective strategic planning
Looking back
Summary
Discussion and writing questions
Key concepts
References
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PART THREE Specialised marketing
CHAPTER 15: Marketing in specialised markets
Introduction
Services marketing
How services differ from physical products
Marketing mixes for services
Sports marketing and marketing through sport
The special characteristics of sport
The sports product
Licensed and branded sports products
Marketing through sport
Non-business marketing
Factors contributing to the acceptance of marketing by nonprofit organisations
The dual role of marketing in non-profit organisations
Sources of competition faced by non-profit organisations
The unique aspects of non-business marketing strategies
Business-to-business marketing
Business-to-business customers
Classification of business and government markets
Differences between business-to-business and consumer
markets
Types of business-to-business products
The business-to-business purchase process
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Travel and tourism marketing
The main sectors of the travel and tourism industry
The special characteristics of travel and tourism services
The marketing mix in travel and tourism
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 16: Sustainable marketing
Introduction
The concept of sustainable marketing
Green marketing
Social marketing
The origins of sustainable marketing
Green consumer segments
Key sustainability issues
Consumer social responsibility and the move towards
sustainability
The role of marketing in sustainability
The impact of sustainable marketing on the product life cycle
Making the marketing mix more sustainable
Product
Price
Promotion
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Distribution
People
Processes
Physical evidence
The disadvantages of a sustainable marketing approach
Implementing sustainability
Summary
Discussion and writing questions
Key concepts
References
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Introduction
This is the fifth South African edition of the adaptation of the
popular American textbook Marketing. Like the first four
editions, it adopts a modular approach in terms of the
structure of content, which is supported by discussions of
contemporary marketing strategy issues, South African case
studies and analyses of marketing challenges that are
unique to the South African business environment.
The South African adaptation of this leading marketing
text was guided by the following principles:
•
•
•
•
To reflect a South African and southern African
perspective (through the use of examples, case studies
and readings) without losing the international focus of
the original text
To take into consideration the requirements of the South
African higher-education environment
To build on and expand the strategy component of the
original text to permit the use of the book at both
university- and university of technology-level courses
To retain the user-friendliness and ease of reading of the
original text.
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Today’s marketers face a market environment that is
becoming simultaneously more competitive, more
specialised, more globalised and more technology-driven.
To succeed in today’s changing environment, successful
marketing requires – now more than ever – a balance of
creativity and knowledge.
Marketing is a dynamic discipline that changes often and
rapidly. Furthermore, it is exciting because, sometimes
without realising it, we are all involved in marketing, both as
marketers and customers.
You may ask yourself, ‘Why should I study marketing?’ or
‘What is in it for me?’
There are several important reasons for studying
marketing. One is that marketing offers many diverse career
opportunities, such as sales, marketing research,
advertising, retailing, product and brand management and
sports marketing, to name but a few. In addition, marketing
is of particular importance not only to business firms, but
also to non-profit organisations. Marketing also contributes
significantly to the effective functioning of a country’s
economy by ensuring the efficient distribution of products
and services to consumers.
Marketing can be studied from a variety of different
perspectives. To pursue them all would be unmanageable
and unfeasible. To simplify matters, in this textbook, we
focus on several key perspectives of marketing.
First, the text concentrates mainly on the marketing of
products, particularly consumer products (goods that
consumers buy for their own consumption). It is true that
services, ideas, causes and even political parties can be
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marketed, but our emphasis is on the marketing of products.
This does not mean that services or non-profit
organisations, such as the Red Cross or World Vision,
cannot be marketed. Most of the marketing principles
discussed in this book also apply to such organisations. The
marketing of services and non-profit organisations,
however, also requires some specialised approaches that
students will encounter in the future if they continue their
studies in marketing. In this book, we concentrate on
marketing from the perspective of firms that function with
the intention of generating a profit for their owners.
Second, this book views marketing from a management
perspective. This means we explore how firms can realise
their objectives by means of effective management. In other
words, we study marketing tasks, activities and decisionmaking from a managerial point of view. The goal is to equip
students with the necessary skills and knowledge to become
marketing managers. To this end, the emphasis is on those
aspects or instruments that marketing managers can utilise
to realise the marketing function’s objective and thus also
fulfil the objectives of the firm.
Third, the book introduces readers to the theoretical
nature of the marketing discipline, the marketing process,
marketing activities, the environment in which marketing
operates and marketing instruments (i.e. promotion,
pricing, product decisions and distribution).
However, the theoretical principles are supplemented
with frequent references to strategy options. In other words,
we try to answer such questions as:
Given the circumstances, what can I as a marketer
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do? Which marketing strategies can I use? What are
the implications of these options? Which strategies
can I use in a particular context?
You will see that potential strategy options are discussed
under the strategy icon:
>> Strategy
We also believe that aspiring marketers can learn a lot from
experienced practitioners – both the good and the bad.
Therefore, we frequently refer to both local and
international examples of marketing situations, decisions
and activities under the example icon:
EXAMPLE >>
Real-world examples are a rich source of learning for all
marketers, and we supplement theoretical discussions with
several ‘readers’ to illustrate the practical implementation of
key marketing concepts.
The book is divided into three parts: ‘Introduction to
marketing’, ‘Implementing marketing mix strategies’ and
‘Marketing specialised markets’. Part 1 provides a broad,
global perspective of marketing and marketing strategies.
Part 2 concentrates on the implementation of those
strategies. Part 3 considers the unique demands of
marketing in specialised markets, such as services, businessto-business markets and tourism markets.
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Special features
The fifth South African edition of Marketing contains a
number of key features that serve as valuable learning aids
for students exploring the exciting world of marketing.
• Opening examples preview each chapter: Each chapter
begins with a high-interest, real-life example designed to
introduce students to the chapter’s content. Each
opening reader (entitled ‘Marketing in practice’) is based
on a South African company’s marketing activities. Each
reader concludes with questions that draw attention to
the key issues to be discussed in the chapter. Examples
of these questions include: Why have brands such as
Lion Lager and the VW Kombi been discontinued? What
can be done to revive ailing brands such as Barbie and
Nedbank? Why is Cell C struggling to penetrate the
cellular market? Why does Nando’s use humour in its
advertising? What can the Post Office do to survive as
competing services, such as private couriers and email,
increasingly contest its traditional markets?
• Students will discover the answers to these questions
and much more as they cover each chapter. A special
section before the chapter summary, called ‘Looking
back’ answers the teaser questions posed in the opening
reader and helps illustrate how the chapter material
relates to the real world of marketing.
• Fully integrated learning system: The text is organised
around the learning outcomes that appear at the
beginning of each chapter, providing lecturers and
students alike with an easy-to-use, integrated learning
system.
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LO
•
•
•
•
•
•
Learning outcomes: Chapter learning outcomes are the
linchpin of the integrated learning system. Numbered
LO icons, like the one shown alongside, clearly identify
the material relating to the learning outcomes in each
chapter. They provide a structure for lecture plans and
study sessions, which lecturers and students need to
ensure complete coverage of each outcome.
Text pedagogy that adds value and reinforces
learning: Pedagogical features are meant to reinforce
learning, but they need not be boring. We have supplied
a number of teaching tools within the text that will
stimulate students’ interest and enhance teaching.
Chapter summaries: Each chapter ends with a summary
that extracts the essential points of the chapter. Chapter
summaries are organised around the learning outcomes
so that students can use them to quickly check on their
mastery of the learning outcomes.
Discussion and writing questions: To help students
improve their writing skills, we have included writing
exercises at the end of each chapter. The discussion and
writing questions are designed to be brief so that
students can accomplish writing assignments in a short
time.
Strategy readers: Each chapter concludes with a
strategy reader – a brief case study of a South African
firm’s marketing strategies or activities. Each strategy
reader poses a number of questions that link the case
study with the theory discussed in the chapter.
Key concepts: Key concepts appear in italics in the text.
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•
An alphabetical list of key concepts appears at the end of
each chapter as a study checklist.
Website: The website inserts direct students to relevant
websites where they can further their marketing research
on a given subject.
To summarise, the fifth edition of Marketing offers the
following special features:
• A unique South African perspective without loss of an
international or global focus
• An outcomes-based orientation
• A sensible combination of both theory and practice,
suitable for university and technikon undergraduates
alike
• A contemporary orientation, with case studies and
examples currently found in the
• South African context
• A modular structure for ease of use as stand-alone
modules or combined in a semester course
• A strong marketing strategy component integrated with
the relevant theory
• An enhanced emphasis of the role of technology in
modern-day marketing.
We hope and trust your journey exploring the intricacies of
marketing will be an enjoyable one.
Finally, we would like to welcome two esteemed co-authors
to the author team. Professor H.B. Klopper (Monash
University) and Professor Roger Elliot of the University of
Fort Hare are experienced marketing academics whose
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expertise has enhanced the quality of this text.
Our gratitude also goes to Michele van der Merwe of the
University of Pretoria who again has made a wonderful
contribution in preparing the supplementary material
accompanying the book.
Christo Boshoff and Nic Terblanche
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PART
01
Introduction to marketing
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CHAPTER
01
An overview of marketing
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
Define the term ‘marketing’.
Explain the nature and relevance of customer satisfaction and
loyalty in a marketing context by emphasising the need to
measure customer satisfaction.
3 Explain the concept of exchange in marketing terms.
4 Describe six marketing-management philosophies and their role
in the evolution of marketing thought.
5 Differentiate between sales and consumer orientations to
marketing.
6 Discuss the nature and implementation of the marketing concept.
7 Explain how the pursuit of new opportunities can contribute to
the realisation of a firm’s goals and objectives.
8 Explain why an appropriate definition of a firm’s business is
important, and describe the pitfalls associated with an
inadequate definition.
9 Describe the importance of a competitive advantage in marketing
and how this advantage can be established and maintained.
10 Describe the marketing process.
11 Briefly review the role of marketing in the firm.
12 Critically evaluate the criticism often levelled against marketing
and suggest arguments that can be used to justify marketing’s
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role in the economy.
13 Describe several reasons for studying marketing.
14 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
15 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice
Customer satisfaction still the key
ingredient
Whether travelling for business or pleasure, an airport
experience can set the tone for the rest of a trip, says
Dawn Nathan-Jones, CEO of Europcar. She says this is
why Europcar ensures that customer service remains at
the core of its business and why the company commits
to making each customer’s travelling experience easy,
personal and enjoyable. According to Europcar,
domestic passenger numbers have increased by 5 per
cent to 10 per cent at OR Tambo, Cape Town and King
Shaka airports over the past nine months.
Nathan-Jones says that the company has had to
ensure that its employees are properly skilled and
equipped with the right product knowledge to ensure
that customers are on the road as quickly and as
efficiently as possible. The company has seen an
increase in the demand for its ready service where
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customers receive their keys in hand within 30 seconds
without having to complete any paperwork or having to
wait in queues. Once registered, all that’s needed is
appropriate identification to get the car. ‘Customers
want their airport experience, including collection of
their rental vehicles, to be seamless and quick and we
understand this,’ says Nathan-Jones.
With a 30-year track record in the industry, Europcar
constantly measures its customer satisfaction index to
ensure that it always meets customer needs. ‘Each day,
more than 10 per cent of our customers are surveyed,
bringing all touch points into the mix. We believe that if
the customer experience is easy, personal and
enjoyable, a recommendation will undoubtedly be
made, and 98 per cent of our customers advise they
would recommend us to a friend or family member,
which is a score that Europcar is proud of. We aim to
exceed customer expectations at every touchpoint in
the business.’
SOURCE: James, A. Customer satisfaction still the key ingredient. Business
Day, 17 November 2011, p. 8
QUESTIONS
1
2
3
Why is customer satisfaction important to business firms?
What are the dimensions on which the customers of car rental firms
base their assessment of customer satisfaction?
What role do expectations play in an assessment of customer
satisfaction
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1. Introduction
Let’s pretend that you are a budding young entrepreneur
who has decided to take the plunge and start your own
business with a few friends. As you are all keen cyclists, you
decide to open a cycling shop. What do you do to get
started? You may have completed a first-year business
management course, and recall something about the factors
of production: natural resources, human resources (labour),
capital and entrepreneurship. You also learnt about the
typical business functions, such as the production, finance,
purchasing and marketing functions. As the expert marketer
in the management team, however, you have to address a
few important marketing-related issues before you attend
the first management meeting. These include the following:
•
•
•
•
•
•
•
•
•
•
What are the needs of people buying bicycles?
Do they all have the same needs?
If not, how can we satisfy their different needs?
What do we know about the business environment?
How many people in South Africa buy bicycles every
year?
Do they buy at specific times of the year?
Who are our competitors? How many are there? And
how strong are they?
How can we differentiate our bicycles from those
marketed by competitors?
Are there different groups of cyclists who prefer specific
types of bicycles?
How should we design the bicycles?
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•
•
•
•
•
•
Should we develop our own branding?
Will we be able to physically get our bicycles to potential
buyers?
What is an acceptable market price for different bicycles?
Can we be profitable selling at that price?
How we are going to tell potential buyers of our shop and
products?
How are we going to communicate with them and what
are we going to say?
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Once you have addressed these questions you should know:
•
What the objectives, and in particular what the
marketing objectives of the business will be?
• What the business’ strengths, weaknesses, opportunities
and threats are (SWOT analysis)?
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•
•
•
•
•
What the businesses’ competitive advantage would be?
Which markets will be targeted?
How will the business be positioned against major
competitors?
What will be the features of the product, how will it be
priced and distributed and how will you communicate
with the markets you are targeting (the marketing mix)?
Who will be responsible for planning and executing our
marketing plan?
Using the figure in the margin may be a useful way of
structuring your first management meeting.
All these questions and activities are related to a process
called marketing. Marketing links production (in this
example, of bicycles) with a market consisting of potential
buyers. The primary function of marketing is to provide
need-satisfying products to potential buyers – at a profit.
To realise the objectives of satisfying consumer needs at a
profit questions like the ones above must be addressed
before the business is established. This is normally done in
the form of a formal marketing plan (see Figure 14.1 in
Chapter 14). Part of the marketing plan will be devoted to a
marketing strategy. The marketing strategy will consist of a
market segmentation strategy, a market targeting strategy
and a positioning strategy (some refer to it as STP) on which
the product, distribution, marketing communication
(sometimes referred to as the promotion strategy) and
pricing strategies (collectively known as the 4Ps) will be
based.
But before you attend the first management meeting you
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need to explain to your fellow business partners what
marketing is all about.
2. What is marketing?
LO1
What does the term ‘marketing’ mean? Many people think
marketing means selling. Others think marketing is just
another word for advertising. Others believe marketing has
something to do with making products available in shops,
arranging product displays and maintaining inventories for
future sales. In reality, marketing includes all of these
activities – and much more.
Marketing has two facets:
•
•
It is a philosophy, an attitude, a perspective and a
management orientation that stresses customer
satisfaction
Marketing is also a set of activities used to implement
this philosophy.
The American Marketing Association’s definition
encompasses both perspectives: ‘Marketing is the activity,
set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that
have value for customers, clients, partners and society at
large.’1 Marketing, therefore, means anticipating and
satisfying consumer needs by means of mutually beneficial
exchange processes, and doing so profitably and more
effectively than competitors by means of efficient
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managerial processes.
The key phrase here is ‘satisfying consumer needs’.
Without satisfying consumer needs, no firm or organisation,
either profit-driven or not, can survive in the long term.
Customer satisfaction can be described, therefore, as the
primary goal of marketing.
3. Customer satisfaction
When maximising customer satisfaction is the goal, the firm
needs to know how well it is meeting customer expectations.
Customer satisfaction is the feeling that a product has met or
exceeded the customer’s expectations and can be explained
in terms of the so-called Disconfirmation Paradigm (Figure
1.1). Figure 1.1 shows that meeting or exceeding customer
expectations both lead to customer satisfaction, but
dissatisfaction results if performance (such as product
performance or employee performance) falls short of those
expectations.
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Figure 1.1 the Disconfirmation Paradigm
SOURCE: Adapted from Smith, R.A. & Houston, M.J. 1983.
Script-based evaluations of satisfaction with services. In
Berry, L.L., Shostack, G.L. & Upah, G.D. (eds). Emerging
Perspectives on Services Marketing. Chicago: American
Marketing Association, Proceeding Series, pp. 59–62
Customer satisfaction, therefore, is a customer response
(a judgement) to a product or service in terms of the extent
to which consumption meets the customer’s expectations.
Meeting and exceeding customer expectations and thus
sustaining customer satisfaction is not an easy task. In fact, a
survey of 700 private firms in South Africa has identified
customer satisfaction as their ‘key performance area’ – even
more important than profitability, market share and
turnover.2 As a result many firms in South Africa cultivated
very high levels of satisfaction amongst their customers. It is
not surprising because these firms emphasise market
research and marketing as the tools to explore what
customers want. Knowing what your customer wants then
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makes it possible to tailor everything you do to pleasing
them such as providing the goods that they want, in the
packaging that they desire, in retail outlets that are
convenient to use and easy to access.
No firm, however, can rely on customers to take the
initiative to make their feelings of satisfaction or
dissatisfaction known. Therefore, firms have to set out to
measure the customer satisfaction levels of their customers.
3.1 Measuring customer satisfaction
A programme to measure customer satisfaction should be a
permanent, ongoing process that translates what customers
want (their needs and expectations) into information that
can be used in managerial decision-making. A customersatisfaction programme should define, in their own words,
what customers want (their expectations) in respect of
products and services, in terms of product attributes and
quality level. Telkom, for example, measures its customer
satisfaction levels annually in terms of customer
expectations, quality of service, quality of products and
image.
Customer satisfaction measurement should also provide
insight into factors that are important to customers or
specific to a certain industry or firm, such as the price
perceptions of customers, the reliability of a service or the
image of a brand. Current customers, lost customers and
potential customers should all be included in a customersatisfaction measurement programme.
Information about customer satisfaction can be collected
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in a variety of ways, including:
•
•
•
Formal research surveys (mail; telephone; personal
interviews; focus groups; Internet surveys)
Analysis of customer-complaint data (customercomplaint boxes, letters of complaint, monitoring
Internet discussions) and interviewing staff (especially
those who interact directly with customers)
Collecting information about customer needs and
expectations from intermediaries such as retailers, sales
agents and wholesalers.
Measuring customer satisfaction can, therefore, be both
formal and informal, and can be either qualitative or
quantitative in nature.
EXAMPLE >> British Airways/Comair collects customer satisfaction
information from a variety of sources. Customers participate in a global British
Airways customer satisfaction survey called the Global Performance Monitor,
which benchmarks British Airways/Comair against international standards. This
information is augmented with more qualitative interviews it conducts with its
Executive Club members (frequent flyers) during focus-group meetings called
‘Listening forums’. Another source of information is comment cards that are sent
to the airline by passengers.
>> Strategy
Another example of a comprehensive customersatisfaction measurement programme and how it can
assist managerial decision-making is that of the
California Department of Parks and Recreation (DPR)
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in America. Customer satisfaction surveys form a key
component of DPR’s quality improvement process.
Data collected from 9 000 questionnaires sent out four
times per year at the 268 California state parks enable
park management to continually fine-tune their service
strategies. For instance, based on feedback from
concerned visitors, park officials began collecting data
on boating and jet-ski accidents. The results revealed
that over a five-year period there were 480 accidents
and most of them involved drivers between 23 and
33 years of age. Before the survey, staff believed that the
accidents were alcohol-related, and were ready to ban
alcohol at the lake. However, the data revealed that the
major cause of accidents was inexperienced operators.
This insight led park officials to shift their focus to
boating safety education. This change in strategy led to
a 31 per cent drop in boat accidents. 3
Like the California Department of Parks and Recreation, in
order to begin improving customer satisfaction, a firm needs
to be able to clearly identify the attributes that convey value
to the customer. To identify these attributes it needs to
measure customer expectations and perceptions of
performance – as well as perceptions of importance for each
value component, such as product, service and price.
However, a good customer-satisfaction measurement
programme generates more than just empirical data about
customers’ expectations and perceptions. It also captures
qualitative inputs that do not typically result from traditional
marketing research, allowing the customer to become an
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integral part of a firm’s learning and decision making
processes. For example, a series of focus group interviews
with small groups of customers may provide valuable
insights into how a firm could improve product features,
delivery times and enhance customer service – or whatever
is important to customers.
If you still wonder why business firms should do research
to assess the satisfaction of their customers, ask yourself the
question: what do consumers do if they are dissatisfied with
a firm? Dissatisfied customers often complain to other
sources (such as other consumers or consumer bodies, like
the South African National Consumer Union (http://www.
sancu.co.za/)
or
the
Ombudsman
(visit
http://ombudsman.ombudsmen.co.za/find-anombudsman/ to find a specific ombudsman in an industry,
in the case of life-insurance problems); or they buy less and
less; or they stop buying from the offending firm altogether.
Even worse, they simply switch to a competitor (see Reader
1 ‘Unwelcome at Telkom’ below). In addition, access to
modern technology allows consumers to complain in a
manner that can cause serious harm to a firm’s brand and
reputation. For instance, a disgruntled Cell C customer
erected a giant banner bearing the Cell C logo outside a
shopping centre in Boksburg reading: The most useless
service provider in SA – Cell C Sandton.4
Firms that fail to retain their customers – that is, keep
them loyal by keeping them satisfied – pay a heavy price in
monetary terms for their inability to keep their customers
satisfied. Satisfied customers, on the other hand, tell others
how happy they are with a firm (positive word-of-mouth);
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they buy more and more, and, in this way, increase sales and
profits; and are often prepared to pay a price premium,
further increasing sales and profits. Keeping customers
satisfied, therefore, leads to customer loyalty, which ensures
the survival and prosperity of the firms who get it right.
READER 1 >> Unwelcome at Telkom
I have to agree that Telkom must be the leading contender for the worst
customer service in history. I recently tried to arrange a Telkom e-mail
connection for my father. Telkom was advertising the ‘first three months free’
so I thought I would take advantage of this offer. The first bill was a dog’s
breakfast and failed to correctly reflect my father as a pensioner. Then, after
three months, they just cut the service off. This is astounding as they are in the
business of selling services and we are willing buyers. Despite our efforts, the
service is still not up and running six weeks later. I’ve found that the only way
to contact the Telkom call centre was to use our spare office phone on
speaker as one had to hold on for over an hour before they answered. Then
the Telkom staff behaved arrogantly and were uninformed, unhelpful and often
rude. In the interest of sanity I’ve decided to try another service provider and
aim to have as little to do with Telkom as possible.
SOURCE: Letter published in the Financial Mail, 27 January 2013.
3.2 Customer satisfaction or customer
dissatisfaction?
When designing customer-satisfaction measurement
programmes, firms need to understand the two-factor
model of customer satisfaction. This model suggests that the
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same factors that contribute to satisfaction may not
necessarily contribute to dissatisfaction. One category of
factors is called hygiene factors. Hygiene factors are factors
that contribute to customer dissatisfaction. The second
category is called satisfiers. Satisfiers are factors that
contribute to customer satisfaction.
Customers can tell firms why they are satisfied or
dissatisfied with a product or service. The absence (or poor
performance) of some product attributes may quickly lead
to dissatisfaction, even though high performance on those
same attributes may contribute very little to high levels of
customer satisfaction. Conversely, the factors that cause
customer satisfaction may not be identified as factors whose
absence results in customer dissatisfaction. In other words,
poor performance on attributes leading to high satisfaction
does not necessarily result in customer dissatisfaction. It is
important to note that hygiene and satisfier factors may vary
among different groups of customers. Customer-satisfaction
research can be designed to determine which factors
customers perceive as belonging in the hygiene category
and which they perceive as being satisfiers.
If a firm performs at a very high level in delivering the
hygiene attributes, customers will rate their satisfaction with
the product or service as being acceptable, but not
exceptional. Hygiene attributes collectively constitute a
minimum level of satisfaction, and failure to meet that
minimum will cause customers to become dissatisfied.
Performing at a very high level on hygiene attributes may
yield the customer response: ‘So what? You’re expected to
do that.’
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For example, customers expect a hotel room to be clean –
a hygiene factor. If the room is not clean when they arrive,
they will be dissatisfied. It will not matter if the bed is
comfortable, the decor of the room is impressive or whether
the bathroom is big and luxurious. Failure to deliver on the
hygiene attribute of cleanliness will lead to customer
dissatisfaction. Yet if the room is clean, customers probably
will not even notice it, because cleanliness is what they
expect as a basic minimum. Therefore, cleanliness (a
hygiene factor) does not have as strong an effect on
satisfaction as it does on dissatisfaction.
The hygiene attributes must thus be delivered at an
acceptable level of performance before the satisfiers become
important. Once the customer’s expectations on hygiene
factors have been met, then the satisfiers have the potential
to create higher levels of customer satisfaction. In the hotel
example, if the room is clean, then the comfortable bed,
soothing colours, a large luxurious bathroom and a splendid
view of the sea may each contribute to higher satisfaction
levels.
When measuring customer satisfaction, both the hygiene
factors and the satisfiers that are important to customers
should be identified and evaluated. Therefore, management
needs to ask the right questions to ensure customer
satisfaction and customer loyalty.
3.3 The benefits of customer satisfaction
and loyalty
L02
It is unfortunately true that many firms lose up to half of
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their customers in five years. Keeping customers satisfied by
offering them superior value increases the chances that they
will become loyal customers, ensuring the firm’s long-term
survival and growth. Satisfied – and consequently loyal –
customers are more profitable to firms than those who are
not loyal. The favourable economic outcomes of customer
loyalty include:
•
Lower acquisition cost. Acquisition cost is the cost of
recruiting new customers, and includes the cost of
advertising, sales calls, public relations and promotional
expenditure. Although these costs may be the same per
customer for loyal and non-loyal customers, the overall
acquisition costs will eventually be lower for a firm with a
large, loyal customer base because it needs to generate
fewer new customers to sustain its profitability. The
direct retailer Home Choice, for instance, estimates that
42 per cent of its sales are made to existing customers,
dramatically lowering the need to generate new sales by
recruiting new customers. The retailer Edgars has found
that 55 per cent of its sales are to existing, loyal
customers. In the case of Clicks its 77 per cent. According
to a new global survey better branding, loyalty programs
and social media are responsible for this trend. But the
report also shows that fears about the security of
personal data shared online prevent some consumers
from making online purchases.
WEBSITE
For additional reading refer to the article:
Online consumers show greater loyalty to
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fewer retailers.
(https://www.internetretailer.
com/2014/02/24/online-consumersshow-greater-loyalty-fewer-retailers) (24
February 2014)
•
Base profit. All customers buy some product or service
and pay a price higher than the firm’s costs. This profit
on basic purchases, unaffected by time, loyalty,
efficiency, or other considerations, is called base profit.
The longer a firm keeps a customer, the longer it will
earn this base profit.
WEBSITE
As technology has developed loyalty cards
have become a rich source of data for the
companies that offer them, but many
questions are asked about its true value
to consumers. For additional reading refer
to the article: Are loyalty cards really
worth it? (http://www.theguardian.com/
news/datablog/2013/oct/31/ areloyalty-cards-really-worth-it)
•
Revenue growth. In most businesses, customer
spending tends to accelerate over time. In retailing, for
example, customers who buy clothing eventually notice
that the shop carries other products, such as shoes or
jewellery, and begin to purchase these other products as
well which increases the firm’s revenue. Customers may
use a travel agent only for local travel, but when they get
the opportunity to travel overseas, they may make use of
the same travel agent. Clicks has found that its Club Card
holders spend three times more than its other
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customers. Therefore, per customer, revenues grow if
firms can retain the loyalty of their customers.
• Cost savings. As customers get to know a business, they
learn to be more efficient. Informed customers do not
waste time requesting products or services the firm does
not provide, nor are they as dependent on employees for
information and advice. For instance, financial planners
spend about five times as many hours on a first-year
client as they do on a repeat customer. Over time,
collaborative learning between the customer and firm
creates productivity advantages that directly translate
into lower costs.
• Referrals. Satisfied customers tend to recommend a firm
or brand to others – behaviour referred to as word-ofmouth. Positive word-of-mouth is a very powerful source
of ‘advertising’ for any firm and is often regarded as a
more credible source of information than advertising by
many consumers.
• Price premium. Loyal customers who feel they are
getting superior value tend to be less price-sensitive than
non-loyal customers. In other words, very satisfied
customers are less likely to respond to a competitor’s
lower prices, special offers or discounts, and will in many
cases be prepared to pay a price premium to continue
enjoying the use of the superiority offered by the firm. A
Mercedes-Benz is not the cheapest motor vehicle on the
market, yet it is a very successful firm. Absa emerged
from a recent Afriforum survey as the bank with the
highest bank charges in South Africa. Yet Absa is a
successful bank whose customers are more than willing
to pay the higher fees for what they believe is a superior
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service compared with what they would get elsewhere.
It must be pointed out, however, that customer satisfaction
may not ensure customer loyalty at all times, or ensure
profitability, but it is a necessary condition for building
loyalty among customers. Therefore, the initial exchange
between buyer and seller must be a satisfactory one as a
starting point to build long-term customer loyalty.
4. The concept of exchange
LO3
Exchange is one of the key terms in the definition of
marketing. Yet it is quite a simple concept. It means that a
person (a buyer) gives up something of value to a seller to
receive something in turn that he would rather have.
Normally we think of money as the medium of exchange. A
buyer ‘gives up’ money to ‘get’ the products and services
wanted from a seller, who, in turn, ‘gives up’ the products or
services to ‘get’ money. Exchange does not necessarily
depend on money, however. Two persons may barter or
trade items such as books or paintings. A student who
‘swaps’ her bicycle for a textbook has been involved in
barter trade – a form of exchange without money changing
hands.
Five conditions must be satisfied for any kind of exchange
to take place:
WEBSITE
A popular local website where retailers or
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consumers can swop goods can be
accessed at
http://www.swapkit.co.za/index.html.
Similarly one can also swop many
products on Barterquest (www.
barterquest.com/) or OLX (www.olx.co.za).
Recently Swop.com launched a mobile
application that allows users to swap
items that they do not use for products
they do need.
•
•
•
•
•
There must be at least two parties (a buyer and a seller)
Each party must have something the other party values
Each party must be able to communicate with the other
party and deliver the goods or services sought by the
other trading party
Each party must be free to accept or reject the other’s
offer
Each party must want to deal with the other party. 5
It is important to note that exchange will not necessarily take
place even if all these conditions exist. They are necessary,
however, for exchange to be possible. For example, you may
place an advertisement in your local newspaper stating that
your used motor vehicle is for sale at a certain price. Several
people may call you to enquire about the car, some may
even test-drive it, and one or more may even make you an
offer. All five conditions have thus been met, but unless you
reach an agreement with a buyer and actually sell the car, an
exchange has not taken place. Also note that marketing can
occur even if an exchange does not take place. In the
example of the car just described, you would have engaged
in marketing even if no one bought your vehicle. Marketing,
therefore, does not guarantee successful exchange.
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Successful exchange demands, however, that a number of
prerequisites are first met, as listed above.
Exchange takes place within what is described as a
market, which consists of people and organisations with
needs and wants, who have the means to pay for a product
and the willingness to buy. Needs are the basic (often
physiological) forces that motivate people to behave in a
certain manner. We cannot, however, create needs. Hunger,
thirst and the need for shelter, for example, cannot be
created. We can, however, create wants. Wants are needs
that have been learnt over time. Consumers can learn that a
Wimpy breakfast tastes delicious and is good value for
money. Marketers cannot make consumers hungry, but they
can certainly help them associate the need (hunger) with the
benefits of a Wimpy breakfast (a want) – for example, by
advertising, which is just one of the many communication
tools available to the marketer. The exchange of value
(buying and selling), therefore, leads to benefits for both
parties: income for the seller and need satisfaction for the
buyer. And the firm’s reward for creating a satisfied
customer is profit.
Now you should understand what marketing is. How
marketing has been conducted over the ages, however, has
changed as the discipline has developed and adapted to new
influences over time. Several developmental phases can be
identified, and specific philosophies have dominated
marketing thought and practices during different periods.
5. Marketing management philosophies
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LO4
Six competing philosophies can influence a firm’s marketing
activities. These philosophies are commonly referred to as
production, product, sales, consumer, societal and
relationship marketing orientations. Although they all still
manifest themselves in marketing thinking and activities to
this day, each one of them was the dominant paradigm
during a specific time in the historical development of the
discipline of marketing.
5.1 Production orientation
A production orientation is a philosophy that focuses on the
internal production or manufacturing capabilities of the
firm rather than on the desires and needs of consumers. The
production era culminated in the Industrial Revolution – a
period in history when the world made significant progress
in improving production processes and started moving
towards mass production.
A production orientation means that management
assesses its internal resources and asks questions such as:
‘What can we do best?’; ‘What can our engineers design?’;
and ‘What is easy to produce with our equipment?’ In the
case of a service firm, managers ask, ‘What services are most
convenient for the firm to offer?’ and ‘Where do our talents
lie?’ Some have referred to this orientation as a ‘Field of
Dreams’ marketing strategy, referring to the famous line
from this movie, ‘If we build it, they’ll come.’
There is nothing wrong with assessing a firm’s internal
capabilities. In fact, such assessments are major
considerations in strategic marketing planning (see
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Chapter 14). However, focusing a firm’s marketing efforts on
its internal production capabilities only and ignoring
customer needs can create problems in the long term.
A production orientation does not necessarily doom a
firm to failure, especially not in the short term. Sometimes a
firm is very fortunate and what it can best produce is exactly
what consumers (the market) want at the time. For example,
when personal computers first came on the market, most
DOS-based software programmes were not particularly
user-friendly. Yet the marketers of word-processing software
programs such as MultiMate were very successful – for a
while. Why? Because the word-processing programmes at
the time used production technologies that were a huge
improvement on the old electric typewriters, and
competition was weak. Despite their user-unfriendliness,
consumers still bought these programmes because they
offered considerable advantages over the competing
products, such as electric typewriters. When competition is
weak or demand exceeds supply, a production-orientated
firm can survive and even prosper.
EXAMPLE >> When Xerox introduced the first plain paper copier, it
had a production capability that was unique. Because of this unique technology
Xerox was very successful – mostly because it did not face serious competition for
several years after the launch. While competition was weak and fragmented Xerox
prospered despite its production orientation. But things soon changed. Once the
competition (especially from Japanese firms) gained access to the copier
technology and improved on it, especially in the areas of product quality and
customer satisfaction, Xerox rapidly lost market share.
Most of the firms that succeed in competitive markets have a
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clear understanding that they must first determine what
customers want and then produce it, rather than focus on
what managers think should be produced. The banking
group Absa now defines its business as ‘meeting customers’
personalised financial needs’ as opposed to ‘an institution
that stores money’ because they realised that a production
orientation will not serve them well in the modern-day
banking environment where consumer needs are changing.6
The Visa card is no longer a card brand, but ‘a provider of a
large number of payment solutions’. In other words, a
production orientation is inadequate because it does not
consider whether the goods and services that the firm
produces most efficiently meet the needs of consumers.
5.2 Product orientation
The product orientation era started once most firms had
sorted out their production-related problems (that is,
introduced some form of mechanisation) and consequently
shifted their attention from improving production processes
to improving product features and product quality.
Firms with a product-orientation philosophy believe that
they will be successful if they manufacture good-quality
products, regardless of the impact of other influences.
Superior-quality products and special product features are
the focus of these firms, and they assume that these
attributes are all consumers are interested in. They do not
conduct research to understand what consumers want in a
product or try to involve customers in the design process.
These types of firms do not pay much attention to the
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activities of their competitors either. They are so fixated on
the products they manufacture and their features, that all
else pales in significance.
The problem with a product orientation is that ignoring
customer needs is often fatal. Consumers buy products to
satisfy their needs. If products are manufactured with
features that are impressive, but the products do not satisfy
needs, consumers will simply not buy them. Consider the
example of PPG Industries:
EXAMPLE >> Throughout the 1980s, researchers at PPG spent
considerable time, effort and money developing a bluish motor vehicle
windscreen that would let in filtered sunlight but block out the heat. Scientists
were convinced that this new product would be significantly better than existing
windscreens. However, when the new windscreen was introduced, the motor
vehicle manufacturers refused to buy it. They didn’t like the colour or the price.
‘We developed a great mousetrap, but there were no mice’, said Gary Weber, vice
president for science and technology at PPG at the time.7
PPG paid a heavy price for thinking in terms of its product’s features instead
of the needs of its customers. But even if the windscreen had enjoyed success,
PPG would soon enough have come up against another problem associated with
a product orientation: product features are often easily copied by competitors. So
what is new and impressive now may not be so for long before competitors are
marketing products with similar features. For example, the security firm Maxidor
was hugely successful when it first produced security doors with its unique ‘slam
lock’. This door locked itself when slammed shut. The advantage was soon lost,
however, when it was copied by other security firms, such as Trellidor.
Another South African firm that quickly realised that a product orientation was
bound to fail was Nando’s (the Portuguese flame-grill fast-food chain). Nando’s
strategist, Josi McKenzie, says the focus has shifted from marketing Portuguesestyle peri-peri chicken to what customers really wanted – ‘the Nando’s
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experience’.8 Another example is Nedbank’s retail division which been is disarray
for many years and the reason is believed to be that fact that Nedbank is ‘too
product focused’.9
5.3 Sales orientation
The sales orientation era started when business firms
improved their production capabilities and increased their
production capacity to such an extent that they ended up
with surplus goods they could not sell – the result of mass
production. So buyers had to be found for the mounting
inventory in many warehouses.
A sales orientation is based on the idea that people will buy
more goods and services if aggressive sales techniques are
used, and that high sales volumes result in high profits. Not
only are sales to the final buyer emphasised, but
intermediaries, such as retailers, are also encouraged (even
pressurised) to push manufacturers’ products more
aggressively. To sales-orientated firms, marketing means
selling things and collecting money. Johann Rupert,
chairman of Richemont says: ‘We’ve got to sell. If we do not
sell the cost kills us and that’s what keeps me awake at
night’. 10 Insurance salespeople sometimes exhibit a sales
orientation by using ‘hard sell’ techniques. Alexander
Forbes is a case in point. The group has been described as
‘aggressive’ sellers. Its former group CEO, Graeme Kerrigan,
said that this is a deliberate strategy. He is quoted as saying:
‘We employ people with enthusiasm, energy and
excitement. And we encourage a bit of hard sell.’ 11
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A firm that blames its current hardship on being too salesorientated is the financial services firm Liberty Holdings.
‘Historically, Liberty was a sales-led company and as a result
certain systems, processes and remuneration practices [of
sales consultants] emphasised sales rather than retention [of
customers]’, says CEO of Liberty Holdings, Bruce Hemphill.
‘We have lost touch with our customers’, he says. 12
The fundamental problem with a sales orientation, as
with a production and product orientation, is a lack of
understanding of the needs and wants of consumers. Salesorientated firms often find that despite the quality of their
sales force, they cannot convince people to buy goods or
services that are neither wanted nor needed. The business
publication Financial Mail’s sales steadily declined from
about 33 000 per week in the middle of 2000 to about 26 000
by the beginning of 2004. The reason? Management
admitted that it had concentrated too much on circulation
figures and had lost track of the needs of its readers. Sales
targets can never replace satisfying customer needs.
5.4 Consumer orientation
A consumer orientation, which is the foundation of
contemporary marketing philosophy, is based on an
understanding that a sale depends not simply on excellent
production facilities or on an aggressive sales force, but
instead on a thorough understanding of consumers’ needs.
A consumer orientation assumes that consumers do not buy
products for the sake of having them, but because of the
need-satisfying properties that the products have. Some buy
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a motor vehicle to get from A to B. Others buy the same
vehicle to impress their friends. Still others buy the same
vehicle for racing purposes. They all buy a motor vehicle,
but they do so to satisfy different needs. The basis of a
consumer orientation is identifying, understanding and
satisfying the needs of consumers.
Consumer orientation is based on a philosophy referred
to as the marketing concept. The marketing concept is
simple and comprises an intuitively appealing approach to
marketing. It suggests that the social and economic
justification for a firm’s existence is the satisfaction of
consumer needs and wants – while meeting the firm’s
objectives. The marketing concept is based on three ‘pillars’:
•
•
•
First and foremost, customer satisfaction – by focusing
on customer needs and wants
Integrating all the firm’s activities, including production,
to satisfy these needs and wants
Realising long-term goals, such as sustained profitability,
by satisfying customer needs and wants legally and
responsibly
The marketing concept is based on the recognition that
customer-need satisfaction is the key to successful
marketing. The importance of need satisfaction is
acknowledged in the majority of definitions of marketing.
Without need-satisfying characteristics, no sale will occur,
which suggests unsuccessful marketing. In short, a firm
must provide what the customer wants – not what the firm
thinks customers want or should want.
The second pillar of the marketing concept is the
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integration of all the firm’s activities to ensure customer
satisfaction. This requirement implies that customer
satisfaction is not the sole responsibility of the marketing
department. In other words, everyone in the firm has to
work towards the goal of customer satisfaction, and the
entire firm’s people, processes, leadership and, indeed, its
culture, must be geared towards this primary goal.
The third pillar of the marketing concept is an
acknowledgement that firms cannot survive and prosper if
their marketing activities are illegal or unethical. One can
extend this line of thinking by arguing that business firms
should make a positive contribution to ensure the
enhancement of the business environment in which it does
business.
Although the philosophy of the marketing concept is
simple and intuitively appealing, it is often surprisingly
difficult to implement. Some firms have unfortunately learnt
this the hard way.
EXAMPLE >> Afribrand, a firm that used to specialise in marketing
products to street hawkers, was mystified when the new biscuits it supplied were
simply not bought. After a while, the reason became clear. Street hawkers
traditionally bought broken, rejected biscuits from biscuit factories, so the new,
whole, unscathed biscuits did not satisfy their needs. As a result, they simply did
not buy them. To be able to sell their biscuits, Afribrand had to break them before
selling them to the street hawkers! In other words, Afribrand realised that for
exchange (sales) to take place, they had to satisfy the needs of their customers.
Customer satisfaction is a positive reaction to a purchase
decision or product after purchase. In other words, it is the
result of a purchase, and is in essence an assessment of need
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satisfaction. The objective of all marketers ought to be
customers who are satisfied with their purchase(s) because
that will show that the firm has successfully implemented
the marketing concept.
Today, most types of firms, at least in theory, subscribe to
the marketing concept. For example, Spar has become one
of the leading retailers in South Africa by focusing on what
most grocery shoppers want: good-quality products,
reasonable prices, a clean and spacious environment and
quick service.
While accepting the philosophy of the marketing concept,
marketers have realised over time that there are two
additional requirements for successful long-term marketing.
The first is that marketing must be executed in such a
manner that the society in which the firm operates benefits
from the firm’s activities. The second requirement is that
marketing should not be a once-off activity: instead, it ought
to lead to a long-term relationship and mutual loyalty
between the firm and the customer. These requirements
have led to two further developments in marketing thought,
namely a societal marketing orientation and a relationship
marketing orientation.
5.5 Societal marketing orientation
One reason a marketing-orientated firm may choose not to
deliver the benefits sought by consumers is that these
benefits may not be beneficial to individuals or society.
There is obviously demand for products such as cannabis
and unlicensed firearms, but they are illegal. Other products
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are legal but are subject to ethical constraints. This
important refinement of the marketing concept, called the
societal marketing concept, acknowledges that a firm exists
not only to satisfy consumer needs and wants, and to meet
the firm’s objectives, but also to preserve or enhance
individuals’ and society’s long-term best interests.
Marketing ‘environmentally friendly’ products and
packaging, for instance, is consistent with a societal
marketing orientation. Absa Bank’s sponsorship of some of
the initiatives of the Kruger National Park is one such
example. Absa says: ‘We’re always ready to lend a hand by
investing in the preservation of the environment in which
we all live, which will continue to make our country a better
place. This comes as second nature to us.’ Vital, a marketer
of health products, donates one Rand from the price of every
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pack of Vital vitamins sold in South Africa to a fund fighting
the scourge of women and child abuse.
Acceptance of the societal marketing orientation is an
acknowledgement by marketers that business firms do not
do business in isolation and must make a contribution to the
society in which they function.
A more recent manifestation of societal marketing is socalled ‘green marketing’. The retailer Woolworths, for
instance, has launched its ‘Farming-for-the-future’ project
to help farmers who supply them with fresh produce to
reduce their dependence on artificial chemical fertilisers
(and use compost and organic fertilisers instead), and
pesticides and herbicides. Healthy soil requires less
irrigation because it retains water better, mitigates the
effects of global warming and reduces the loss of topsoil to
erosion. Julian Novak, who heads Woolworth’s food group,
says: ‘In our trial we have seen crop yields increase, we have
seen indigenous wildlife and birdlife return. The
environment is returning to health.’13 In a similar vein, the
bread manufacturer Albany has launched South Africa’s first
biodegradable bread bags.
READER 2 >> Bottled Water: Not an environmentally
friendly product?
Traditionally bottled water has been considered a bland commodity and it is
therefore surprising that there is such huge growth predicted for this market.
To illustrate this point, consider that in 2006 the value of bottled water sold
globally reached a value of US$60 938 million which comprised a volume of
115 393,5 million litres. In spite of these impressive figures, the bottled water
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market is forecast to increase by 2011 (from 2006) in value by some 41,8 per
cent to US$86 421,2 million and in volume by 51 per cent to 174
286,6 million litres.
There have, however, been a number of criticisms levelled at the
manufacturers of bottled water and these are mostly surrounding the impact
that this industry is having on the environment. A major concern is the
material which is used to package the water, much of which is not recycled
and ends up as litter or goes into landfill sites. Similarly, recent concerns
about the carbon footprint associated with the harvesting, bottling and
transportation of water has resulted in a consumer backlash against the
consumption of bottled water. For example, in the small rural Australian town
of Bundanoon, residents were angry about the plans of a company to build a
water extraction plant in the town, transport the water to a bottling plant 150
km away for processing and then selling it back to them. The residents
responded by banning the sale of bottled water in the town. This incident has
been regarded by some environmental activists as indicative of a worldwide
trend.
SOURCES: Australian town bans bottled water. Guardian.co.uk, 9 July 2009;
http://www.theguardian.com/environment/2009/jul/09/australian-bottled-water-ban
http://en.wikipedia.org/wiki/Web_2.0; King, M. 2008. Bottled Water - Global Industry Guide, PRinside.com, 7 July 2008
5.6 Relationship marketing orientation
The realisation that customer loyalty is an important
consideration in long-term marketing success has been the
most recent refinement of the marketing concept.
Enlightened marketers have realised that they need to focus
on building long-term relationships with their customers
rather than on short-term transactions. The relationship
marketing philosophy emphasises forging long-term
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partnerships with customers. Firms build relationships with
customers by offering value and providing satisfaction on a
consistent basis. Firms that successfully implement
relationship marketing benefit from repeat sales (loyalty)
and referrals, which lead to increases in sales, market share
and profits. Costs fall because it is less expensive to serve
existing customers than to attract new ones. Keeping a
customer costs about a quarter of what it costs to attract a
new customer, and the probability of retaining a customer is
more than 60 per cent, whereas the probability of attracting
a new customer is often less than 30 per cent.14
Customers also benefit from stable relationships with
business firms. For example, a bank teller who knows her
clients’ needs is surely in a better position to provide a
quicker, more efficient, more personalised and needsatisfying service than a bank teller who serves a stranger
whom she does not know at all.
EXAMPLE >> Airlines’ frequent-flyer programmes (such as South African
Airways’ Voyager programme) are an example of financial incentives offered to
consumers in exchange for their continued loyalty. After flying a certain number of
miles or flying a specified number of times, the frequent-flyer programme
participant earns a free flight or some other award, such as free accommodation.
Frequent-flyer programmes encourage customers to become loyal to specific
airlines and reward them for this behaviour. The banking group First Rand’s
eBucks programme (First National Bank and RMB Private Bank) is arguably one of
the most successful loyalty programmes in South Africa (it has more than
1 million members). First Rand customers earn eBucks when they use their credit,
debit or cheque accounts and can spend the rewards (they get 10 eBucks for
every rand they spend) on a variety of products and services.
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Many firms acknowledge the importance of long-term
relationships, and convey this orientation in their
advertising. Mutual and Federal says: ‘There is nothing short
term about our relationship with our policyholders.’
A sense of well-being occurs when one establishes an
ongoing relationship with a firm or service provider, such as
a retailer, doctor, bank teller, hairdresser or accountant. The
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social bonding that takes place between provider and
customer ensures personalisation and customisation of the
relationship. Firms can enhance these bonds by, for
instance, being reliable, referring to customers by name and
providing continuity of service through the same employee,
such as a personal banker.
Although different marketing orientations have
predominated at different times, this does not mean that
nowadays all business firms actually implement the latest
thinking in their daily marketing activities. Unfortunately, in
South Africa the ideal of a consumer orientation based on
need satisfaction, long-term customer relationship-building
and due regard for the environment is often a pipe dream.
One has only to read the letter columns of magazines and
newspapers to find confirmation of that. A letter writer
recently wrote: ‘The saga of poor service from the Post Office
continues. The Post Office is costing us a fortune through
late deliveries of accounts and payments.’ A regular moviegoer recently said that he has stopped going to movies
because of ‘the movie starting out of focus, booking the ideal
seat only to find it broken, inadequate legroom, poor sound
quality, continual latecomers, cellphones ringing, doors left
open letting in noise and light and patched screens painfully
visible’.
Successfully implementing the marketing concept is
easier said than done. Unfortunately, the focus is too often
on sales rather than on customer satisfaction and building
relationships with customers.
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5.7 Differences between sales and consumer
LO5
orientations
As noted at the beginning of this chapter, many people
confuse the terms ‘sales’ and ‘marketing’. These
orientations are substantially different, however. Table 1.1
compares them in terms of five characteristics: the firm’s
focus, the firm’s business, the firm’s primary objective, the
tools the firm uses to achieve its objectives and those at
whom the product is directed. Table 1.2 demonstrates the
differences between the two types of orientations by using
actual examples of three firms.
5.7.1 The firm’s focus
Table 1.1 shows that the staff of sales-orientated firms tend
to be inward-looking, focusing on selling what the firm
makes rather than making what the market wants (an
outward or external focus). Many of the historic sources of
competitive advantage – technology, innovation, economies
of scale – allowed firms to focus their efforts internally and to
prosper. The accounting profession or the computer
software industry are good examples of this reality. Today,
most successful firms have shifted to an external, consumerorientated focus. This focus acknowledges that no amount
of technical superiority will bring success in the long term
unless customer needs are satisfied.
As Alex Trotman, ex-chairman of Ford Motor Company,
once said, ‘The customer, not Ford, determines how many
vehicles we sell.’ 15 Raymond Ackerman, the chairman of
Pick n Pay, refers to ‘the supremacy of the customer’. 16 He
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has coined the phrase ‘Treat the customer like a queen and
she will make you a king’ to illustrate Pick n Pay’s marketing
philosophy. 17
A decision on the firm’s focus leads to the question ‘What
business are we in?’ This question is discussed in more
detail when we discuss this topic under the heading ‘The
firm’s business’ of this chapter.
5.7.2 The firm’s primary goal
As Table 1.1 illustrates, a sales-orientated firm pursues
profitability by growing sales volume and tries to convince
potential customers to buy, even if it knows that the
customer’s needs and the product’s benefits may be
mismatched. Sales-orientated firms place a higher premium
on making a sale than on developing a long-term
relationship with a customer. By contrast, the ultimate goal
of most consumer-orientated firms is to make a profit by
creating customer value, ensuring customer satisfaction and
building long-term relationships with customers.
5.7.3 Tools the firm uses to realise its goals
Sales-orientated firms try to generate sales volume by using
intensive promotional activities, mainly personal selling and
advertising. By contrast, consumer-orientated firms
recognise that promotion decisions are only one of several
basic marketing-strategy decisions that have to be made.
These include decisions on the so-called four ‘P’s: product
decisions, place (or distribution) decisions, promotion
(marketing communication) decisions, and pricing
decisions. Chapters 8 to 12 focus on these topics. A
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consumer-orientated firm recognises each of these four
components as important. On the other hand, salesorientated firms view advertising and promotion as the
primary means of realising their goals.
Table 1.1 Differences between sales and consumer orientations
Table 1.2 Illustrating the differences between product and consumer orientated
approaches
Company
Product
orientated
Consumer orientated
Revlon
We make
cosmetics
We sell lifestyle and self-expression; success
and status; memories; hopes and dreams.
Xerox
We make
copying, fax
and other
ofice
machines
We make business more productive by helping
them scan, store, retrieve, revise, distribute,
print and publish documents.
RitzCarlton
Hotels
We rent
rooms
We create the Ritz-Carlton experience – one
which enlivens the senses, instills well-being,
and fulfills even the unexpressed wishes and
needs of our guests.
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5.7.4 Those at whom the product is directed
A sales-orientated firm targets its products at ‘everybody’ or
‘the average customer’. A consumer-orientated firm targets
specific groups of people. The fallacy of developing products
targeted at the ‘average’ user is that relatively few average
users actually exist. Typically, populations are characterised
by diversity. An average is simply a mid-point in some set of
characteristics. Because most potential customers are not
‘average’, they are not likely to be attracted to an average
product marketed to the average customer – often by a
below-average marketer!
Consider, for example, the market for shampoo. There
are shampoos for consumers with oily hair, dry hair and for
those suffering from dandruff. There are shampoos for
permed hair, coloured hair, heat-damaged hair. Some
shampoos enhance the hair’s colour. Special shampoos are
marketed for infants and elderly people. There are frequentuse, all-in-one and family shampoos – but nowhere will you
find a shampoo that admits to catering for the ‘average’
customer.
A consumer-orientated firm recognises that different
customer groups exist and that their needs are different. It
may, therefore, need to develop different goods, services
and promotional appeals for different customer groups. A
consumer-orientated firm carefully analyses the market and
divides it into groups of people who are fairly similar in
terms of selected characteristics (referred to as market
segmentation). Then the firm develops marketing strategies
that will bring about mutually satisfying exchanges with one
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or more of those groups or segments.
Caxton Magazines, for instance, has a very good idea who
reads its different magazines (such as Bona, Style, South
African Country Life, Living and Loving, Garden and Home
and Farmer’s Weekly) and knows what their needs are.
Paying attention to the customer is not exactly a new
concept. Back in the 1920s, General Motors Corporation
helped write the book on customer satisfaction by designing
cars for every lifestyle and pocket. This consumer-orientated
approach was a breakthrough for an industry that had been
largely driven by production needs ever since Henry Ford
promised consumers they could have any car colour they
wanted as long as it was black. Chapter 6 explores the topic
of analysing markets and selecting and focusing on those
segments that appear to offer the most promising
opportunities.
6. A word of caution
This comparison of sales and consumer orientations is not
meant to belittle the role of marketing communication or
personal selling in the marketing mix. In fact, consumers
cannot buy products of which they are unaware. Marketing
communication (some prefer the term ‘promotion’) is the
means by which firms communicate with present and
prospective customers about the merits and characteristics
of their firm and products. Effective marketing
communication is an essential part of effective marketing.
Salespeople who work for consumer-orientated firms are
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generally perceived by their customers to be problemsolvers and important links to supply sources and new
products.
7. Implementing the marketing concept in
LO6
existing firms
In an established firm, changing to a consumer-driven
organisational culture must occur gradually. Furthermore,
middle-level managers alone cannot effect a change in
corporate culture; they must have the total support of the
CEO and other top executives. According to Thomas J.
Pritzker, former president of Hyatt Hotels, the notion that a
customer orientation can just be turned on is a fallacy:
‘Management has to set a tone and then constantly push,
push, push.’ 18
EXAMPLE >>
The success of Nordstrom, an American retailer,
illustrates the results of strong management support for customer-orientated
service. Nordstrom employees will do almost anything to satisfy shoppers. One
story, which the firm does not deny, tells of a customer who got his money back
on a car tyre, even though Nordstrom doesn’t sell tyres. It is therefore not
surprising that Nordstrom received the highest overall customer satisfaction
rating from 2 000 shoppers who participated in a study ranking convenience and
quality of offerings.19
7.1 Changes in authority and responsibility
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Changing from a product or sales orientation to a consumer
orientation often requires major revisions in relationships
within the firm. Non-marketing employees, such as
production managers who have been making marketing
decisions, may suddenly lose their authority. Staff in such
areas as marketing research may find that they have gained
considerable authority. One way of winning acceptance for
implementing the marketing concept is to get everyone who
will be affected by the change to participate in the planning
process. It is important to remember, however, that during a
period of change, some problems relating to human
relations are inevitable. Implementing the marketing
concept slowly rather than in a revolutionary fashion will
smooth this transition.
EXAMPLE >> Saki Macozoma, the ex-managing director of Transnet,
said converting Transnet into a consumer-orientated firm was difficult: ‘Previously
the mindset was that “we run a train service between Johannesburg and Cape
Town and if you want to, you can put your goods aboard.”’ He acknowledged that
Transnet was highly competent technically, but that there was ‘no business
culture’. Today, Transnet regards its core business as ‘bulk freight
transportation’.20
Namibian Breweries acknowledges that it has been a sales-orientated firm up
to now. Its whole marketing effort has been focused on its distributors (retail
sales outlets such as liquor stores, supermarkets, restaurants and shebeens)
instead of on its consumers. To compete with South African Breweries in the mass
beer market, Namibian Breweries had to convert to a market-driven firm, said the
then general manager of Namibian Breweries in South Africa, André Homann.
‘Without a consumer we have no business,’ he added.21
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7.2 The importance of new opportunities
LO7
It was pointed out earlier that the marketing concept is
based on three ‘pillars’, one of which was customer
satisfaction achieved by focusing on customer needs and
wants, and – more importantly – anticipating and satisfying
customer needs and wants. To realise this objective, the firm
must constantly scan the environment for potential
opportunities that it can utilise (environmental scanning is
discussed in more detail in Chapter 2), and then decide
whether and how to utilise the potential opportunity. There
are many examples of firms whose market and strategic
planning processes and culture are strongly market-focused.
General Electric, Wal-Mart, Sony, Toyota, Honda, and
Microsoft are a few examples. All of these firms have track
records of driving market focus toward opportunities where
they can create both wide buyer choice and high cash flows.
They also share the ability to quickly exit ventures that
cannot create high, long-run net cash flow. A different story
is that of GM whose historical financial metrics have focused
on growing market share and revenue, rather than on
creating and sustaining positive net cash flow. However, the
loss of market focus on the scale and scope of GM’s, in the
long run, inevitably lead to huge cash losses. As a result
General Motors is running out of cash, desperately seeking
government support to survive. 22
Although there are other considerations, such as the
objectives of the firm and its strengths and weaknesses
(these are discussed in more detail in Chapter 14), there are
three very important steps in evaluating new opportunities.
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The questions that must be addressed are:
•
•
•
What business are we in?
Does this apparent opportunity fall inside or outside the
scope of our business?
If we pursue this opportunity will we have a sustainable
competitive advantage?
It is very important that firms are constantly on the lookout
for new opportunities to ensure that they survive in a
competitive environment and that competitors do not steal
a march on them by being first with, say, a new product. For
instance, Langeberg allowed Royco to be the first firm in the
market with a ‘potato bake’ product, which allowed Royco to
capture a significantly larger market share. Langeberg now
has to play ‘catch-up’. Media24, on the other hand, was
quick to spot the opportunities offered by the growing home
improvement and do-it-yourself market and launched Tuis
magazine in Afrikaans and Home in English to fill the gap in
the market.
The second step (considering whether the firm should
pursue the opportunity) involves several decisions about an
appropriate marketing strategy, marketing plans and
marketing programmes and we will return to them later.
First we have to consider the question: ‘What business are
we in?’
7.3 The firm’s business
LO8
How a firm perceives the business it is in often reflects the
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degree of its commitment to the marketing concept. As
Table 1.1 shows, a sales-orientated firm defines its business
(or mission) in terms of goods and services. A consumerorientated firm defines its business in terms of the benefits
its customers seek. Consumers who spend their money, time
and energy expect to receive benefits, not just goods and
services. This distinction has enormous implications.
There are two ways of defining a firm’s business, or the
market in which it competes, namely in generic terms or in
product-market terms. Defining the firm’s business as
competing in a product market involves answering four
questions: 23
•
•
•
•
What? (product type)
To meet what? (the customer need satisfied)
For whom? (customer types)
Where? (geographic area)
Consumers in a product market will have very similar needs,
and competing firms will offer close substitutes to satisfy
those needs. If Ster Kinekor defines its business as
‘supplying films to film theatres to satisfy the film-watching
needs of private individuals in South Africa’ it is a productmarket definition. The definition implies that consumer
needs are very much the same (watching films) and all
competitors will do exactly the same – supply films to film
theatres. It is also a very narrow definition, because it does
not allow for options other than supplying films. The danger
here is that too narrow a definition may result in the firm
missing market opportunities to serve customers whose
wants could be met by a wider range of alternative product
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offerings such as videos, DVDs and videos on demand (via
the Internet).
Instead, it has defined its business in generic market
terms – ‘We are in the entertainment business.’ A generic
definition implies a wider range of competitors (in this case
any provider of any form of entertainment), but also opens
up a wider range of potential opportunities to satisfy the
needs of consumers. Most importantly, however, a generic
definition of a firm’s business focuses on customer needs
and the benefits customers seek. As Charles Revson, the
founder of Revlon, says: ‘In the factory we make cosmetics.
In the store we sell hope.’ The telecommunications firm
Neotel says they are ‘in the business of connecting
enterprises and people’.
Malcolm Searle, the brand-development manager of the
food manufacturer Tiger Brands, the owners of, among
others, the Tastic rice brand, says: ‘People are not buying a
set of ingredients. They ask, “What are we going to have for
dinner tonight?” not “What rice am I going to eat?” We are
not in the rice business but in the business of understanding
what people consume at mealtimes. We thought we were in
the peanut butter and jam business. But we are in the
spreads and toppings business, competing with honey, fish
paste and cheese spreads.’24 How a firm defines its business
consequently also impacts on the competition it faces.
A firm describing its market in generic terms would then
refer to a personal expression market rather than a
Christmas card market, a home-decorating market rather
than a paint market, a family-security market rather than an
insurance policy market and a transportation market rather
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than a motor vehicle market.
Answering the question ‘what is this firm’s business?’ in
terms of the benefits customers seek instead of goods and
services has at least three important advantages:
1
2
3
It ensures that the firm keeps focusing on customers’
needs and avoids becoming preoccupied with the
physical attributes and features of its products, or with
the firm’s own internal needs.
It encourages innovation and creativity by reminding
people that there are many ways to satisfy customer
needs and wants.
It stimulates an awareness of changes in customer
needs, wants and preferences, so that product offerings
are more likely to be adapted to remain relevant.
EXAMPLE >> An example of a firm that did not get the definition of its
business right is Encyclopedia Britannica. In 1990, Encyclopedia Britannica
earned more than R240 million after taxes. Just four years later, however, after
three consecutive years of losses, the sales force had collapsed. How did this
respected firm sink so low? Its managers saw that competitors were beginning to
use CD-ROMs to store huge masses of information, but chose to ignore the new
computer technology25 because they thought of themselves as being in ‘the bookpublishing business’. It is not hard to see why parents would rather give their
children an encyclopedia on a compact disc than a printed one. A full set of the
Encyclopedia Britannica costs a minimum of R9 000, weighs 269 kilograms, and
takes up almost 2 metres of shelf space.26 The CD versions sold by other
publishers cost less than R2 400. If Britannica had defined its business in generic
terms as ‘providing information’ instead of ‘publishing books’, it might not have
suffered such a precipitous fall. In desperation the firm now gives its content
away on its web site for free and hopes to make some money by selling
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advertising space. Another example is Kodak. Its demise can be attributed to the
fact that it saw its business as ‘we make films’ instead of regarding its business
as ‘we create storage possibilities for memories’.
Marketing myopia is the term used to describe
management’s failure to recognise the scope of its business.
Defining the scope of business too narrowly can lead to lost
opportunities. Defining the scope of business too broadly,
on the other hand, can lead to the sub-optimal use of
resources as the firm gets involved in business it should not.
EXAMPLE >> The mass retailer Massmart is very conscious of the
problems that marketing myopia can cause. Massmart has made it clear that it
will not pursue marketing opportunities outside the African continent, outside
fashion markets, in micro-marketing activities (as opposed to mass marketing) or
where credit has to be extended to customers.27 By redefining its business as
‘document solutions’, Xerox has been able to use cutting-edge technology, digital
hardware and sophisticated software to exploit new opportunities in documentflow management to solve its customers’ need for efficient document distribution,
despite fierce competition.
Firms that have not evaluated apparent opportunities
appropriately in terms of their business definitions have
paid a heavy price. The construction firm Stocks and Stocks
became insolvent in 2000 and had to be delisted from the
Johannesburg Securities Exchange. The reason? Stocks and
Stocks got involved in property development and
management (Kwa Maritane resort near Sun City and
Brookes Hill in Port Elizabeth, among others), which is
outside their traditional business, namely building
construction. What appeared to be an opportunity turned
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out to be a disaster as the firm got deeper and deeper into
debt in pursuit of ‘wrong markets’ that ‘eroded its focus’.28
Sun International, on the other hand, has remained
tightly focused on its core business despite apparent
opportunities elsewhere. The managing director of Sun
International, Peter Bacon, says: ‘We do not want to become
a rag-tag of dissimilar operations. We have to make the
fullest possible use of the company’s impressive bank of
skills, professional knowledge and capability and develop
operations within the broad range of our facilities … [We do
not] want to become an operator of limited-service hotels.
Our role is to stay inside our proven area of ability – and that
is to operate high-quality, full-service resorts in prime, highdemand locations.’ 29
Failure to adapt to a focus on customer needs and on the
way customers define their business may have serious
consequences for many firms. The retailer Woolworths is a
firm that has often paid the price for not adequately aligning
its business with its customers’ needs. A customer once
wrote:
‘… the reason Woolworths lost clothing shoppers is that it
lost the plot, in particular in its women’s range. Woolworths
was where we shopped for good-quality and competitively
priced basics: the well-cut blazer, quality shirt, plain black
shoes. Truworths and Edgars were where we went for “in
today, out tomorrow” fashion items. Today, Woolworths is a
mishmash of everything and nothing. We still support
Woolworths food halls, but until it loses the imitation
snakeskin shoes and high-fashion blouses, we will shop
elsewhere for clothes.’ 30
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However, the firm has done a lot to become more
consumer orientated (see the Reader 3 ‘Concerns are
noted’).
READER 3 >> Concerns are noted
Sir – I wish to respond to Tim Anderson’s letter (Keep shelves stocked, May
14). We appreciate Mr Anderson’s continued feedback to Woolworths and
regret that we have not entirely met his expectations. As a customer, his
feedback is vital and we have work to do to overcome the shortfalls he has
highlighted.
Our customers expect to find the product they want, when they want it, in
our stores. I would like to acknowledge Mr Anderson’s concern that some fresh
produce is not available when he needs it. Improving availability is a high
priority in our business. We work very closely with our suppliers, whether they
are based locally, in neighbouring countries or abroad, and we deal only with
suppliers that meet our quality, environmental and ethical standards. If the
products do not meet our standards, they will not make it to our shelves.
Through our dedicated head-office team, improvements are being made to
planning and distribution systems and we believe that some customers are
already seeing improvement. We have also investigated and addressed Mr
Anderson’s concerns about the fruit he bought in our store.
We rely on customers such as Mr Anderson to make sure the right
products and services are available to meet customers’ needs. Woolworths is
making every effort to improve the concerns Mr Anderson has raised.
SOURCE: Letter to the Editor of Business Day from Paula Disberry, Woolworths Group Director, Retail
Operations. Business Day, 21 May 2014, p. 8
The marketing concept and the idea of focusing on
consumer needs and wants do not mean that consumers
will always receive everything they want. It is not possible,
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for example, to profitably manufacture and market for R50
each car tyres that will last for 100 000 kilometres.
Furthermore, customers’ preferences must be mediated by
sound professional judgement as to how to deliver the
benefits they expect. As one adage suggests, ‘People don’t
know what they want – they only want what they know.’ In
other words, consumers have a limited set of experiences.
They are unlikely to request or expect anything beyond
those experiences because they are not aware of benefits
they may gain from other potential market offerings. For
example, before Henry Ford started building motor vehicles,
people knew they wanted quicker, more convenient
transportation, but could not express their need for an
affordable family car. In what is probably an urban legend of
sorts Ford allegedly said: ‘Had I asked them what they want,
they would have said a faster horse’. Similarly, if researchers
had asked housewives years ago,31 many would have been
able to say that a speedier way to cook meals and warm-up
and defrost food would be very convenient. No one would,
however, have been able to say: ‘What I need is a microwave
oven.’ The ability to utilise new opportunities by
anticipating consumer needs ahead of competitors can yield
an important competitive advantage for business firms.
7.4 The importance of a competitive
advantage
LO9
Once a firm has identified a potential opportunity, and
decided that this opportunity falls within its scope of
business, the next step is to consider whether it can establish
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a competitive advantage in the market it hopes to target.
Most industries and sectors in South Africa are fairly
competitive. Of course, there are industries that are
dominated by large (often public sector) organisations, such
as electricity (Eskom), fixed telephone lines (Telkom) and
airports (the Airports Company). In the private sector, South
African Breweries dominates the beer market, for example.
Although these dominant firms do not face much direct
competition, they often have to contend with indirect
competitors. For instance, if you are thirsty, you do not have
to drink a beer produced by South African Breweries. You
may prefer a Coke or a bottle of mineral water. Similarly, you
can use gas instead of electricity, a cellphone rather than a
fixed-line telephone, or send an e-mail message rather than
post a letter using ‘snail mail’.
In most other South African industries, competition is
often vigorous. Examples are banking, car rental, retailing
and airline travel. Competition has an important bearing on
marketing decision-making, especially in a competitive
environment where it is easy for firms to copy each other’s
product offerings. For instance, the first video machine
manufacturer to market a remote control found that it was
not long before all the other manufacturers had copied the
feature and they all had remote controls. In such an
environment it is difficult to have something special to offer
potential buyers.
Given the level of competition, consumers make a buying
decision based on some rational decision. They select a
Volkswagen Polo above a Toyota Yaris for a reason. They
buy from Woolworths rather than from Pick n Pay for a
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reason. They travel with British Airways rather than South
African Airways for a reason. That reason is known as a
competitive advantage. A competitive advantage is
something a firm or product has that competing firms or
products do not have (also called a unique selling
proposition, or USP).
EXAMPLE >> The managing director of Nu-World Industries (a firm
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marketing electrical appliances such as kettles, stoves and video machines),
Michael Goldberg, says his firm’s competitive advantages are the sales force’s
knowledge of their products, brands that range from low-cost, entry-level
products to luxury items, and low prices due to effective stock (inventory)
management.32
The shampoo manufacturer Organics saw the need to develop a mousse for
coloured hair. Its Colour Active mousse shampoo is the first mousse shampoo for
coloured hair. The competitive advantage? ‘To keep your hair colour fresher for
longer.’
In a highly competitive environment firms must offer
something special to prospective buyers – something that no
other firm offers. This ‘reason for buying’ is a way of
differentiating the firm and its products from those offered
by competitors – a competitive advantage. Ideally, a
competitive advantage must be sustainable over time and it
must be based on dimensions or features (such as
durability, user-friendliness or quality) that are important to
consumers. Because high cholesterol levels is a health
concern for many consumers Flora emphasises that using its
margarine will lower users cholesterol levels between 7 and
10 per cent (see the Flora advertisement). Trying to use a
dimension that is not important to consumers as a means of
establishing a competitive advantage will simply not work. A
tyre manufacturer using glossy black rather than a dull black
for its tyres may find that many potential customers simply
do not care. In the UK, a new red wine is now marketed that
is claimed to be ‘good for heart health’. The wine has
exceptionally high levels of antioxidants (32 per cent more
antioxidants than comparable red wine), which protect the
human body against the harmful effects of free radicals.
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Only time will tell whether this feature is a sustainable
competitive advantage.
Sometimes firms struggle to differentiate themselves from
competitors, especially when they enter a market relatively
late. Many of the cellphone operator Cell C’s financial woes
are attributed to its inability to properly differentiate itself
from competitors Vodacom and MTN. 33
Even in industries where it may appear to be difficult to
establish a competitive advantage, some firms have come up
with novel ways to differentiate themselves. Examples are
new methods of processing milk to enhance its shelf life in
the refrigerator and a car tyre that cannot puncture
(Goodyear’s claim).
There are many ways in which firms can differentiate
themselves to establish a competitive advantage. We will
refer to them throughout this book. In this chapter, we will
discuss a few of these ways, namely service quality, creating
customer value, maintaining customer satisfaction, having
customer-orientated employees, superior training of
employees, empowerment and teamwork.
7.4.1 Service quality as competitive advantage
In industries where physical products form the core of the
market offering – such as electrical appliances, motor
vehicles, computers, groceries, sports goods, and the like – it
is difficult to establish a competitive advantage that can be
sustained. Remote controls on a video machine were a
competitive advantage – for a while. A small, fuel-efficient
car was a competitive advantage – for a while. User-friendly
computer software was a competitive advantage until all
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competitors made their software user-friendly. As business
consultant Terry Behan says, ‘… very few companies have a
genuine technical competitive advantage or a unique selling
proposition. And even if it is the case, without an optimal
service delivery none of that matters’. 34
As services are delivered by people, their quality is
intangible – and, therefore, a lot more difficult to copy. Many
believe that service quality is the only competitive advantage
that is sustainable over the long term. Firms such as British
Airways have realised that many international airlines also
offer safe, reliable air transport with a wide selection of
international routes and destinations. British Airways
argued, however, that although many airlines can offer the
core, basic product (that is, what they offer), not all airlines
will offer it in the same manner (how it is offered). British
Airways has decided to differentiate itself by means of how
its product is offered – excellent service quality. No one can
argue that they have not been successful!
Besides being difficult to copy, service is an excellent
means of establishing a competitive advantage because it is
an important buying consideration for consumers. Research
done by Caltex, for instance, has shown that their customers
‘want fast, friendly service at the pump’,35 and Caltex tries to
compete with other petroleum companies’ service because
they know that that is important to consumers.
Sadly, in South Africa, service quality is often of a low
standard.36 The poor level of service offered by many
government departments has been acknowledged by the
Department of Public Service Administration. In an attempt
to rectify the situation, a programme called Batho Pele
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(Sotho for ‘people first’) has been introduced in an attempt
to improve service delivery. South African firms also tend to
perform poorly on the dimensions of service quality that are
relatively important to consumers, such as reliability in
service delivery, but perform well on dimensions that are
not important to consumers, such as tangibles (the physical
appearance of employees and facilities).37 Establishing a
competitive advantage based on service excellence offers a
huge opportunity to many South African firms.
WEBSITE
Read how the Durban harbour has
addressed the needs of exporters to
decrease the time, cost, and red tape
when shipping to international markets.
As such South Africa’s competitive
advantage in the developing world has
improved substantially.
(http://www.mediaclubsouthafrica.com/economy/3676
south-africa-s-competitive-advantage-inthe-developing-world) (Accessed on
31 January 2014).
7.4.2 Customer value as competitive advantage
Customer value is the ratio of benefits to the sacrifice
necessary to obtain those benefits. The customer
determines the value of both the benefits and the sacrifices.
The sacrifices customers make include monetary costs (how
much I pay), time costs (how long I take to get there, or how
long I have to wait) and energy costs, and customers
typically try to minimise these sacrifices. The benefits
customers pursue could be product-related (e.g. a fast car),
service-related (e.g. reliable after-sales service) or image"****** DEMO - www.ebook-converter.com*******"
related (e.g. I drive a BMW). The customer tries to minimise
the sacrifices and maximise the benefits and in so doing
maximise the value he or she will get. In any buying
situation the customer compares the sacrifices with the
likely benefits and decides whether the value proposition is
sufficient for him or her to buy.
The marketer also tries to maximise the value the
customer receives and can do so by either lowering the
customer’s costs (e.g. we will deliver for you; or if you buy
two we will give you a discount) or by increasing the benefits
(e.g. improved product design; more options; more legroom
in the case of British Airways). However, marketers are
constrained in many ways. The value a marketer offers
cannot exceed the cost of the product, for instance.
Some firms think a bit broader about what constitutes
value to a customer. Michael Dell build a very successful
computers business by allowing customers to ‘design’ their
own computers online. Toyota has cottoned on this idea and
also allows customers to design their own cars on a web site
or at a terminal inside a showroom by selecting from a menu
of on-screen options. Once designed the order is sent
straight to the factory.
7.4.3 Customer satisfaction as competitive advantage
As pointed out earlier, customer satisfaction is the feeling
that a product has met or exceeded the customer’s
expectations. Many authors refer to the so-called
Disconfirmation Paradigm when describing customer
satisfaction (see Figure 1.1, p. 5). According to this
paradigm, consumers have pre-purchase expectations and
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then they evaluate the actual buying experience (a
performance evaluation). If the pre-purchase expectations
are met or exceeded, the customer is likely to be satisfied. If
performance is below expectations, dissatisfaction will be
the result.
Customer satisfaction is a critical requirement for
successful marketing, and successful firms the world over
have got it down to a fine art. They make sure that they know
what their customers want (by doing research) and they
then make sure that they satisfy those needs well. These
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firms do not pursue once-off transactions, however. They
cultivate long-term relationships by ensuring sustained
customer satisfaction, and customer-orientated personnel
play a key role in realising this objective.
>>Strategy
Paper producer Sappi drives customer satisfaction
through technology and innovation, which they regard
as a fundamental driver of competitive advantage. They
focus on extracting value from existing and new
technology to develop new products, markets and
processes; and generate greater returns in all aspects of
our business. Research and development (R & D) takes
place at technology centres in each region of the
respective countries they do business in. 38
7.4.4 Customer-orientated employees as competitive
advantage
For a firm to be focused on customers, employees’ attitudes
and actions, it must be customer-orientated. An employee
may be the only contact a particular customer has with the
firm. In that customer’s eyes, the employee is the firm. Any
person, department or division that is not customerorientated weakens the positive image of the entire firm. For
example, a potential customer who is treated discourteously
may well assume that the employee’s attitude represents
that of the whole firm. Firms that allow that type of
behaviour are violating the integration principle of the
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marketing concept.
EXAMPLE >> Marriott International Hotels says: ‘Our basic philosophy
is to make sure our associates (employees) are very happy and that they work to
go the extra mile – take care of customers and have fun doing it.’39 Every
employee is cross-trained to handle all major guest services. Many other
successful firms are making sure their employees focus on customers’ needs. Pick
n Pay, for instance, acknowledges the central role of employees in its customersatisfaction efforts by using the slogan ‘Our people make the difference’ in its
advertising.
7.4.5 Well-trained employees as competitive advantage
Leading marketers recognise the role of employee training
in customer service. For example, all new employees at
Disneyland and Walt Disney World must attend Disney
‘university’, a special training programme for Disney
employees. They must first pass Traditions 1, a daylong
course focusing on the Disney philosophy and operational
procedures. Then they go on to specialised training.
EXAMPLE >> Pick n Pay has made use of the Disney facility and can
vouch for its effectiveness. Similarly, McDonald’s has Hamburger University.
Nando’s also has a ‘university’ where line employees and managers learn how to
treat customers, because, as managing director, Brian Sacks, says, ‘people are
the make-or-break factor in any service industry’.40 There is an extra pay-off for
firms such as Disney, McDonald’s and Nando’s that train their employees to be
customer-orientated. When employees make their customers happy, the
employees are more likely to derive satisfaction from their own jobs. Having
contented staff who are committed to their jobs leads to better customer service
and greater employee retention.
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7.4.6 Employee empowerment as competitive advantage
In addition to training, many consumer-orientated firms are
giving employees more authority to solve customer
problems on the spot without having to get permission from
a manager to solve the problem. The term used to describe
this delegation of authority is empowerment. The American
firm Federal Express’s customer-service representatives are
trained and empowered to resolve customer problems
quickly. Although the average Federal Express transaction in
America costs only $16, the customer service representatives
are empowered to spend up to $100 to resolve a customer
problem. 41 The benefits of employee empowerment are: 42
•
•
•
•
Quicker response to customer needs
Employees experiencing a higher sense of job
satisfaction
It translates into a source of information about customer
needs
Improved customer satisfaction.
Nedbank uses the empowerment of its staff as a competitive
advantage. Its AskOnce campaign says: ‘No matter who you
are, or where you bank, it’s frustrating to be pushed from
pillar to post to get a response. This is why Nedbank has
introduced AskOnce: our commitment that the person you
speak to will take responsibility for your request and ensure
that the matter gets resolved.’
Empowerment gives customers the feeling that their
concerns are being addressed, and gives employees the
feeling that their expertise matters. The result is greater
satisfaction for both employees and customers – an
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excellent competitive advantage if properly executed.
7.4.7 Teamwork as competitive advantage
Many firms that are frequently noted for delivering superior
customer value and providing high levels of customer
satisfaction – such as British Airways and Toyota – assign
employees to teams and teach them team-building skills.
Teamwork entails collaborative efforts to accomplish
common
objectives.
Job
performance,
company
performance, product value and customer satisfaction all
improve when people in the same department or work
group begin supporting and assisting each other, and
emphasising co-operation.43
EXAMPLE >> Johnson Control Automotive Ltd, and Uitenhage-based
car-seat manufacturer, has become the first firm in South Africa to have been
awarded the sought-after German VDA 6.1 Quality Management System
Certification, QS 9000 Certification and an ‘A’ rating in accordance with VDA 6.1
simultaneously. The firm manufactures car seats for the Volkswagen factory in
Uitenhage and this achievement was due entirely to teamwork, according to the
plant manager, Ian Dickerson. ‘Everyone worked very hard to achieve this. The
commitment shown by the people was phenomenal’, he said.44
On the other hand, it took the Dutch beer brewer Heineken six years to get to
the point that Heineken beer was available in cans. What was the reason for the
long delay? The production and marketing departments were practically at war at
the time. An ex-editor of the newspaper the Sunday Times, Mike Robertson, once
admitted that continuous conflict between the editorial and advertising
departments at the newspaper harmed the newspaper’s performance: ‘Once we
accepted our interdependence things improved and we … enjoyed the most
profitable financial year in the newspaper’s history.’45
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Performance is enhanced when people in different areas of
responsibility, such as production and sales, or sales and
service, practise teamwork, with the ultimate goal of
delivering superior customer value and satisfaction. In other
words, it implies integrating the firm’s customer needsatisfying activities, as called for by the marketing concept.
The above is not an exhaustive list of strategies that can
be used to establish and maintain a competitive advantage.
The list is endless, but the following can also be considered:
•
Cost – Shoprite Checkers competes in the grocery
market on price, which implies keeping its own costs as
low as possible.
• Quality – A strategy used by Woolworths and MercedesBenz, among others.
• Flexibility – Some will argue that taxis in South Africa
offer a flexible transport service – unaffected by bus
schedules, rigid bus-stop locations or even traffic rules!
• Location – A retail location in an area of high customer
traffic, such as the Waterfront in Cape Town, or a Shell
Ultra City can be a significant competitive advantage.
Most spaza shops compete successfully for business with
much larger competitors owing to their favourable
location.
• Safety – Mercedes-Benz advertising often suggests that it
is a particularly safe vehicle to drive.
• Image – A strategy used by many firms, including RayBan sunglasses and Mont Blanc pens.
• Product – A strategy used by firms that believe they have
a superior product. Doom insect killer is an example.
• Design – Schick advertising for its Protector razor says:
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•
‘The only razor with micro-fine safety wires between you
and the blades, protecting you from nicks, cuts and skin
irritation’.
Distribution – Pick n Pay has enhanced the quality and
freshness of the fruit and vegetables in its Gauteng stores
by improving its distribution. The time it takes to move
fresh fruit and vegetables from the farm to the shelf has
been reduced by 50 per cent, thanks to this new
distribution system.
Once a firm has identified a potential opportunity, decided
that the opportunity falls within the scope of the firm’s
business and determined that it will be possible to establish
a competitive advantage that is both sustainable and
important to the target market, then the marketing process
can be initiated.
8. The marketing process
LO10
Marketing is not a one-night stand – it is a process.
Marketing managers are responsible for a variety of
activities that together represent the marketing process.
These include:
•
•
•
Understanding the firm’s business and mission and the
role marketing plays in realising that mission
Setting marketing objectives
Collecting, analysing and interpreting information about
the firm’s situation, including its strengths and
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•
•
•
•
weaknesses, as well as opportunities and threats in the
environment
Developing a marketing strategy by deciding exactly
which wants and whose wants the firm will try to satisfy
(target-market strategy), how the firm wants to be
positioned relative to competing firms and by
developing appropriate marketing activities (the
marketing mix) to satisfy the desires of selected target
markets. The marketing mix combines product,
distribution, marketing communication and pricing
strategies in a way that creates exchanges that satisfy
consumers’ and the firm’s needs
Implementing the marketing strategy
Designing marketing performance measures
Periodically evaluating marketing efforts and making
changes if needed.
These activities and their relationships with each other form
the foundation on which the rest of this book is based.
An important concept to grasp at this stage is the
marketing strategy. In broad terms, a marketing strategy is
formulated to pursue a marketing opportunity. The
marketing strategy will consist of an objective, a description
of the market that will be targeted, the competitive
advantage of the product, brand or firm, how the product,
brand or firm will be positioned and how the marketing mix
elements – or four ‘P’s (product, place/distribution,
promotion/ communication and pricing strategies) – will be
combined to achieve the objective of the marketing strategy.
A marketing plan, on the other hand, consists of a
marketing strategy, but has the added dimensions of
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allocating resources and responsibility for implementation.
Control measures (how performance will be evaluated) and
a time scale are also included. Another important
distinguishing feature is that a marketing plan is a written
document.
A marketing programme is a combination of several
marketing plans. Unilever SA may, for instance, have a
marketing plan for each of its skincare brands – Dawn,
Pond’s and Vaseline – but also a combined marketing
programme for skincare products as a whole.
To implement the process of marketing effectively the
position and role of marketing in the firm must be
considered.
9. The position and role of marketing in
LO11
the firm
The marketing function is one of eight business functions
(or departments) typically found in medium-sized and large
firms (the others being production, finance, purchasing,
public relations, information management, human
resources and general management). Although some would
argue that marketing is the most important function of all
because of its intimate involvement with the market and
consumers, the eight functions are typically (but not always)
given equal status in an organisational chart, and all of them
have to contribute to realising the firm’s objectives. It is
important to understand, however, that regardless of the
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nature of the organisational structure, the tasks that the
marketing function or department is expected to perform
will remain the same.
Assuming that you accept that marketing is all about
satisfying consumer needs at a profit based on an integrated
approach while ensuring that societal well-being is
enhanced, we now turn our attention to the management
tasks of marketing. Marketing will not happen by itself. To
play its due role in the firm all marketing activities must be
properly managed. We thus turn our attention to the four
basic tasks of management, namely planning, organising,
leading and control.
•
Planning refers to:
> identifying marketing opportunities, e.g. Afribrand
saw supplying products to street hawkers as an
opportunity
> setting marketing objectives, e.g. Volkswagen may set
itself the objective to be the market leader in the
passenger vehicle market, or to raise profitability to
20 per cent return on investment
> deciding how to use the marketing instruments (the
four ‘P’s), e.g. Volkswagen decided to use product
and price as key components in its strategy when it
marketed the Polo Playa as a relatively inexpensive
vehicle (price) without compromising quality
(product)
• Leading refers to providing leadership in planning and
the implementation of marketing strategies
• Control (evaluation) refers to an objective assessment of
the marketing strategy against the background of the
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marketing objectives. In other words, did we achieve
what we set out to achieve?
To summarise, marketing will not happen by itself. It needs
to be managed by means of effective planning, organising,
leading and control.
10. Why are there critics of marketing? LO12
As with most other things in life, marketing is not beyond
criticism. Much of this criticism has been targeted at the role
of intermediaries (retailers and wholesalers) in marketing,
and on the role of advertising. Critics argue that
intermediaries simply add costs to a final product without
adding any value to the process of getting products to
consumers. Advertising is criticised for making consumers
buy products they do not really need, and for often being
misleading and untruthful. For instance, more than a third
of the complaints received by the Advertising Standards
Authority of South Africa (for additional reading refer to
http://www.asasa.org.za/) accuse advertisers of misleading
claims. Others have argued that packaging and labelling are
often deceptive and that packaging pollutes the
environment.
Those who do appreciate the value of marketing in an
economy respond by pointing out that marketing creates
utility for consumers. Utility refers to the value being created
by marketers by satisfying consumer needs that would not
otherwise have been possible. They also point out that
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marketers overcome a number of discrepancies and
separations (or gaps) in an economic system, leading to
further value creation. These discrepancies and gaps are: 46
•
•
•
Discrepancy of quantity. To realise the benefits of
economies of scale in production, producers produce
products in large quantities. A bicycle factory may
produce batches of 400 units at a time, but consumers
obviously cannot buy them all at once. They want to buy
one at a time. To overcome this discrepancy, wholesalers
and retailers buy in bulk from manufacturers, which they
‘break down’ into the smaller units consumers prefer to
buy.
Discrepancy of assortment. Producers normally
produce a narrow assortment of products. A producer of
golf clubs may produce only golf clubs. Golf players,
however, need more than that to play a round of golf.
They also need special shoes, gloves, balls, a carry bag,
and so on. Retailers, in this case, sports shops, buy
different products from a variety of producers and
suppliers and combine them all into a combination that
consumers desire.
Spatial separation. Producers produce where
production cost is at its lowest but consumers are widely
dispersed. A farmer produces milk on his farm, but the
consumers who drink it are far from the farm. The farmer
needs to get the milk to within reach of those who want
to consume it. Intermediaries (wholesalers and retailers)
overcome this spatial separation through the transport
function. Marketers, therefore, create place utility for
consumers by making products available where they are
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needed.
• Separation in time. Consumers are not always ready to
consume products when they have been produced, and
production may exceed demand. Excess products or
surpluses, therefore, have to be stored – a function that
intermediaries perform for consumers. For example, a
farmer produces mealies that are harvested during the
winter. Consumers, however, do not eat porridge only
during the winter. To ensure that they can eat porridge
all year round, marketers have to overcome the
separation in time. By using their storage facilities,
marketers create time utility for consumers.
• Separation of information. Consumers are often not
aware that products exist that may satisfy their needs. In
other words, they lack information because of an
information gap. Marketers attempt to overcome the
information gap by providing consumers with
information on need-satisfying products by using,
among others, advertising (information utility).
• Separation in ownership. Most consumers do not own
all the products to satisfy all their needs. In other words,
there is a gap between what they want (‘I want my own
car’) and what they have (‘I do not own a car’). Marketers
try to overcome this gap by selling need-satisfying
products to consumers. By overcoming the separation
gap and giving consumers the opportunity to use or
consume products, marketers create possession utility.
• Separation in value. Consumers often disagree on the
value of a product. For example, a consumer may say
that R20 for a two-litre Coke is too expensive, and she
will not buy it. In other words, the buyer and the seller
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disagree about the value of the product. Marketers have
to convince buyers that their products represent value
(or value for the money spent), otherwise buyers simply
will not buy. Also, by using the pricing mechanism,
marketers establish a monetary value for a product that
will recover the manufacturer’s production cost while
also representing a realistic price that the target market
will be prepared to pay. In other words, marketers
establish equilibrium between manufacturers (who want
as high a price as possible for their products) and buyers
(who want to pay as little as possible).
Marketers also create two other forms of utility. By ensuring
that they interpret consumer needs correctly, marketers
help to ensure that need-satisfying products are
manufactured by the firm’s production department or
factory. Therefore, marketers play a role in creating form
utility. Additionally, task utility is created by marketers who
perform certain functions on behalf of consumers. A motor
mechanic who repairs a car for a customer creates task
utility.
In summary, those who want to defend the role of
marketing in a firm or an economy will point to the value the
marketing function creates for consumers by overcoming
several gaps that would be impossible or prohibitively
expensive for consumers to overcome themselves.
Therefore, marketing creates utility for consumers by
performing activities or functions of value on their behalf.
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11. Why study marketing?
LO13
Now that you understand the meaning of the term
marketing, why it is important to adopt a marketing
orientation and how firms implement this philosophy, you
may be asking, ‘What’s in it for me?’ or ‘Why should I study
marketing?’ These are important questions regardless of
whether you are majoring in a business field other than
marketing (such as accounting, finance or management
information systems) or a non-business field (such as
journalism, economics or education). There are several
important reasons to study marketing: marketing plays an
important role in society; marketing is important to
businesses;
marketing
offers
outstanding
career
opportunities; and marketing affects your life every day.
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11.1 Marketing plays an important role in society
The University of South Africa’s Bureau for Market Research
estimates the total population of South Africa at about
52 million. Consider how many transactions are needed
each day to feed, clothe and shelter a population of this size.
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The number is huge. And yet it all works quite well, partly
because our well-developed economic system is reasonably
efficient at distributing the output of farms and factories to
consumers. A typical family can consume up to 2,5 tonnes of
food a year. Marketing makes food available when we want
it, in desired quantities, at accessible locations and in
sanitary and convenient packages and forms (such as
instant and frozen foods).
11.2 Marketing is important to businesses
The fundamental objectives of most firms are survival,
profits and growth. Marketing contributes directly to
realising these objectives (see the Reader 4 ‘Marketing seen
as key to profitability’, below). Marketing includes the
following activities, which are vital to business firms:
assessing the needs, wants and satisfaction of present and
potential customers; designing and managing product
offerings; determining prices and pricing policies;
developing distribution strategies; and communicating with
present and potential customers.
All businesspeople, irrespective of their specialisation or
area of responsibility, need to be familiar with the
terminology and fundamentals of accounting, finance,
management and marketing. People in all business areas
need to be able to communicate with specialists in other
areas. Furthermore, marketing is not just a job done by
people in a marketing department. Marketing is a part of the
job of everyone in the firm. As David Packard of Hewlett
Packard puts it: ‘Marketing is too important to be left to the
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marketing department.’ 47
Pierre van Tonder, the managing director of the Spur
Group, describes the importance of marketing as follows:
‘The importance of marketing to a company should never be
underestimated. Nor should one make the mistake of
thinking that marketing is just about expensive and flashy
advertising and public relations campaigns – there is a
marketing aspect to almost everything any company does.’48
Therefore, a basic understanding of marketing is
important to all employees and all businesspeople.
READER 4 >> Marketing seen as key to profitability
European pharmaceutical firms could add up to 10 per cent to their pre-tax
profits by investing in key marketing and sales operations, according to a new
study by Accenture, a management consultant firm. The report, based on
interviews with 77 executives from 20 Europe-based drug groups, found that
marketing and sales play a crucial part in the financial success of firms. They
account for 70 per cent of the difference in the return on sales between the
firms studied, Accenture concludes.
The study concludes that firms should focus on just four key marketing and
sales functions in order to improve their financial performance: obtaining
information about doctors’ needs; developing a good relationship with them;
improving sales-force effectiveness by linking rewards to performance; and
having a good mix of drugs to sell.
The study calculated that an average European pharmaceutical firm with
annual sales of $300 million (£210 million) could add $43 million to
operating revenues and up to 10 per cent in profits by improving these four
marketing functions. Of the four, having effective information on doctors’
needs is the most important. An improvement in this field can add up to
$19 million to the operating revenues of the average European drug group.
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Doctor relationships came a close second, with $13 million; the performance
of the workforce could add $8 million; and the right mix of products
$3 million.
SOURCE: Guera, F. 2001. Marketing seen as key to profitability. Financial Times, 13 August 2001, p.
14
11.3 Marketing offers outstanding career
opportunities
A cursory glance at the job advertisements in the Sunday
Times will show that marketing offers great career
opportunities in such areas as professional selling,
marketing research, advertising, retail buying, distribution
management,
product
or
brand
management,
merchandising, product development and wholesaling.
Marketing career opportunities also exist in a variety of nonprofit organisations, including hospitals, museums,
universities, the armed forces and various government and
social-service agencies.
As global markets become more challenging, South
African firms of all sizes are going to have to become better
marketers as more and more overseas firms enter the South
African market. For instance, in the mid-eighties there were
only 7 motor vehicle brands available in South Africa. By
1995 there were 15 and by 2006 there were 26 brands. Today
there are 58 different motor vehicle brands competing in the
South African market.49 The number of bottled water brands
increased from zero to 140 in just a few years. At least 12
foreign international banks entered the South African
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market in recent years. As the levels of foreign competition
increase, South Africans will have to become better
marketers and marketing will become a highly valued skill,
which will enhance the career prospects of those who
possess those skills.
11.4 Marketing influences your life every day
Marketing plays a major role in your everyday life. You
participate in the marketing process as a consumer of goods
and services every day. About half of every rand you spend
pays for marketing costs, such as marketing research,
product development, packaging, transportation, storage,
advertising and sales expenses. By developing a better
understanding of marketing, you will become a betterinformed consumer. You will also better understand the
buying process (including your own) and be able to
negotiate more effectively with sellers. Moreover, you will be
better prepared to demand satisfaction when the goods and
services you buy do not meet the standards promised by the
manufacturer or the marketer.
LOOKING AHEAD >>>
This book is divided into 16 chapters, organised into three
major parts. All the chapters are written from the marketing
manager’s perspective, as our ultimate goal is to equip you
with the required skills to become an effective marketing
manager. Each chapter begins with a brief list of learning
outcomes followed by a short extract (‘Marketing in
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practice’) about a current marketing situation faced by a
firm or industry. At the end of each of these opening readers,
thought-provoking questions link the story to the material
discussed in the chapter.
End-of-chapter materials include a final comment on the
opening reader, a summary of the major topics examined, a
list of the key concepts introduced in the chapter and
discussion and writing questions. All these features are
intended to help you develop a more thorough
understanding of marketing and add to your enjoyment of
the learning process.
<<< LOOKING BACK
The opening reader explores the car rental firm Europcar’s
approach to customer satisfaction. Europcar acknowledges
the importance of keeping its customers satisfied and
regularly measures and quantifies it’s performance by
means of survey research. The skill of its employees’, their
product knowledge as well as the efficiency of its equipment
are regarded as important drivers of customer satisfaction.
Another important consideration in their endeavours to
ensure customer satisfaction is the emphasis placed on
‘touch points’. In other words, every time the customer deals
with the firm, whether it is its web site, a telephonic
conversation, collecting the vehicle or when having an
emergency, the interaction at all ‘touch points’ can
influence customer satisfaction.
SUMMARY
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1
2
3
4
The term marketing. The ultimate goal of all marketing
activities is to facilitate mutually satisfying exchanges
between parties. The activities of marketing include the
conception, pricing, promotion and distribution of ideas,
goods and services.
The relevance of customer satisfaction and loyalty.
Customer satisfaction is the feeling that a product has
met or exceeded the customer’s expectations and this
should be the primary aim of any marketer. Satisfactory
exchange should lead to loyal customers who maintain a
long-term relationship with the firm to the mutual
benefit of both parties.
The concept of exchange. Satisfactory exchange
between parties (a seller and a buyer) is one of the key
terms in the definition of marketing. It means that
people give up something of value to a seller to receive
something they would rather have, using money as the
medium of exchange. We ‘give up’ money to ‘get’ the
goods and services we want from a seller.
Marketing-management philosophies. The role of
marketing and the character of marketing activities
within a firm are strongly influenced by its philosophy
and orientation. A production-orientated firm focuses on
the internal capabilities of the firm rather than on the
desires and needs of the consumers. A product
orientation emphasises product features at the expense
of customer needs. A sales orientation is based on the
belief that people will buy more products if aggressive
sales techniques are used, and that high sales volumes
produce high profits. A consumer-orientated firm
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focuses on satisfying customer wants and needs while
meeting the firm’s objectives. A societal marketing
orientation goes beyond a marketing orientation to
include preserving or enhancing individuals’ and
society’s long-term best interests. A relationship
marketing orientation is geared towards customer
loyalty over the long term.
5 Sales and consumer orientations. First, salesorientated firms focus on their own needs, whereas
consumer-orientated firms focus on customers’ needs
and preferences. Secondly, sales-orientated firms
consider themselves to be deliverers of goods and
services, whereas consumer-orientated firms view
themselves as satisfiers of customers. Thirdly, salesorientated firms direct their products at everyone, while
consumer-orientated firms aim at specific segments of
the population. Finally, although the primary objective
of both types of firms is profit, sales-orientated firms
pursue maximum sales volume through intensive
promotion, whereas consumer-orientated firms pursue
customer satisfaction through co-ordinated marketing
activities.
6 The implementation of the marketing concept. To
implement the marketing concept successfully,
management must enthusiastically embrace and
endorse the concept and encourage its acceptance
throughout the firm. Changing from a production or
sales orientation to a consumer orientation often
requires changes in authority and responsibility and
front-line experience for management.
7 New opportunities. It is important that firms are
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constantly on the lookout for new opportunities to
ensure their survival in a competitive environment and
to ensure that competitors do not edge them out of a
market with, for instance, a new product.
8 The scope of the firm’s business. Marketing myopia is
the term used to describe management’s failure to
recognise the scope of its business. Defining the scope of
business too narrowly can lead to lost opportunities.
Defining the scope of business too broadly can lead to
the sub-optimal use of resources, as the firm gets
involved in business it should not (e.g. South African
Breweries getting involved in retailing).
9 Establishing and maintaining a competitive
advantage. A competitive advantage is something a firm
or product has that competing firms or products do not
have (also called a unique selling proposition, or USP).
Various things can be used to establish and maintain a
competitive advantage, including a unique product
feature, excellent service, a well-trained sales force, and
so on.
10 The marketing process. The marketing process includes
understanding the firm’s mission and the role marketing
plays in fulfilling that mission; setting marketing
objectives; scanning the environment; developing a
marketing strategy by selecting a target-market strategy;
developing and implementing a marketing mix;
implementing the strategy; designing performance
measures; evaluating marketing efforts; and making
changes if needed. The marketing mix combines
product, distribution (place), promotion and pricing
strategies in a way that creates exchanges satisfying to
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individuals and fulfils the firm’s objectives.
11 The role of marketing in the firm. The marketing
function is one of eight functions typically found in
medium-sized and large firms. The eight functions are
normally (but not always) given equal status in an
organisational chart, and all have to contribute to the
realisation of the firm’s objectives. Irrespective of the
nature of the organisational structure, the tasks that the
marketing function or department is expected to
perform will remain the same.
12 Criticism of marketing activities. Much of this criticism
has been focused on the role of intermediaries (retailer
and wholesalers) in marketing and on the role of
advertising. Critics argue that intermediaries simply add
costs to a final product without adding any value to the
process of getting products to consumers. Advertising is
criticised for making consumers buy products they do
not really need and for often being misleading and
untruthful. Others would argue that this criticism is
unjustified if one considers the gaps that marketing must
overcome and the utility that marketing creates.
13 Reasons for studying marketing. First, marketing
affects the allocation of goods and services that influence
a nation’s economy and standard of living. Second, an
understanding of marketing is crucial to understanding
most businesses. Third, career opportunities in
marketing are diverse, profitable and expected to
increase significantly. Fourth, understanding marketing
makes consumers more informed.
DISCUSSION AND WRITING QUESTIONS
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1
2
3
4
It is sometimes argued that marketing is not of any value
for the consumer. Respond to this assertion and also
consider the benefits of marketing for the performance
of the firm.
Identify an incident in which you were left dissatisfied
after making a purchase. Draft a letter to the CEO of the
business explaining what the firm could do to better
meet your needs and wants and turn you into a satisfied
customer.
Identify South African firms that follow the different
marketing philosophies discussed in this chapter.
Consider how these marketing philosophies are reflected
in their business activities.
Discuss why marketing is important for educational
institutions in South Africa, such as your university.
STRATEGY READER >> FNB’s RB Jacobs: Avatar or Bot?
One of the key drivers of customer satisfaction is customer service and while
technology can often contribute to improving the effectiveness of a company’s
response to customer complaints and queries, it has its limitations. For
example where portion (or the whole) of the customer service function is
automated by the use of Internet robots (better known as ‘bots’) this could
result in inappropriate or irrelevant responses, where bots are programmed to
give predefined responses to certain keywords. On the other hand, the value of
automating elements of the customer service function is that one can be
assured of the consistency of responses and eliminate the unpredictability of
humans.
• First National Bank in South Africa (FNB) has embraced the social media
as a tool to improve their customer service through the use of an avatar
known as ‘RB Jacobs’. If you raise a query on the Face book page of FNB,
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•
•
•
•
‘RB’ responds, and gives appropriate advice. Although ‘RB’ has a Twitter
account and a profile on LinkedIn, there was some conjecture as to
whether ‘RB’ was ‘man or machine’, but recent events seem to point to
the fact that ‘RB’ is unequivocally human (or probably more correctly a
number of human beings)…there are blunders that only humans can
make.
It all began when Stuart Gormley – @gormleystuart – asked the bank
where ‘Steve’ – the central character of a long-standing advertising
campaign – was. ‘RB’ responded by saying, ‘He’s somewhere in
Afghanistan, putting a bomb under a wheelchair and telling the cripple to
run for it!’ See below:
A shocked Gormley responded: ‘This is a highly offensive and
inappropriate response. I am reporting this to the highest level at @fnb.’
FNB’s Twitter avatar, ‘RB Jacobs’, responded by tweeting: ‘Pls accept my
apology it certainly was not my intention to cause any offense I will
promptly remove my response’, which ‘RB’ promptly did. However,
notwithstanding this apology (and others from FNB), the comment went
viral and clients responded with outrage.
While FNB has been innovative by the use of the avatar, ‘RB Jacobs’, as a
way of humanising their customer service (and brand), a failure to put
proper strategies in place to manage this unique approach to customer
service has resulted in customer dissatisfaction and consequently
damaged their brand image.
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SOURCE: Watson, A. 2014. Twitter bomb backfires on First National Bank, The Citizen electronic
edition, 23 April 2014, (http://citizen.co.za/164424/twitter-bomb-backfires-on-first-national-bank/)
(Accessed on 12 June 2014)
QUESTIONS
1
2
What do you think about FNB’s strategy to use the avatar ‘RB Jacobs’ to
deal with queries on the social media?
What strategies could FNB have put in place to prevent the crisis
discussed in the case occurring?
KEY CONCEPTS
Customer satisfaction: the feeling that a product has met or exceeded the
customer’s expectations.
Customer value: the ratio of benefits to the sacrifice necessary to obtain those
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benefits.
Empowerment: delegation of authority and responsibility to solve customers’
problems quickly – usually by the first person whom the customer notifies
regarding a problem.
Exchange: the idea that people give up something to receive something else they
would rather have.
Marketing: the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges that
satisfy consumers’ and the firm’s objectives.
Marketing concept: the idea that the social and economic justification for a
firm’s existence is the satisfaction of customer needs and wants while meeting
the firm’s objectives.
Marketing (or consumer) orientation: the philosophy that assumes that a sale
does not depend on an aggressive sales force, but instead on a customer’s
decision to purchase a product.
Marketing programme: a combination of several marketing plans.
Product orientation: a belief that ‘good’ product features and product quality
will lead to success regardless of other influences.
Production orientation: a philosophy that focuses on the internal capabilities of
the firm rather than on the desires and needs of the consumers.
Relationship marketing: a strategy that entails forging long-term partnerships
with customers.
Sales orientation: the notion that people will buy more goods and services if
aggressive sales techniques are used, and that high sales result in high profits.
Societal marketing concept: the idea that a firm exists not only to satisfy
customer needs and wants and to meet the firm’s objectives, but also to preserve
or enhance individuals’ and society’s long-term best interests.
Teamwork: collaborative efforts of people to accomplish common objectives.
Utility: the value created for consumers by marketers by satisfying their needs.
REFERENCES
1
2
3
4
5
American Marketing Association. Online. www.marketingpower.com
(accessed 8 August 2013).
Leonardi, C. 2007. Business prioritises customer satisfaction. Real Business,
supplement to Business Day, January 2007, p. 1.
California State Parks listen to customers. Quality Digest, May 1996, p. 9.
Nel, J. 2014. Ontevredenheid op banier gelug. Die Burger, 8 November, p. 6.
Annualrd
Kotler, P. 1996. Marketing management (9th edition). Englewood Cliffs:
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6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Prentice Hall, p. 11.
Eades, J. 2001. Free for all. Future company, supplement to Financial Mail,
23 February 2001, p. 7.
Baker, S. 1995. A new paint job at PPG. Business Week, 13 November 1995, pp.
74, 78.
Nando’s Corporate Report, supplement to Financial Mail, 10 April 1998,
p.16.
Mittner, M. 2011. Nedbank revs up retail. Financial Mail, 4 February, p. 20.
Hasenfuss, M. 2012. Furiously flogging frocks, Finanacial Mail, November
23-28, p. 66.
Cranston, S. 2000. Going for the gaps. Financial Mail, 8 December 2000, p.
96.
Finweek, 20 August 2000, pp. 20–21.
Sherry, S. 2009. Chemical independence. Financial Mail, 13 November 2009,
p. 52.
Clancy, K.J & Shulman, R.S. 1995. Marketing – The ten fatal flaws. The
Retailing Issues Letter, November 1995, p. 4.
Zino, K. 1995. Want to keep you satisfied. Parade Magazine, 1 October 1995,
p. 9.
Pick n Pay Corporate Report, supplement to Financial Mail, 30 May 1997, p.
6.
Ibid. p. 10.
King customer, Business Week, 12 March 1990, p. 90.
Miller, C. 1993. Nordstrom is tops in survey. Marketing News, 15 February
1993, p. 12.
Sikhakhane, J. 1998. In search of a metamorphosis. Financial Mail, 10 July
1998, p. 32; Phasiwe, K. 2005. Unbundled SAA set to fly solo from end of year.
Business Day electronic edition, 11 May 2005.
Namibian Breweries in SA. Food & Beverage Reporter Online, July/August
2001, p. 32.
More, R. 2009. How General Motors lost its focus – and its way. Strategy,
May/June (http://iveybusinessjournal.com/topics/strategy/how-generalmotors-lost-its-focus-and-its-way#) (Accessed on 20 March 2014)
McCarthy, E.J. & Perreault, W.D. 1996. Basic marketing (12th edition).
Chicago: Irwin, p. 89.
Koenderman, T. 2001. A new breed of tiger. Financial Mail, 21 September
2001, pp. 83–84.
Samuels, G. 1994. CD-Rom’s first big victim. Forbes, 28 February 1994, pp.
42–44.
Ibid., p. 42.
Holcim Re-sellers Conference, Hilton Hotel, Johannesburg, 11 April 2005.
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28 Mthimkhulu, P. 2000. Brick by brick, proceeds will be thrown on a debt pile.
Financial Mail, 18 February 2000, pp. 70–71.
29 Sun International Corporate Report, supplement to Financial Mail, 18
January 2000, p. 6.
30 Linda Barron and friends, Letters to the editor. Financial Mail, 7 September
2001, p. 11
31 Boshoff, C. 2000. Unpublished research.
32 Nu-World Corporate Report, supplement to Financial Mail, 31 October 1997,
p. 4.
33 Mwanza, C. Herdber’s hard talk. Finweek, 29 March 2007, p. 62.
34 Customer-focused companies will shine, Bizcommunity, 25 October 2007.
35 Caltex Corporate Report, supplement to Financial Mail, 3 October 1997, p.
17.
36 IMD World Competitiveness Yearbook, 1997. Lausanne: IMD.
37 Boshoff, H.C. 1990. Perceptions of service quality in three selected service
industries. Unpublished PhD dissertation, University of Pretoria.
38 Driving customer satisfaction through technology and innovation.
(http://sappi.investoreports.com/ sappi_sdr_2009/prosperity/drivecustomer-satisfaction/) (Accessed 28 March 2014).
39 Malcolm Fleschner with Gerhard Gschwandtner, The Marriott Miracle.
Personal Selling Power, September 1994, p. 25.
40 Nando’s Corporate Report, supplement to Financial Mail, 10 April 1998, p.
24.
41 Berry, L.L. & Parasuraman, A. 1991. Marketing services. New York: The Free
Press, p. 49.
42 Bowen, D.E. & Lawler, E.E. 1992. The empowerment of service workers:
What, why, how and when? Sloan Management Review, spring, pp. 31–38.
43 Customer comes first with ‘bank that cares’. Business Times, 12 July 1998, p. 8.
44 Sundstrom, K. 1998. A deep-seated commitment to quality. Business Post, 11
July, p. 1.
45 Team effort propels Sunday flagship. Adfocus, supplement to Financial Mail,
24 May 2002, p. 106.
46 McCarthy, E.J. & Perreault, W.D. 1996. Basic marketing (12th edition).
Chicago: Irwin, p. 23.
47 Kotler, P. 1996. Marketing management (9th edition). Englewood Cliffs:
Prentice Hall, p. 22.
48 The role of marketing in growing a business. Business Day, 10 August 2007, p.
16.
49 Kruger, C. 2014. Presentation at the 26nd Annual Conference of the Institute
of Management Sciences, Riverside Sun Resort, 15 September.
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CHAPTER
02
Analysing the external
environment’s influence on
marketing
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
3
4
5
6
7
8
9
Discuss the nature of marketing’s external environment and
explain how it can affect the marketing efforts of a firm.
Discuss the methods and information sources typically used for
environmental scanning.
Describe the nature of market opportunities and threats.
Illustrate your understanding of the importance of identifying
opportunities and threats in the external marketing environment.
Identify examples of potential opportunities and threats for South
African firms.
Describe the potential impact of social factors on marketing in
South Africa.
Analyse the impact of demographic trends on marketing in South
Africa.
Describe the value of the Living Standards Measurement (LSM)
for South African marketing decision-makers.
Discuss the relevance of the economic environment for marketing
decision-making.
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10 Explain how marketers can utilise or overcome the opportunities
or threats associated with inflationary and recessionary economic
conditions.
11 Discuss the relevance of the technological environment for
marketing decision-making.
12 Elaborate on the likely impact of the Internet on marketing
practices now and in the future.
13 Analyse the role that variables in the political environment can
play on marketing decision-making.
14 Describe the attitude firms should exhibit towards legislation.
15 Identify South African legislation that can have an impact on
marketing decision-making.
16 Explain what impact the formal trade agreements to which South
Africa is a signatory will have on marketers.
17 Discuss the relevance of the competitive environment and
physical forces for marketing decision-making.
18 Illustrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
19 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice
Video on demand
With the introduction of PVRs (Personal Video
Recorders) the way in which TV viewers decide which
shows to watch, and when they watch them, is
changing radically. South Africa’s first video-on"****** DEMO - www.ebook-converter.com*******"
demand (VOD) service, DStv BoxOffice, allows
subscribers to rent and view digital copies of movies
without leaving their homes. The satellite-based VOD
service lets you rent up to 15 movies from about 150
available movies at R25 each (including HD movies) for
48 hours. DStv has set 15 movies as a maximum ‘due to
storage limitations on the PVRs’. PVRs let audiences
create their own schedules, tailored to their mood. It
also allows consumers to eliminate commercials with
the push of a fast forward button, which necessitates a
fresh approach to advertising.
The service is available only to DStv Premium
subscribers who have PVR decoders. They can
download movies and store them on their PCs. To
avoid piracy, the movie will automatically be deleted
after 48 hours. Movies will be available on the same day
as the official DVD launch in SA. One can prepay or pay
by credit card or debit order.
SOURCE: Adapted from Muthelwana, M. Video on demand. Financial
Mail, 5 August, p. 30
QUESTIONS
1
2
3
What are the implications of DStv’s entry into the video market?
Who will benefit from the decision?
What impact does PVRs have on the media and advertising
environment?
1. Introduction
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In Chapter 1 we emphasised the importance of identifying
opportunities that entrepreneurs and firms can utilise.
When an entrepreneur starts a new business it is usually an
attempt to take advantage of a market opportunity. In other
words, there are consumer needs that are not adequately
satisfied – or, as some people would describe it, a ‘gap in the
market’ (see Reader 5 ‘Doing the shuttle shuffle’). Mark
Zuckerman founded Facebook when he realised that many
people have a need to communicate electronically with
several people simultaneously (and almost constantly).
Riaan Stassen spotted a gap in the banking market for
consumers who want a simple, uncomplicated banking
service at a reasonable price and founded the remarkably
successful Capitec Bank.
Existing firms also have to be on the lookout for new
opportunities to realise their objectives. For example,
Media24 spotted a gap in the magazine market for a
magazine focusing on makeovers featuring ‘before-andafter’ stories and pictures of women whose appearances
have been improved and launched You-Makeovers. Such an
opportunity for an existing firm is crucial to ensure their
long-term survival. Long-term survival is the most
fundamental goal of any firm, and can only be realised if it is
profitable. Other objectives that business firms typically
pursue include growth objectives, sales or market-share
objectives, productivity objectives and socio-economic
objectives.
To survive in the long term, a firm must, at the very least,
perform some useful activities. In other words, it must add
value – for instance, by satisfying needs. To that end, the
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firm needs to organise itself by creating an organisational
structure geared towards need satisfaction and survival. If
properly executed, a proper organisational structure ought
to lead to profitability. Without profitability, no firm can
survive in the long term.
Business firms formulate goals and objectives at different
levels. The overall goals of the firm, sometimes called
corporate goals – such as being a market leader, earning 20
per cent return on investment or achieving 75 per cent
occupancy of hotel rooms – are supported by functional
objectives (marketing objectives, financial objectives,
production objectives, and so on). The marketing
department will refine the marketing objectives (for instance
‘to be the market leader we need to gain 35 per cent market
share’) and set objectives for each of the four ‘P’s. Examples
could include:
•
•
•
•
Promotion (marketing communication) – ‘to be the
market leader we need to increase brand awareness to 50
per cent in the target market’
Place – ‘to be the market leader we need to ensure
product availability at all computer retailers in South
Africa’
Price – ‘to be the market leader we need to offer the best
value for money products on the market’
Product – ‘to be the market leader we need to market the
most user-friendly software on the market’.
The opportunities to realise these, and other, objectives are
found in the firm’s external environment. This chapter
analyses the elements of the external environment and more
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specifically the macro-environment, and how they influence
the marketing activities of a firm. Figure 2.1 provides an
overview of the place of a firm’s marketing environment in
the external environment. Two of these elements, however,
are worthy of special attention, and a whole chapter is
devoted to each of them namely consumers and their
buying behaviour (Chapter 3) and competitors and their
activities (Chapter 4).
READER 5 >> Doing the shuttle shuffle
Valerie Graunke was working as an administrator at a nursery school in
Fourways when she first had the idea of starting a lifting service for school
children whose parents worked. ‘More than 60 per cent of the mothers were
working mothers who were battling to pick up their children from school’, she
says. Graunke bought a second-hand minibus, trained a driver and kicked off
school link shuttle service in 2004. Seven years later it has grown into a
business transporting more than 600 children a day, with a fleet of more than
18 minibuses serving around 50 schools across Johannesburg. ‘The number of
working mothers has increased and more children need transport to and from
school’, she says. ‘Making use of this service allows parents to continue the
work day uninterrupted. The success of the business has been ensuring that
drivers are properly trained and that each bus has a female assistant to allow
the driver to focus on driving. Our busses are all satellite tracked and parents
receive a notification of their children’s drop off.’ She says one of the most
challenging aspects of running the business is the logistical complexity of
working out bus routes in different areas. In areas where parents can afford
the service, the return on investment can be very good, she says.
SOURCE: Pile, J. 2011. Doing the shuttle shuffle. Financial Mail, July 1, p. 27
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2. The marketing environment
The environment in which marketing managers must make
decisions can be divided into an external environment and
an internal environment (Figure 2.1). It is here where the
threats that marketers try to avoid as well as the
opportunities they pursue, can be found. Marketing
managers create a unique marketing mix by combining
product, distribution (place), marketing communication
(promotion) and price strategies. The marketing mix is
controlled by the firm and is designed to appeal to a specific
group of potential buyers – the target market.
A target market is a defined, fairly homogeneous group of
consumers that marketing managers feel are most likely to
buy a firm’s product or products. Over time, marketing
managers are often required to alter the marketing mix
because of changes in the environment in which consumers
– and particularly those who make up the target market –
live, work and make purchasing decisions.
For example, until the mid-1970s, motor vehicle
manufacturers produced mainly large passenger vehicles.
The small-vehicle market was almost totally ignored. During
those days, petrol was cheap. How economical a car was in
terms of petrol consumption was of little interest to most
potential buyers and therefore also to vehicle
manufacturers. The oil crisis of the mid-1970s changed all
that. Together with the decreasing value of the rand, petrol
became very expensive in South Africa. As a result, a
demand for smaller, fuel-efficient cars developed almost
overnight. To satisfy this demand, marketing managers
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competing in the motor vehicle market have been forced to
change their marketing mix completely.
READER 6 >> Fuel-efficient luxury cars
Forward-thinking vehicle manufacturers such as Audi has risen to the
challenge to manufacture more cost efficient cars with a host of innovations
and cutting edge advancements geared towards ultra-efficient driving. Every
aspect of a vehicle is designed with fuel efficiency in mind. Construction
materials, engines and electronic equipment are optimised and even reimagined in the creation of fuel efficient luxury cars. Cutting down on vehicle
weight can go a long way towards fuel efficiency. Innovative vehicle
manufacturers have tapped into the potential of lightweight design through a
combination of steel and aluminium. Engineers are able to make front casings
for a suspension unit out of die cast aluminium before thermoformed steel is
combined to provide hardness and sturdiness that far surpasses that of
conventional high-strength steel. Luxury vehicle bodies that are far lighter than
previous models are the result of this ground breaking process. The lowered
vehicle weight means that there is a marked reduction in fuel consumption.
These innovative and forward thinking vehicle manufactures have made great
strides towards designing the most economical vehicles today’s roads have
ever seen. From lightweight aluminium construction materials to cutting edge
efficiency technologies and precisely harnessed engine power, fuel efficient
luxury cars are the very essence of sustainable mobility.
SOURCE:
Adapted
from
http://www.audi.co.za/za/brand/en/company/additional_information/fuel_efficient_
Whereas luxury and comfort were a competitive
advantage during the pre-oil crisis days, economy and cost
efficiency are now the dominating factors. Not only the
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product itself (i.e. smaller, fuel-efficient, entry-level models,
such as the Opel Corsa and Ford Focus), but also vehicle
manufacturers’ pricing, distribution and promotion
strategies have changed as a result of uncontrollable
developments in the external marketing environment.
Failure to adapt the marketing strategy when environmental
conditions demand it can be disastrous.
Consider the impact technology has had on Switzerland’s
domination of the international watch-making market.
Conventional Swiss watchmakers dominated the watch
market for many years. Then all of a sudden a new
technology emerged and microchips could be
manufactured quickly and cheaply. Some entrepreneurs
spotted the opportunity to use the new technology to
manufacture digital watches while the Swiss watchmakers
were looking the other way. Very quickly Switzerland’s share
of the global market had dropped from 80 per cent to about
10 per cent. During 2014 Google introduced a new version of
its Android operating system software made for
smartwatches, amid speculation that Apple was also set to
enter the wrist wars soon with a product that industry
followers have already dubbed the iWatch. Growing interest
in smartwatches by consumers and technology companies
might seem a perfect opening for the industry that really
knows watches: the makers of fine Swiss timepieces. It
seems that Swiss watchmakers may again miss out on yet
another opportunity as they are not committed thus far to
combining diamond bezels with digital bits. Another
example of the effects of environmental developments on
business firms is the impact of digital-camera technology on
the imaging industry (see Reader 7 ‘Digital cameras kill
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photo shop’). The film company Kodak has made a loss in
six of the last seven years and has filed for bankruptcy
protection. Kodak was five years too late in shifting from
traditional film cameras to digital cameras. Given its poor
grasp of the impact of digitisation Kodak also did not
capitalise on opportunities to expand its product range to
digital printers. This delay opened the door for competitors
such Canon and Hewlett-Packard to take over its market. 1
2.1 Marketing’s interaction with the internal and
external environment
Marketing’s involvement in the environment can be
described at two levels (see Figure 2.1):
The internal environment:
•
•
Direct control and responsibility (the marketing
environment)
No control, but limited influence (the business
environment).
The external environment:
•
Neither influence nor control (the external environment
which can be divided into the market environment and
the macro-economic environment, see Figure 2.1).
The internal environment can again be divided into the
marketing environment and the business environment. In
the internal marketing environment, marketing managers
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can control (and are, indeed, responsible for) decisions
relating to the marketing function (department), such as the
formulation of the objectives of the department, planning
and executing the marketing process and managing the
marketing mix. In the rest of the internal environment (i.e.
the internal business environment), marketing cannot
control elements such as the firm’s mission statement or
goals and strategic objectives or any decisions relating to the
other business functions, such as finance, human resources,
purchasing and production management.
Marketing can, however, attempt to influence decisionmaking in these areas. For instance, a marketing manager
cannot force production managers to change production
processes in order to add a new feature to a product, but can
try to persuade them to do so. Likewise, the human
resources manager may be persuaded (but not forced) to
expand the sales force.
READER 7 >> Digital cameras kill photo shop
The aggressive growth of digital technology forced the closure of one of Port
Elizabeth’s oldest and most respected photography firms. Color 2000 Photo
Lab closed down after nearly three decades in the film-developing and printing
business. ‘Digital photography has just killed the market’, according to the
owner, Ms Cader-Begg. In the old days, people would buy a roll of film, take
the 36 pictures, and have them all processed. Now, digital cameras take
pictures by the thousands. People keep them on their computers and choose
perhaps only one or two for printing. It’s the end of an era. A chapter has
closed.’
Digital cameras were first marketed to consumers about fifteen years ago.
Since then, digital camera sales have skyrocketed. Market research firm, GFK
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Marketing, recorded a 152 per cent rise in digital camera sales two years ago,
compared with a drop in film camera sales.
SOURCE: Adapted from Cooper, B. 2004. Digital cameras kill photo shop.
Eastern Province Herald electronic edition, 27 July
The external environment can also be divided into two
components namely the market environment and the macro
environment (Figure 2.1). In the market environment,
uncontrollable variables (such as competition and the
economy) may affect not only the firm, but also the target
market. New suppliers may enter the market or the needs of
a market may change. In the so-called market environment,
the marketing manager can at least try to influence
consumers, suppliers and intermediaries (such as
wholesalers and retailers), and shape and reshape the
marketing mix to influence the target market (consumers),
but the marketing manager’s influence in the market
environment is limited. From a marketing perspective, the
macro-environment contains factors that are completely
uncontrollable. These include social factors, demographic
factors, economic factors, technological factors, political
factors, legal factors and competitors. For example,
marketers who perceive the Internet as a threat to their
business (such as travel agents) cannot make it disappear.
The manufacturers of photographic film could do little to
stop the decline of demand for their product to less than 5
per cent of what is was in 2000. Similarly, marketers cannot
remove governments or change laws: these are
uncontrollable elements to which marketers can only
respond. All the elements shown in Figure 2.1 continually
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evolve and have an impact on the target market. Skillful
marketers study, track and anticipate these potential and
actual changes by changing the firm’s marketing strategies
(and in particular the 4Ps) to optimally satisfy the target
market’s needs.
Figure 2.1 The firm’s internal and external environment
SOURCE: Adapted from Geel, F.C. & Tait, M. Unpublished lecture notes, Nelson
Mandela Metropolitan University (used with permission).
3. Understanding the external
environment
LO1
Unless marketing managers understand the external
environment,
firms
cannot
successfully
identify
opportunities and effectively plan for the future. Therefore,
many firms assemble a team of specialists to continually
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collect and evaluate environmental data and information, a
process called environmental scanning. The purpose of
collecting environmental data is to detect and assess factors
and trends that may influence the firm or its target markets,
and identify future market opportunities (mostly unmet
market needs) and potential threats early. As Bill Gates, the
chairman of Microsoft once said, ‘The culture of our
company is never to miss these things that are coming
along. We were one of those things that came along.’ Nokia
was once the dominant cell phone maker controlling more
than 50 per cent of the global market – until Apple’s iPhone
and Google’s Android came along and today Nokia is not
even amongst the top five cellular phone companies in the
world.
The focus of this environmental-scanning process is the
external environment – the variables and forces outside the
firm’s sphere of direct influence that may have an impact on
its marketing decision-making and eventual success. These
variables and forces often represent trends that influence
marketing management’s ability to develop and implement
marketing strategies. They can be broadly classified as either
a threat or an opportunity.
An opportunity can be described as a consumer need that
a firm can take advantage of profitably. A threat, on the other
hand, is a challenge posed by an unfavourable trend or
development that would, in the absence of preventative or
remedial action, harm the firm, such as a deterioration in
sales and profitability.
EXAMPLE >>
For instance, South Africa’s first video-on-demand
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service, offered by DStv BoxOffice allows DStv subscribers to rent and view digital
copies of movies without leaving their homes. This new service presents a serious
threat to the business of the traditional video store. Many property developers are
refusing to develop commercial properties in South Africa due to obstacles posed
by incompetent municipal officials and corruption leading to lost investment and
job losses. Due to threats posed by these risks property developers are utilising
opportunities in Ghana, Mozambique and Europe instead.2
The trend of downloading music and movies from the Internet (iTunes
recorded $10,2 billion worth of sales in 2014)3 has had a negative impact on the
sales of most music retailers, including that of Musica. In the industry as a whole,
sales have declined from R1,1 billion in 2007 to R650 million in 2011. Between
2013 and 2014 Musica’s sales of CDs dropped by a further 13,8 per cent and
DVDs by 9,4 per cent.4 Another threat looming on the horizon for music retailers
is Spotify’s online music streaming.
These are all examples of threats in the external
environment that had a significant influence on the
decision-making of marketing managers. Early detection of
threats by means of environmental scanning is an important
prerequisite to avoid the negative impact of potential threats
(see Reader 8 on Encyclopaedia Brittanica).
READER 8 >> Your tome is up… Encyclopaedia
Britannica ends its print edition after 244 years as it
fully embraces digital age
As the march of the iPad and Kindle continues unabated, the oldest
manufacturer of encyclopaedias has become one of the first major book
publishing casualties of the digital age by cutting out its entire print operation.
The Encyclopaedia Britannica, which has been in continuous print since it was
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first published in Edinburgh in 1768, said today that it will continue with
digital versions currently available online. The final set of the 32-volume
printed edition remains available for sale on the company’s website for £890
(R16 000).
Encyclopaedia Britannica is the longest-running manufacturer of printed
encyclopaedias, with its first edition printed in Scotland in 1768, but the title
will live on as Britannica produces digital versions available online. Sales of
hard copied have declined from 120 000 in copies in 1990 to 40 000 in
1996 to 8 500 in 2012.
‘Britannica was one of the first companies to really feel the full impact of
technology, maybe 20 years ago, and we have been adapting to it, though it is
very difficult at times,’ he said. While Encyclopaedia Britannica has continued
to operate, he expected ‘many trade publishers will not survive – and any
content development company will have to be thinking about how they are
going to fill the gap.’
As to whether print editions of books will be viable products in the future,
Mr Cauz predicted, ‘print may not completely vanish from the market, but I
think it is going to be increasingly less important’. With its scholarly, reliable
reputation, Mr Cauz said Encyclopaedia Britannica had not been affected by
the popularity of Wikipedia. Mr Cauz told CNN: ‘The print set is an icon. But
it’s an icon that doesn’t do justice to how much we’ve changed over the
years’. The death of the print edition of Britannica echoes the rise of the
techno-savvy consumer. In terms of space-saving, practicality and cost, there
is much to be said for e-books – something independent bookstores would
dispute, as they are fast becoming endangered species. Although digital books
have been around for more than two decades, it is only in recent times that
the long-predicted explosion in electronic reading has come to take hold. In
2010, e-books accounted for 6 per cent of all books sold in the UK, with sales
more than doubling every year. And in the US, Amazon now sells more e-books
than hardbacks and paperbacks combined.
SOURCE: Nick Enoch, N. Your tome is up… Encyclopaedia Britannica ends its print edition after 244
years as it fully embraces digital age. Daily Mail online, 14 March 2012.
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LO2
Environmental scanning ought to be an ongoing, rolling
process, but with specific time frames, such as one year,
three years, five years, ten years and twenty years. The
planning horizon is, therefore, constantly adjusted over
time, and the importance of environmental trends in terms
of marketing decision-making should be constantly
impressed upon marketing managers.
Environmental scanning techniques are by nature
qualitative and subjective. Activities associated with
environmental scanning include:
•
•
•
•
•
•
•
Studying current events by attending seminars and
conferences
Analysing the speeches of political leaders such as the
minister of Finance and the Governor of the Reserve
Bank
Reading the analyses of management consulting firms,
futurists and financial institutions
Collecting and analysing data from government
departments such as the Reserve Bank and the
Department of Trade and Industry
Analysing national trade figures
Following discussions on social media and relevant
blogs
Collecting information on economic indicators.
EXAMPLE >> Examples of internal sources of information are a firm’s own
records (sales figures, accountancy records, etc.), research reports, in-house
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experts and experienced staff members. External sources of information are trade
associations, such as the South African Chamber of Commerce and Industry;
government departments, such as the Department of Trade and Industries and
Statistics SA; advertising agencies; consultants; and syndicated reports, such as
the South Africa Business Forecast report. Several commercial banks also publish
reports on economic indicators and conditions. An example is Absa Bank’s
Quarterly Economic Monitor.
How these data are analysed and interpreted, however, is
the real challenge. Some firms build long-term, alternative
scenarios (called scenario planning) and then formulate
contingency plans for each of them. Another technique that
is often used is the Delphi Technique whereby, after a series
of iterations, an attempt is made to reach some degree of
consensus among a group of experts on potential future
events and their impact on the firm.
Despite its speculative nature, the advantage of
environmental scanning is that it encourages marketing
managers to think long term, to translate vague ‘gut feelings’
into clear strategic issues and to think strategically about
potential opportunities and threats in the external
environment.5
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4. Opportunities and threats
Every
firm’s
marketing
environment
LO3
has
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many
opportunities. For example, anyone in South Africa who can
find alternative energy sources to generate affordable
electrical power, or a cure for degenerative diseases such as
HIV/Aids, Alzheimer’s and diabetes, or to desalinate
seawater will exploit the most shining of opportunities.
EXAMPLE >> Marketers must be continually on the lookout to take
advantage of any opportunities that come their way. In 1996 only 58 per cent of
the South African population had access to electricity. Today it is 85 per cent.
Eskom’s electrification programme has given 5 million new households access to
electricity. The electrification programme is opening up tremendous opportunities
for manufacturers of electrical products, such as kettles, televisions, fridges and
stoves. However, the same programme has been a threat to the marketers of
samp and beans. Access to electricity and electrical appliances has changed the
eating habits of traditionally poorer households who no longer eat ‘umngqusho’
(samp and beans) prepared on fires as they take too long to cook.6
Similarly, convenience is a consumer need that often offers
opportunities to business firms. Today, we have firms that
deliver pizzas to our front door (mrdelivery.com), or mow
the lawn for us while we are at work; we can buy clothes
(naartjie.co.za; spree.co.za) and groceries (pnponline.co.za)
online, and do our banking from the comfort of a computer
at home. These are all examples of actions by firms who
view consumers’ need for convenience as an opportunity
that must be seized.
Clicks is another South African firm that has capitalised
on consumers’ need for convenience. ‘Shoppers are
reluctant to walk long distances’, says Clicks development
director, Chris Roesstorff. As a result, Clicks now opens
more – but smaller – shops, that are conveniently located,
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rather than just a few in large shopping malls.7 Clicks now
boasts that no potential customer is ever more than 7km
away from a Clicks store.8 Similarly, Daily Buzz is a mobile
coffee bar with collapsible wings that fit into an elevator to
sell coffee at the desks of employees in large corporate
buildings.
Evolving lifestyles, changing attitudes and new
technological developments are all outside the direct
control of most firms, but they offer the type of opportunities
that many firms have successfully (and profitably) utilised.
Many firms have successfully capitalised on the trend of
consumers’ time poverty. Examples include firms like
Served Fresh (servdfresh. co.za) to prepared meals, DontQ
(dontq.co.za) - a firm that handles applications, such as
passport applications, birth registrations and vehicle
licensing on behalf of individuals, Woolworths
(woolworths.co.za) and Pick n Pay’s (pnponline.co.za)
online shopping ranging from food to clothes.
These firms have identified trends in the market
environment, decided that they offer opportunities that
could be profitably utilised and have done a great job of
satisfying the convenience and poverty-of-time needs of
their customers. Sometimes, however, the changing
environment can pose a threat. When it does, the challenge
to marketing managers is to convert the threat into an
opportunity.
For years, research conducted by the All-Media &
Product Survey (AMPS) has shown that South Africans are
reading less and less.9 This decline in the population’s
reading habits has occurred mainly among relatively
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affluent market segments, and this trend (i.e. the decline in
the reading habit) is an obvious threat to the marketers of
newspapers, magazines and books. The potential threat of
decreasing readership, however, can be turned into an
opportunity. Marketing more specialised publications, such
as Business Day and Student Life, is potentially one way of
doing that. Marketing on the Internet or digitising content to
be readable using electronic devices such as a Kindle or an
iPad may be another way of responding to the threat of
declining readerships.
WEBSITE
Read more about the reading culture in
South Africa on
http://www.southafricaweb.co.za/article/readingculture-south-africa.
>> Technology in action
Bookly changes the reading game
Technology has been the ‘agent of change’ that has
created many opportunities for entrepreneurs in the
21st century. We are all familiar with the success of the
social media applications such as Facebook, Twitter,
Instagram, YouTube as well as the South African
developed ‘app’, Mixit. Another characteristic of the
‘digital marketplace’ is how developers have
‘reconfigured’ many traditional products and in so
doing allowing consumers to access existing products
in new and innovative channels and formats. For
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example, consumers can download books and read
them at their leisure rather than follow the traditional
method of purchasing a physical copy at a bricks and
mortar shop. However, while the cost of downloading a
book might be relatively inexpensive, compared to
buying a hard copy, buying a device such as a Kindle,
iPad or tablet is not affordable for the vast majority of
South Africans.
As a result digital agency Native launched an
application known as Bookly which allows users to
download and read e-books (through Mixit) on their
mobile phones. Levon Rivers, Native’s head of
inventions, says the company chose to develop the
application for Mxit because of the reach the platform,
both in terms of the number of users of the service and
the range of mobile phones supported – it works on
phones with the most basic of features, not only smart
phones.
At present consumers can download certain free
books using Bookly (because they are no longer
copyright protected) but in addition, two commercial
publishers are offering selected titles to consumers, via
Bookly, for a fee. Users can purchase books one chapter
at a time or all at once with the average rate for a
chapter around R1,50 and whole books priced around
R30. Native is also interested in adding textbooks to
Bookly, but this will require working with academic
publishers and government. Perhaps in a few years you
will be reading this textbook on your phone!
SOURCE: Wilson, C. 2013. Bookly brings e-books to Mxit, Techcentral
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electronic edition, 30 May 2013. Available from:
http://www.techcentral.co.za/ bookly-brings-e-books-to-mxit/40720/
(Accessed 25 June 2014)
There are a number of methods and techniques available
that marketers can use to assess environmental variables
and trends that appear to be opportunities or threats. These
will be discussed in detail in Chapter 14. One is called the
Boston Consulting Group Matrix. Another is the so-called
SWOT analysis (SWOT stands for strengths, weaknesses,
opportunities, threats). A SWOT analysis considers four
basic questions: is this environmental variable or trend
(such as declining readership or the need for convenience):
•
•
An opportunity (O)?
A threat (T)?
How can we deal with it?
•
•
Do we have the strengths required to utilise the
opportunity or overcome the threat (S)?
What are our weaknesses if we do attempt to utilise the
opportunity or overcome the threat (W)?
Opportunities and threats are normally (but not always)
found in the external environment (see Figure 2.1), whereas
assessing strengths and weaknesses generally takes the form
of an internal assessment (the internal environment in
Figure 2.1).
Sometimes firms identify environmental variables or
trends (such as increased use of the Internet, or increased
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consumer demand for safer products, or a new law) and
decide to do nothing because they do not represent
opportunities or threats to the firm. On other occasions,
environmental variables or trends may indeed represent an
opportunity. If so, the firm must then consider whether it
has the required strengths and resources to utilise the
identified opportunity. For instance, will the firm be able to
establish a clear competitive advantage that is sustainable?
Does it have the required resources (skills, expertise,
experience, financial resources, capacity, etc.)? What are the
firm’s weaknesses? Does it know enough about its
customers’ needs? Does it know enough about likely
competitive responses?
LO4
If the firm identifies potential threats to its survival,
similar questions need to be asked. If the Internet is a threat
to its business (as it is for travel agencies and book
publishers), can it overcome this threat? Does it have the
resources to overcome it? Two key issues to consider when
evaluating each potential opportunity are: Does it fit in with
the firm’s goals and objectives and is it part of our business?
If not, it may not be an opportunity at all. (In Chapter 1 we
considered the question of a market definition and the
dangers associated with too narrow or too broad a definition
of a firm’s market.)
When Clicks entered the retail pharmacy market in 2004,
it clearly thought that medicines closely fitted with its
current business and products, such as cosmetics and
health care products. In considering its competitive
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advantage Clicks probably argued that it could source
cheaper pharmaceutical products (because of its bulkbuying power), and offer consumers more convenient retail
locations, than independent pharmacies. Now, 10 years
later, Clicks manages over 330 pharmacies across the
country, and its footprint continues to grow. A key
ingredient to Clicks Pharmacy’s success is the quality of its
pharmacy staff, which is why the group has invested heavily
in their professional development. Every year the Pharmacy
Healthcare Academy has 350 to 400 learners enrolled for its
pharmacist assistant qualifications. The group also runs an
on-going pharmacist intern programme and funds bursaries
for about 100 pharmacy students a year. As more people are
challenged to meet the cost of healthcare, the pharmacist
plays a bigger role in counselling and assisting with
affordable medication in South Africa – an opportunity wellutilised by Clicks. 10
The next assessment question is: can the firm establish a
sustainable competitive advantage? A competitive
advantage can take a variety of forms, such as cost, quality,
flexibility, location, safety, image, product design and
distribution (several sources of competitive advantages were
discussed in Chapter 1).
For instance, in competing with iPad in the electronic
book market, Kindle has focused on easing the complaint of
tiring eyestrain as a competitive advantage. By using
electronic ink, rather than a backlit screen, Kindle allows
readers to read for long periods without eyestrain.
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5. Environmental management
No single firm is large or powerful enough to create major
changes in the external environment on its own. Therefore,
marketing managers are more often than not adapters to
change rather than agents of change in the external
environment. Despite their huge size, American motor
vehicle manufacturers such as General Motors, Ford and
Chrysler have not been able to stem the competitive push by
the Japanese for an ever-growing share of the US vehicle
market. Similarly, South African dairy producers are facing
increasing competition from foreign competitors, such as
producers from New Zealand, which harms local dairy firms
(such as Parmalat) and the industry’s profitability.
Competition is basically an uncontrollable element in the
external environment.
EXAMPLE >> However, a firm is not always completely at the mercy of the
external environment. Sometimes external events can be influenced. During 2013
The South African Poultry Organisation lobbied the South African government for
import protection against what they referred to as cheap imports from abroad.
Based on the argument that cheap, subsidised imports of chicken products harm
their markets and profitability and that that will lead to job losses, the
Department of Trade and Industry granted them a 8,75 per cent average tariff
increase on some categories of imported chicken.11 Similarly, the Retail Motor
Industry (RMI), which represents the organised motor retail sector, recently asked
the Minister of Trade and Industry for protection for car dealers from their
suppliers (vehicle manufacturers). The RMI alleged that vehicle manufacturers
were abusing their power in their supply relationships with dealers. Dealers said
they had been pressured into deals that allow manufacturers to close their
dealerships down with as little as 30 days’ notice in some cases.12 The South
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African clothing industry has also successfully lobbied the government for
protection against importing what they regard as cheap clothing from China. As a
result, the government has placed import restrictions on South African retailers’
clothing imports from China.
5.1 Identifying opportunities and threats
LO5
When a firm implements strategies to respond to the
environment within which it operates, this is known as
environmental management. This process can identify a
variety of potential sources of opportunities or threats, such
as:
•
•
Technology – the increased use of the Internet is
potentially a threat to travel agents, publishers, the Post
Office and vehicle dealerships. Kalahari.com has
recently added seven new product categories to its offer,
including baby products, homeware, pet products,
outdoor products, tools and appliances.13 Using
technology, Internet retailers such as Kalahari.com and
Takealot.com are a direct threat to many conventional
‘bricks-and-mortar’ retailers.
Legislation – the new Consumer Protection Act gives
consumers more legal clout by raising the risk of product
liability damages claims, and, as a result, firms can
expect to pay higher insurance claims because of the
greater risk of lawsuits involving product liability. This
law could have a detrimental effect on smaller
businesses that may not be able to afford insurance
premiums and may be squeezed out of the market. 14 The
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•
Department of Health has proposed a law that will
prohibit the advertising of alcohol – which is an obvious
threat to wineries who may not be permitted to have
wine tastings or participate in wine festivals.
Government plans to ban all smoking in all public areas
will not only hurt cigarette manufacturers, but also
places such as restaurants and coffee shops. 15
International competition – as more and more global
players enter the South African market, many firms and
even industries will suffer, including the retail industry
(Walmart entering the South African market is an
example; the Spanish clothing retailer Zara is another),
automotive industry (both Indian and Korean
manufacturers such as Kia and Daewoo are now
marketing their products here), the dairy industry, the
clothing industry, the fast food industry (Burger King has
entered an already crowded market) and the financial
services industry.
The factors within the external environment are important
to marketing managers because they can represent both
opportunities and threats and these can be classified as
social, demographic, economic, technological, political and
legal, competitive and physical.
6. Social factors
LO6
Social change is perhaps the most difficult external variable
for marketing managers to forecast, influence or integrate
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into marketing plans. Social factors include our attitudes,
values and lifestyles. Social factors influence the products
people buy, the prices they are prepared to pay, the
effectiveness of specific promotions and how, where and
when consumers purchase products.
6.1 Consumer values
Today’s consumers are demanding, inquisitive and
discriminating. They are no longer willing to tolerate
products that break down, and they insist on high-quality
products that are healthy or save time and energy. In South
Africa, demanding customers are becoming an increasingly
evident trend. The business publication, Financial Mail
recently reported: ‘South African consumers, long secondclass citizens of the world shopping scene, are growing more
demanding. Travelling abroad more, shoppers like what
they see in foreign stores. Shoppers want good service and
high-quality products, or they go elsewhere. Retailers have
little choice: become more competitive or lose business.’ 16
Many of today’s shoppers are also conscious of the
impact that their consumption patterns have on the
environment, but many firms have been slow to respond to
consumers’ views of the environment.
The growing sensitivity to environmental issues will
increasingly impact on marketing decision-making. Some
firms will view this trend as a threat, whereas others will see
it as an opportunity to gain a competitive advantage.
Nedbank, for instance, is positioning itself as ‘an
environmentally-sensitive bank’ with advertising slogans
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such as ‘Keeping it green is a big deal’. Motor manufacturers
(such as Toyota with their hybrid Prius model) have made
huge strides in manufacturing environmentally-friendly
models. Renault (in association with Nissan) hope to have
1,5 million electric passenger vehicles on the roads by 2016.
17
Another growing social trend is that fewer consumers
consider expensive cars, designer clothes, pleasure trips and
gold credit cards necessary components of a happy life.
Instead,
they
increasingly
value
non-material
accomplishments, such as having control over their lives
and being able to take a day off when they wish. 18 Dualcareer families suffer from time poverty, with few hours to
do anything other than work and commute to work, handle
pressing family situations, do housework, shop, sleep and
eat. Even French restaurateurs complain that, in an attempt
to save time and money, the French no longer eat threecourse meals in restaurants. Only four per cent of restaurant
meals now include the traditional starter, main course and
dessert and diners spend only 32 minutes on average at the
table compared to 90 minutes in 1975. 19
There is a sense that the relaxed lifestyle of earlier eras –
the weekday golf foursome, bridge games, gardening, long
lunches, chats across the fence – is fast disappearing. Work
consumes a huge portion of people’s days. This productivity
pressure is exacerbated by the explosion in the number of
double-income households, putting further pressure on the
available time of many consumers. Furthermore, in the age
of the ‘virtual office’ (i.e. working at home with a computer
and modem), it has become increasingly difficult for many
professionals to separate the time they spend on work and
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leisure. These people have special needs to help them cope
with their time poverty, and their needs are increasingly
centred on convenience and time saving.
6.2 The changing influence of families and
gender
Component lifestyles have evolved because consumers can
choose from a growing number of goods and services, and
most have the money to exercise more options. Rising
purchasing power has resulted from the growth of doubleincome families. As women’s earnings grow, so do their
levels of expertise, experience and authority. Working-age
women are not the same group that businesses targeted 30
years ago. They expect different things in life – from their
jobs, from their spouses and from the products and services
they buy – and marketers who can assess and satisfy their
needs can make the most of a major opportunity.
EXAMPLE >> The automotive industry is one that has finally begun to
realise the power and influence of women in vehicle purchase decisions. Female
buyers account for almost 44 per cent of new car sales in South Africa. Women
are also increasingly purchasing more typically ‘male’ products. Cigar Aficionado
magazine recently published an article on women and cigars. Some cigar makers
plan to introduce special shapes designed for women. The new cigars will be
large enough to provide full flavour, but tapered at the ends to make them easier
to light and more comfortable for the smaller female hand.
The growth in the number of working women has meant an
increase in dual-career families. Although dual-career
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families typically have greater household incomes, they
have less time for family activities. Their purchasing roles in
the family (which define the items traditionally bought by
the husband or wife) are changing, as are their purchasing
patterns. Consequently, new marketing opportunities are
being created.
For example, small businesses that cater to the needs of
dual-career households by offering specialised goods and
services are opening daily. With more women than ever
working full time, there is a special demand for new
convenience and time-saving household products and
services – such as gardening services, home deliveries (e.g.
Bread-on-Wheels), fast food and childcare. Examples of
products targeted at dual-career families are Royco Cup-ASoup and many ready-to-microwave foods. Elite Cheese
markets its grated cheese to ‘the busy bee’; John West
markets a tuna ‘lunch-to-go’; and Estée Lauder markets a
‘one-minute make-up’ for the busy woman – ‘your best face
in a minute’.
6.3 Is it a new social trend or a fad?
The ability to distinguish between a new social trend and a
fad at an early stage can create many marketing
opportunities, and prevent a firm from investing money in
the wrong product. However, being first to act on a new
trend can create a powerful advantage over the competition.
As cost and competitive pressures on universities
increase (trends), some of them such as North-West
University and the University of Stellenbosch have identified
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distance education through the use of technology (telematic
teaching) as a means of establishing a competitive
advantage. They were the first to use this new channel and
have established themselves as leaders in the field. On the
other hand, firms that miss a trend will spend their time
trying to catch up with the competition. Many motor vehicle
manufacturers have spent decades paying the cost of
ignoring the early signs that consumers wanted cars to be
smaller, higher in quality and more fuel-efficient. Correctly
identifying a fad, on the other hand, has its own benefits.
Alert marketers can make a lot of money by reaping the
short-term rewards of a fad and abandoning it just as it
begins to lose its impact. Do you remember the children’s
Tamagotchi toy that was so popular in the late 1990s? Are
you old enough to recall the citizen-band radio craze of the
early 1980s? They were fads that were profitably exploited by
a few savvy marketers. More conservative firms prefer to
ignore a short-lived fad (such as reality TV, tattoos and
electronic cigarettes) and concentrate on opportunities with
longer-term potential.
A social trend that has had a significant impact on
marketing across the globe is that of healthier lifestyles.
Many people try to eat more healthily and exercise regularly.
Many products and services have been created in response
to this trend. Examples include sugar-free diet soft drinks
such as Coke Zero, Royco Lite Cup-A-Soup, Mrs Balls lowcalorie chutney, and artificial sweeteners such as Canderel.
Nestlé SA will be building two new factories to manufacture
healthier foods (breakfast foods in particular) to take
advantages of this growing trend. The trend has also sparked
the emergence of retailers such as Kauai, Melissa’s and
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Tashas.
A social trend of enormous importance to South African
marketers is the rapid growth in the number of people who
are reported as HIV-positive. Although commentators differ
somewhat in respect of their estimates of the prevalence of
HIV/Aids, the general consensus is that between 25 and 30
per cent of the South African population is HIV-positive.
From a business point of view, the HIV infection rate is an
extremely important social trend, because most victims will
be in the economically active age group (18–45), resulting in
a dramatic loss of skills and productivity in addition to its
impact on traditional family structures and family life.
The impact of Aids in South Africa will offer opportunities
to some firms (such as funeral parlours), but will be an
enormous threat to others. From a marketing perspective,
the significance of the HIV pandemic is the question of how
it will impact on consumer spending patterns. A study by
Unisa’s Bureau of Market Research found that affected
families are likely to cut back first on durable goods, such as
televisions and cars, and to a lesser extent on semi-durable
goods, such as footwear, clothing and textiles. At the same
time, families will take children out of school to care for the
ill, or because they can no longer afford school fees,
uniforms and books. Ultimately, families adapt by eating
less and curtailing their spending on essentials such as food.
For example, it has been estimated that, in the short term,
about R7 billion less will be spent on grain products than if
the pandemic did not exist, and about R4,6 billion less on
bakery products. Spending on meat products is projected to
be R14 billion less than in the absence of HIV/Aids, and
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spending on fruit and vegetables will shrink by R7,8 billion.
The Unisa model predicts that the fast-moving consumer
goods sector is most vulnerable because up to 35 per cent of
the households that constitute that market have family
members who are HIV-positive. 20
It is difficult to assess the precise impact of HIV/Aids on
marketing activities and how to manage its impact. Firms in
the life insurance industry are particularly vulnerable.
Southern Life, for instance, offers, among other things, lower
premiums to people under 45 who have HIV tests every five
years.
6.4 Today’s pre-teens: Born to shop
Pre-teen children often have a greater discretionary income
(i.e. disposable income, or money that can be used beyond
the purchase of necessities and paying taxes) than many
university students and therefore represent an opportunity
to utilise. Parents give pre-teens considerable amounts to
spend as they wish. In addition, these children also
influence household purchases, such as breakfast cereals
and holidays. Almost without thinking about it, parents are
creating the next generation of spenders.
Many marketers recognise the importance of reaching
the children’s market early. In some countries, Volkswagen
donates vehicles to universities for their driver training and
many banks have financial packages for children and
students.
6.5 Teenagers: Demanding and opinionated
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Teenagers influence household spending in four familiar
ways. Firstly, when teenagers accompany their parents to a
shop, their parents often let them add some ‘gimmes’ to the
trolley. Secondly, teenagers influence their parents even
when they are not with them by encouraging them to buy
preferred brands. Either the teen specifically requests a
brand, or parents know that if they don’t buy exactly what
the teen wants (such as Black Cat peanut butter, for
example), the purchase may go to waste. Thirdly, teens
influence adult purchases when parents actively solicit their
opinion. Parents buying a cellphone may be a good
example. Teens often know more about certain products
than their parents – think of cellphones, computers, running
shoes or the latest brand of designer jeans. Finally, teens
influence parent purchasing when they ask for gifts. Teens
are rarely shy about letting their parents know what they
want for a birthday or other special occasions.21
The quality of ‘cool’ is of paramount importance to teens
when they evaluate brands. Quality in itself may not sell a
product to teens, but it is the fundamental criterion of a
‘cool’ brand. The brands that teens consider to be the
‘coolest’ – such as Quicksilver or Billabong – are perceived
by teens to be of high quality. After quality, the most
common ‘cool’ qualifier is that it is ‘for people my age’.
Teens seem to prefer things that are specifically for them,
whether it’s language, fashion, advertising or brands.
6.6 Generation Y
People born between 1977 and 1994 are referred to as
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‘Generation Y’. In America Generation Y has been described
as both the children of the baby boomers and as ‘digital
natives’ because they have always known the Internet and
electronic devices such as cellphones. As a result, it is not
surprising that they are also known as the ‘net generation’,
the ‘dot-com generation’, ‘millennials’, and also as the ‘echo
boomers’ (because they are the children of the baby
boomers). Generation Y makes up 26 per cent in the United
States (72 million people), 28 per cent of Australia’s adult
population and 34 per cent of the Chinese population. They
regard wireless communication as an essential part of daily
life, were the first to use text messaging and are the primary
users of applications such as Mxit, Facebook and Twitter.
They are used to instant access to information. Mxit is a
South African-created mobile social network. It has 4,9
million monthly active users in South Africa. It works on
over 8 000 different handsets and mobile devices, including
tablets. Mxit also embraces the capabilities of each platform
to offer an immersive chat experience that feels native to
each one. By acting as a gateway to functions not otherwise
available on feature phones, Mxit affordably bridges the gap
between feature and smart phones.22
All those who make up Generation Y have now entered
the workplace and most of them are in early to midadulthood. This is an important market for marketers
because this is the stage in life when people start forming
their brand preferences that could last a lifetime. However,
Generation Y needs to be approached with circumspection
because they are concerned about global issues, ethical
behavior and trends and are often skeptical about glib
marketing messages. There is a new generation of South
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Africans born into a new South Africa – the so-called ‘born
free’ generation of mostly black South Africans who have
grown up in a different world, and in particular a country
that is very different to what their parents knew. The oldest
of these Gen-Y’s are already grown up and many have
already, or are just about to enter the world of work, and it is
certainly a New World of Work. For South African
businesses, and marketers in particular, it is important to
realise that these future employees, customers,
entrepreneurs and leaders are different and that they bring a
different set of values into play. 23
6.7 Generation X
Americans refer to people born between 1965 and 1976 as
Generation X. In the United States, approximately 17 million
consumers fall into this age category. It is the first generation
of ‘latchkey’ children who came home from school to empty
homes who largely had to look after themselves during their
later childhood – the products of dual-career households or,
in roughly half the cases, of divorced or separated parents.
American Generation Xers began entering the workforce in
the era of downsizing and downturn, so its members are
more likely than the previous generation to be unemployed,
underemployed and depending on their parents for
financial support.24 In South Africa, Generation X can be
loosely defined as all those young people old enough to
remember apartheid and be judged by history to have been
part of it, and yet not quite old enough to have been
involved in any form of struggle against (or on the side of)
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apartheid. In South Africa the Xers birth years range from
1970 to 1990. They are expected to grow up quickly.
Teenagers are now expected to confront life and its
challenges with the maturity once expected only of the
middle-aged. High schools, which were once the setting for
a unique teenage culture and language, have become
miniatures of the adult community.25 Yet, as a generation
that has been bombarded by multiple media since their
cradle days, they are savvy and cynical consumers.
6.8 America’s baby boomers and South Africa’s
prime timers
In the United States, people born between 1946 and 1964 are
referred to as the baby boomers. Almost 78 million babies
were born in the United States in that post World Warperiod, which created a huge market for almost all products
and services.26 The oldest baby boomers are now
approaching their 70s, but they cling to their youth. This
group cherishes convenience, which has resulted in a
growing demand for home delivery of items such as large
appliances, furniture and groceries. In addition, the
spreading culture of convenience explains the tremendous
appeal of prepared takeaway food and the ‘necessity’ of
PVRs, cellphones and overseas holidays.
Post-World War II affluence allowed baby boomers’
parents to indulge their children as never before. They
invested in their children’s skills development by sending
them to university. They encouraged their children to
succeed in a job market that rewarded competitive drive
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more than co-operative spirit and individual skills more
than teamwork. In turn, the sheer size of the generation
encouraged businesses to promote to the emerging
individuality of baby boomers. Even before the oldest baby
boomers started earning their own living more than three
decades ago, astute businesspeople saw the profits that
could come from giving millions of young people what they
wanted. Firms offered individualistic baby boomers a
growing array of customised products and services – houses,
cars, furniture, appliances, clothes, holidays, jobs, leisure
time and even beliefs. 27
READER 9 >> South Africa’s Prime Timers
UCT Unilever Institute of Strategic Marketing has launched its latest study on
the ‘Prime Time’ generation which shows that South African marketers, unlike
their European and American counterparts commonly known as the Baby
Boomers, are ignoring one of the most lucrative markets around. The findings
of the Prime Time Study show that 6 per cent of South Africans account for
nearly 20 per cent of South African spend! According to the report, a ‘golden
seam’ of South Africa’s biggest spenders are often ignored by marketers, these
urban 40 plusses, while only a small percentage have a combined income
amounting to nearly R300 billion – which marketers aren’t reaching to. The
study further revealed that nearly half of 50-plusses, who are LSM7+, are debt
free – so surely worth attention to marketers. Considering that 22 per cent of
over 40s and 65 per cent of over 60s are bond-free, one can see why. Prime
Timers have the time and the finances to enjoy life and they know what they
want and when they want it. And what they want is quality and lifestyle.
SOURCE: Scher, M. 2008. Baby boomers ignored by South African marketers.
Bizcommunity, 15 August 2008
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6.9 Older consumers: Not just grandparents
As mentioned above, the oldest baby boomers have already
crossed the 60-year-plus threshold that many demographers
use to define the ‘senior-citizen market’ or the ‘grey market’.
And today’s mature consumers are wealthier, healthier and
better educated than those of earlier generations.28 Many
marketers have yet to tap the full potential of the huge and
lucrative grey market. For example, the most critical factor
in determining car-owner loyalty is age. The oldest
consumers (aged 65 and more) are twice as loyal to their
make of car as the youngest customers.29 Marketers who
want to actively pursue the grey market must understand its
intricacies. Ageing consumers create some obvious
opportunities. Some medical doctors recommend that older
people take half an aspirin per day to help control their
blood pressure. Has this opportunity been utilised yet?
Some clothes manufacturers use Velcro-fastened clothing
for people with arthritis or other ailments who may have
difficulty with zips or buttons. Wheaton Medical
Technologies markets a pill bottle that has a tiny batteryoperated clock that registers the time the container was last
opened to take out a pill.30
6.10 The Black diamonds
‘Black diamonds’ are defined as the recently enfranchised
black (as opposed to Asian or mixed-race) middle class in
South Africa. Although research about the black diamonds is
in its infancy, this group has immense growth potential, as it
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comprises well-educated and wealthy/salaried individuals.
The black diamond identity is complex and, in a sense, a
‘work-in-progress’. However, it has distinct characteristics
that set it apart from other groups. The economic potential
of this group is enormous. This target market, however, is
very complex due to a number of sub-segments with
significant differences in behaviour, attitudes and media
consumption. Nevertheless, if firms can position themselves
(or their products) so that this nascent market segment
adopts their products as part of their culture, then they will
have a substantial and sustainable competitive advantage in
respect of this potentially lucrative market segment. 31 This
market segment has more than doubled in size in less than a
decade and the black middle class has overtaken the white
middle class in both size and spending power. 32
6.11 Survivors
At the opposite end of the income spectrum to that of Black
Diamonds is what is termed the Survivors. This group is
‘uniquely South African’ and while it is the biggest market
segment by number, it is the most misunderstood.
Nevertheless it is becoming increasingly important to
businesses in South Africa as the more affluent markets
become saturated.
Survivors are defined as people who live in households
with an income of R5 000 per month (or less) and while this
modest income may not suggest a feasible market
opportunity, this is a somewhat myopic view of this market
segment. This is because disposable income does not always
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correlate with actual income. For example, households
earning a far higher income may spend a greater percentage
on items such as rates and taxes, bond repayments, cars,
petrol etc., expenses that your typical survivor household
would not have to bear. In other words, households with far
greater actual income (than R5 000) may in fact have less
disposable income than survivor households because of the
additional costs that they have to bear in managing their
household expenditure.
While it is arguable that other developing nations have a
similar (survivor-like) market segment, South Africa is
unique in that many (about 38 per cent) survivor
households depend on social grants for their primary source
of income, suggesting a more stable source of income than
many other developing nations. In addition, compared with
survivors of most developing countries, South African
survivors are relatively better off in terms of income but do
not have assets that they can sell or use as collateral to raise
finance. Compounding this problem is that many (at least
3,5 million, but it could be as many as 5 million) survivors
have ‘impaired credit records’ meaning that it will be
difficult for them to raise finance to buy durable goods such
as furniture and motor vehicles. 33
7. Demographic factors
34
LO7
Demographic factors – another uncontrollable variable in
the external environment – are extremely important to
marketing managers. Demography is the study of people’s
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vital statistics, such as their age, ethnicity and location.
Demographics are significant because the basis for any
market is people. Demographic characteristics are strongly
related to consumer buying behaviour and are good
predictors of how the target market will respond to a specific
marketing mix. In fact, demographic considerations have a
particularly important influence on marketing in South
Africa. Variables such as the size and distribution of the
country’s population are of importance to marketers in
identifying marketing opportunities and planning marketing
strategies.
WEBSITE
For more information of various other
useful break downs of the Census data
visit http://www.southafrica.info/about/
people/population.htm#.U4ZGovmSySo.
Other demographic statistics and trends that are often of
value to South African marketers are the following: 35
•
•
•
•
•
•
Gross Domestic Product (GDP), considered a measure of
standard of living, has risen by 31 per cent since 1994
The population growth is slowing and will start declining
in 2030
The average life expectancy is 53 years for men and 55
years for women
Approximately 52 per cent (approximately 26,07 million)
of the population is female
The infant mortality rate is 47 per 1 000 births
Fertility has declined from 2,86 children per women in
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•
•
•
•
2001 and is expected to decline even further in the future
About 25 per cent of South Africans live in shacks or
informal dwellings and about 20 per cent in a standard
suburban house
54 per cent of the South African population lives in urban
areas, whereas 46 per cent live in rural areas
Gauteng comprises the largest share of the South African
population. Approximately 11,3 million people (22,4 per
cent) live in this province. KwaZulu-Natal is the province
with the second largest population, with 10,8 million
people (21,4 per cent) living in this province. With a
population of approximately 1,10 million people (2,2 per
cent), Northern Cape remains the province with the
smallest share of the South African population
Nearly one-third (31,3 per cent) of the population is aged
younger than 15 years and approximately 7,7 per cent
(3,9 million) is 60 years or older. Of those younger than
15 years, approximately 23 per cent (3,66 million) live in
KwaZulu-Natal and 19,4 per cent (3,07 million) live in
Gauteng.
Interesting as these statistics may be, their value lies in the
ability of marketers to interpret the data and information,
ascertain what they imply for the firm and base marketing
strategies on those likely implications.
7.1 Universal Living Standards Measure
LO8
The South African Advertising Research Foundation
(SAARF) has introduced a non-racial measurement to
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describe the South African consumer market called the
Living Standards Measure (LSM). LSM attempts to group
similar people together and distinguishes between different
groups of people in South Africa in terms of social class, or
living standard, regardless of ethnicity, income or education.
Instead of approaching social class from the point of view of
obvious demographic differences, the LSM quantifies the
ownership of certain durable goods, access to services, and
the like, to provide a composite measure of social class. The
LSM methodology is thus based on the premise that the
consumption behaviour of South Africans is largely
determined by their social class as measured by ownership
of durable goods and consumption of services. The variables
used to define the LSM measures are:36
•
•
•
•
Access to hot running water and a flush toilet
Ownership of products such as a fridge or freezer,
microwave oven, VCR, vacuum cleaner or floor polisher,
washing machine, personal computer; (PC), electric
stove, TV, tumble dryer, home telephone, radio, hi-fi or
music centre, built-in kitchen sink, home security
service, motor vehicle, DVD player, home theatre,
cellphones
Utilisation of services such a domestic worker, M-Net or
DStv subscription, security services
Where people lived: house/cluster house, town house,
living in rural areas outside of Gauteng or Western Cape
or metropolitan dweller.
The presence, or otherwise, of these variables for each
respondent in the All Media Products Survey (AMPS), is
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coded. A formula is then applied to yield a score for each
respondent, the value of which determines his or her LSM
group membership. The LSM model originally had eight
groups when it was conceptualised in the late 1980s. This
was later expanded to ten universal LSM groups, ranging
from group 10, which has the highest standard of living, to
group 1, with the lowest. In 2008, it was argued by some
stakeholders that there was not enough precision in the
higher LSM groups, and that a finer tool was needed to
examine this end of the market. Consequently, the four top
groups (the existing LSM groups 7–10) were split into a high
and low measure. These new divisions are not new LSM
groups, but rather subsets of the existing LSM 7–10, and can
be added back together into the original groups.
7.1.1 LSM 1
This group comprises 3,5 per cent of the total adult South
African population, and consists of mainly females, living in
huts, 16 to 24 years of age or over 50. They are rural-based
with some primary-school education. Their average
household income is R1 269 per month. Because of their
lack of electricity, ownership of durables is very low, except
for radios. They are heavy users of essential commodities.
They have minimal access to basic services. Radio is a major
communication channel, particularly the radio stations of
the African Languages Services.
7.1.2 LSM 2
This group comprises 7,3 per cent of the total adult South
African population. They are rural, mainly 16 to 24 years of
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age or over 50 and have completed some primary-school
education. They typically live in ‘matchbox’-type houses.
Unemployment is high and their average monthly
household income is R1 475. They have on-site water with
minimal ownership of durables except for radios and stoves.
They listen to the radio stations of the African Languages
Services.
7.1.3 LSM 3
This group makes up 7,8 per cent of the total adult South
African population. The people in this group are rural,
mainly 16 to 24 years of age and some (15,6 per cent) have
matric. Unemployment in this group is high and their
average monthly household income is R2 267. About 73 per
cent live in conventional ‘matchbox’ houses and have access
to on-site electricity and water with minimal ownership of
durables except for radios and stoves. They spend limited
amounts of money on non-essential items, such as takeaway
meals and lottery tickets. They listen to the radio stations of
the African Languages Services. They are also viewers of
SABC 1 and are exposed to some outdoor advertising.
7.1.4 LSM 4
This group contains 14,2 per cent of the total adult South
African population. The group contains a fairly even spread
of the various age groups, with many achieving some highschool level. The average monthly household income is R2
424. They have access to on-site electricity and water with
flush toilets. They typically own TVs, hi-fis or radios, stoves
and fridges. They spend some money on non-essential
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items, such as lottery tickets and takeaway food. Cellphone
ownership is 59,7 per cent. They listen to the radio stations
of the African Languages Services, Metro FM and YFM. They
are regular viewers of SABC 1 and 2, and are exposed to
outdoor advertising.
7.1.5 LSM 5
This group comprises 15,2 per cent of the total adult South
African population. They are largely urbanised, mainly 25 to
49 years of age, and about 30 per cent have completed high
school up to grade 12. About 82 per cent live in a
conventional dwelling and their average monthly household
income is R3 462. They use electricity, water and flush
toilets. They own TVs, hi-fi or radio sets, stoves and fridges.
They exercise, paint the interior of their houses, buy lottery
tickets, fast food and DVDs. Almost 47 per cent have a
savings account. They listen to all radio stations of the
African Languages Services, Metro FM and YFM. They are
viewers of SABC 1, 2 and 3 and e-tv, and are exposed to
outdoor advertising. Unlike LSM 4, they regularly read
weekly newspapers and magazines.
7.1.6 LSM 6
This group comprises 19,5 per cent of the total adult South
African population. They are urbanised, mainly 25 to 49
years of age, with up to a post-school qualification, but not
necessarily a university education. Their average monthly
household income is R5 755. They have access to electricity,
hot running water and flush toilets. They are typically
owners of a number of durables (TVs, hi-fi or radio sets,
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stoves and fridges), including cellphones. More than half of
them have a savings account and over a third have some
form of insurance product. They participate in a wide variety
of outdoor activities and listen to a wide range of
commercial radio stations, including community radio.
They are regular viewers of SABC 1, 2, and 3 and e-tv, and
are exposed to outdoor advertising. They regularly read daily
and weekly newspapers and magazines, and go to the
cinema.
7.1.7 LSM 7
This group makes up 10,2 per cent of the total adult South
African population, with LSM 7 Low forming 5,2 per cent of
this group, and LSM 7 High making up the balance with 5,0
per cent. They are urbanised, predominantly male, above 25
years of age and with grade 12 and higher-education
qualifications. Their average monthly household income is
R10 044 (LSM 7 High) and R9 242 (LSM 7 Low), and they live
in houses or flats. They have full access to all services. They
own all household durables and often a motor vehicle. They
actively participate in a range of outdoor activities, such as
holidays in South Africa. They typically listen to a wide range
of commercial radio stations and community radio. They
are regular viewers of SABC 1, 2 and 3, e-tv and M-Net, and
are exposed to outdoor advertising. They access the Internet
at least four times per week. They regularly read daily and
weekly newspapers and magazines, and go to the cinema.
7.1.8 LSM 8
This group comprises 7,5 per cent of the total adult South
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African population, with LSM 8 Low making up 3,9 per cent
of this group, and LSM 8 High making up the balance with
3,6 per cent. They are predominantly male, urbanised
(mainly based in Gauteng and the Western Cape), over 35
years of age, have completed grade 12 and have a higherlevel qualification. Their average monthly household
income is R14 017 (LSM 8 High) and R12 068 (LSM 8 Low),
and the vast majority own their own houses. They have full
access to all basic services. They have full ownership of all
household durables, including a PC and a satellite dish.
They participate in a range of outdoor activities. They listen
to a wide range of commercial radio stations and
community radio. They are regular viewers of SABC 1, 2 and
3, e-tv, M-Net and DStv, and are exposed to outdoor
advertising. They access the Internet at least four times per
week, read daily and weekly newspapers and magazines,
and go to the cinema.
7.1.9 LSM 9
This group comprises 8,4 per cent of the total adult South
African population, equally split between LSM 9 Low and
LSM 9 High, with 4,2 per cent in each subset. They are
urbanised, predominantly male, over 35 years of age, have
completed grade 12 and achieved a higher-level
qualification. Their average monthly household income is
R19 453 (LSM 9 High) and R15 853 (LSM 9 Low). They have
full access to basic services and most own their own homes.
They have full ownership of all household durables,
including a PC at home and a satellite dish. About twothirds own their own vehicle and air travel is common. They
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listen to a wide range of commercial radio stations and
community radio. They are regular viewers of SABC 1, 2 and
3, e-tv, M-Net, DStv and DVDs, and are exposed to outdoor
advertising. They typically access the Internet at least four
times per week. They read daily and weekly newspapers and
magazines, and go to the cinema.
7.1.10 LSM 10
This group comprises 6,3 per cent of the total adult South
African population, with LSM 10 Low making up 3,2 per cent
of this group, and LSM 10 High making up the balance, with
3,1 per cent. They are urbanised, over 35, have completed
grade 12 and achieved a higher-level qualification. They live
in conventional housing, which they usually own, and their
average monthly household income is R28 467 (LSM 10
High) and R22 043 (LSM 10 Low). They have full access to all
basic services, including a PC at home, a satellite dish, their
own vehicle and a microwave oven. They are participants in
a wide range of activities, such as exercising, and use both
local and international air travel. They listen to a wide range
of commercial radio stations, including community radio.
They are regular viewers of SABC 1, 2 and 3, e-tv, M-Net and
DStv, and are exposed to outdoor advertising. They access
the Internet at least four times per week. They read daily and
weekly newspapers and magazines, and go to the cinema.
Patterns along the continuum of LSM groups can be
identified in order to better understand the consumers in
the various categories and the buying behaviour of these
groups. Many South African firms use the LSM
measurement to refine their target market strategies. South
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African Breweries, for instance, makes use of LSM groupings
to target the markets for its beers. Premium beers, such as
Peroni, are targeted at LSM 8 to 10. Mainstream brands,
such as Castle, are targeted at LSM 6 to 8 and Carling Black
Label at LSM 1 to 4.
7.2 Using LSM and other demographic factors to
understand markets
Besides SAARF’s Living Standards Measure (LSM) there are
also other demographic variables that can be used to assess
a market in demographic terms. These are particularly
useful when they are combined with LSM groups.
7.2.1 Monthly household income
Table 2.1 shows the number of people in each LSM group
and their average monthly household income, and we can
see that the LSM groups do not differ significantly with
respect to gender distribution. Table 2.1 also shows that the
bulk of the South African population is to be found in LSM
groups 1 to 6 and that the average monthly income increases
substantially as one moves up the LSM ladder, with the
average income of those in LSM group 10 (High) being R28
467 per month. Table 2.1 shows that in terms of the adult
population, LSM groups 1–6 represent nearly 70 per cent of
the total adult population. However, LSM 1 to LSM 6
account for only 33 per cent of the total income. Conversely,
LSM groups 7–10 earn 67 per cent of the total income,
although they represent only 31 per cent of the total adult
population. Although not shown in Table 2.1, LSM 1 spends
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37 per cent of their income on food and LSM 10 only 15 per
cent. In other words, relatively poor people (lower LSM
groups) spend a higher proportion of their total budget on
food than wealthier households.
Table 2.1 Number of people per LSM group, gender
distribution, average household income and percentage of
population
SOURCE: Eighty20 data bases, eighty20.com (used with
permission)
7.2.2 Shopping patterns
People in households across all the LSM groups were asked
where they do their main shopping for food and groceries
(including meat, vegetables, bread, milk, cleaning materials
and toiletries). The majority of LSM 1 and LSM 2 households
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patronise Shoprite, a spaza or tuck shop, a small local shop,
trading store or general dealer, a local café and a hawker or
street vendor. At the other end of the continuum, LSM 9 and
LSM 10 respondents indicated that they regularly shop at
Pick n Pay supermarkets, family shops, Woolworths, Pick n
Pay hypermarkets and petrol stations or garage convenience
stores. Therefore, there is a relationship between the LSM
groupings of consumers and their retail shop patronage.
7.3 Education and literacy
The reports of no attendance at school is high in LSM 1 (26
per cent) and decreases gradually until it is virtually nil in
LSM 10 (0,1 per cent). Likewise, in the category ‘postmatric’, there are relatively few in LSM 1 (0,6 per cent),
rising to 40,2 per cent in LSM 10, the highest proportion.
Thus, the higher the level of education, the higher the LSM
category.
7.4 Language
English is the language best understood by the South African
population (76 per cent), followed by isiZulu (49 per cent),
Afrikaans (44 per cent) and isiXhosa (35 per cent). The most
frequently spoken first official language in South Africa is
isiZulu (23,5 per cent), followed by isiXhosa (17,6 per cent)
and then Afrikaans (13,7 per cent). The least spoken official
languages are Tshivenda (2,8 per cent), isiSwati (2,5 per
cent) and isiNdebele (1,5 per cent).
Marketers can also assess the media consumption
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behaviour of different LSM groups to better target their
advertising. Table 2.2 shows that LSM 5 and 6 are more
likely to read Drum magazine while Afrikaans-speakers in
LSM 9 are most likely to read Huisgenoot and Englishspeakers in those groups are more likely to read YOU
magazine. Depending on what LSM groups marketers
target, this type of information is useful in planning
advertising strategies. A marketer of, say, a computer tablet
is thus more likely to advertise in Huisgenoot or YOU than in
Drum.
Table 2.2 Magazine exposure to three magazines per LSM
group
SOURCE: Eighty20 data bases, eighty20.com (used with
permission)
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Marketers can also assess their market shares or identify
major competitors in different LSM groups. Table 2.3 shows
the sales figures for women’s clothing per LSM groups for
different retailers. An analysis of LSM 10 shows that
Woolworths has a 23,6 per cent market share but faces
considerable competition from Edgars (24,4 per cent) at the
top end of the market and from Mr Price (19,0 per cent) at
the lower end of the market.
Table 2.3 Retail clothing buying per LSM group
SOURCE: Eighty20 data bases, eighty20.com (used with
permission)
8. Economic factors
LO9
It is not only social and demographic factors that marketing
managers must understand and react to, but also the
economic environment. The general economic conditions
prevailing in a country should be the starting point of an
assessment of opportunities or threats in a market. The
prevailing economic conditions also determine consumers’
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spending patterns. During periods of economic growth,
fewer people are unemployed (during the period of
economic growth in 2005–2006, 30 000 new jobs were
created each month) and interest rates are often low. As a
result, people have more money to spend, referred to as
disposable income.
However, marketers will regard favourable economic
conditions as an opportunity to execute their marketing
plans, but economic conditions are not always favourable.
The economic conditions of greatest concern to most
marketers are inflation and recession, as well as the impact
of interest rates and currency fluctuations on prices and
consumer demand.
8.1 Inflation
LO10
Inflation manifests itself in a general rise in prices without a
corresponding increase in wages, which results in decreased
purchasing power for consumers. Fortunately, South Africa
has enjoyed the advantages of a relatively low rate of
inflation in recent years. At one stage in the mid-1980s, the
inflation rate was around 25 per cent, which made life very
difficult for marketing managers. Low inflationary
conditions benefit marketers, because real wages, and
hence purchasing power, increase when inflation is low. A
significant increase in inflation almost always depresses real
wages and, consequently, consumers’ ability to buy more
goods and services, which is a huge challenge to marketers.
In times of high inflation, businesses seeking to increase
their profit margins can do so only by increasing their
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efficiency. If they significantly increase prices, fewer
consumers will purchase their goods or services. The South
African airline Comair is a shining example. Although
inflation in South Africa reached 10,9 per cent in May 2008,
the airline kept its fares competitive and still made an
attributable profit of R32,63 million (a three per cent
increase on the previous year) as a result of its ‘strong focus
on cost containment’.37 In South Africa, the value of the
Rand has an important influence on inflation. For instance,
when the value of the Rand relative to other currencies such
as the European Dollar or the American Dollar increases,
the cost of imported products declines, exerting downward
pressure on retail prices and, therefore, inflation. During
2005 and 2006, when the Rand strengthened to
unprecedented levels, the prices of imported goods such as
electronics and motor vehicles were unusually low for South
Africans. Conversely, during times when the value of the
Rand declines in value against other currencies (as
happened in the beginning of 2014), the opposite is, of
course, true. Then imported goods in particular products
such as petrol, motor vehicles and electronic goods, become
expensive, which depresses retail sales. In response to the
prevailing economic circumstances the National
Association of Automobile Manufacturers of SA (NAAMSA)
issued the following statement: ‘Domestically, 2014 new
vehicle sales were likely to experience head winds as a result
of above inflation average new vehicle price increases, the
slowdown in the economy and, more recently, rising interest
rates. As a result, NAAMSA anticipated a difficult domestic
new vehicle trading environment characterised by
consolidation in sales numbers at best around levels
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recorded last year’.38
When prices increase over a prolonged period, wage
demands and wage increases are often too high and interest
rates start rising, which curbs consumer spending even
further. For instance, during difficult economic times in
2011-2012 Pick ‘n Pay profits dropped by 34,4 per cent. The
declining profits were attributed to ‘… high levels of
household debt and further increases in inflation [that]
continue to put pressure on consumers’ disposable
income’.39
In order to cope in inflationary times, a number of pricing
strategies can be implemented (see Chapter 13). But in
general, marketers must be aware that inflation causes
consumers either to build up or to diminish their brand
loyalty. Inflationary pressures also force consumers to make
more economical purchases.
However, most consumers try hard to maintain their
standard of living during periods of inflation. Therefore,
marketers can try to encourage brand loyalty with loyalty
programmes (Pick n Pay introduced its new loyalty
programme during tough economic times in 2011-2012), by
emphasising value-for-money positioning, keeping prices as
low as possible and making sure that all price increases are
well justified. In formulating marketing strategies to cope
with inflation, managers must realise that, despite what
happens to the seller’s cost, the buyer will not pay more for a
product than the subjective value that he or she places on it.
No matter how compelling the justification may be for a 10
per cent price increase, marketers must always examine its
impact on demand. In inflationary circumstances, many
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marketers try to postpone price increases for as long as
possible. In 2104 the Bureau of Economic Research
concluded that SA firms have not fully passed on cost
increases (mainly electricity and labour costs) to the
consumer ‘because they are afraid it will kill off demand.’40
Business firms deal with inflationary conditions
differently. To maintain sales of its sweets, Tiger Brands
changed its packaging to sell sweets in smaller packages.41
Owing to a fall of 10 per cent in demand for airline travel in
2009, many airlines saved costs by reducing their seating
capacity by six per cent by selling unused aircraft.
8.2 Recession
LO10
A recession is a period of economic activity when income,
production and employment tend to fall – all of which
reduce demand for goods and services.
From a marketing perspective it is important to realise
that during recessionary conditions, consumers change
their consumption patterns. For example, attendance at
South Africa’s several arts festivals (such as The
Grahamstown Arts Festival and Aardklop) has shown to be
sensitive to prevailing economic conditions. In a climate in
which people are more inclined to tighten their belts they
will cut back on what could be considered a luxury.42 During
the recessionary period in 2013 one market analyst reported:
‘Clearly higher priced goods are not flying out of the store…
so, “value for money” is what the middle income consumer
is after.’43
During periods of recession, consumers switch to buying
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basics rather than luxuries, and generally become more
price-sensitive. During recessionary times in 2008–2009
many South Africans switched in large numbers from more
expensive staples, such as rice, to more affordable maize. As
a result, food company Tiger Brands reported sharp falls in
sales of its Tastic Rice and Aunt Caroline brands. Consumers
also bought less chocolate and more jellies during this
period. Sales of luxury brands, such as Renown spreads,
Enterprise crumbed pork and Like-it-Lean viennas, fell by
17 per cent as people switched to cheaper proteins, such as
pilchards and beans.44 During these periods, retailers often
capitalise by aggressively marketing their house brands (also
referred to as a private label) as ‘value for money’. During
the recent recession Clicks expanded its house brands from
18 per cent to 25 per cent of its total product offering.
Motor vehicle dealers respond to recessionary pressures
by offering financing deals such as no interest paid in the
first year or a year’s free insurance. During recessionary
times in 2003, the National Automobile Dealers’ Association
asked the Minister of Trade and Industry to change the law
(the Credit Agreements Act) that prescribed a minimum ten
per cent deposit and a maximum 54-month repayment
period for individuals who buy a new motor vehicle. The
change would have allowed individuals, for the first time, to
lease a motor vehicle. The idea was to stimulate new
vehicles sales which were in a slump at the time.
The problems of inflation and recession go hand in hand,
yet recession requires different marketing strategies. The
following are examples:
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>> Strategy
•
•
•
Improve existing products and introduce new ones.
Using this approach, the objective is to reduce
production hours, waste and the cost of materials.
Recession increases the demand for goods and
services that are economical, efficient and offer
value. A recession, therefore, forces firms to
streamline their operating practices and procedures
and improve customer service.
Maintain and expand customer services. In a
recession, many firms and organisations postpone
the purchase of new equipment and materials. For
instance, South African Airways postponed replacing
some of its aircraft in the period 2000–2003. Under
similar circumstances, many individuals will
postpone the purchase of big-ticket items, such as
motor vehicles, TVs, fridges and other electronic
equipment. Sales of replacement parts and other
services (such as repairs) may become an important
source of income for firms such as vehicle
manufacturers during such times. Some firms add
additional services. During a recent recession, the
business publication Financial Mail added a homedelivery service that had not been offered previously.
Emphasise product value. Customers with less to
spend will demand quality, value for money,
durability, satisfaction and the capacity to save time
and money before they will buy. During recessionary
periods Pick n Pay heavily advertises its no-name
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•
•
range of products to ‘make your money go further’.
Use special offers to stimulate demand. In 2008
motor vehicle manufacturer, Daihatsu, offered
buyers R10 000 worth of free accessories, a free
three-year factory warranty plus a three-year service
plan with every purchase of a 4x4 Terios.
Target new market segments. Traditionally, Japanese
men do not buy much chocolate because they still
see themselves as Samurai warrior macho males,
and chocolate packaging generally appeals to
women and children. Now Japanese chocolate
marketers, facing a recession, have made renewed
attempts to penetrate the male market segment by
changing their packaging to appeal to males.
Marketers of luxury products, such as jewellery and motor
vehicles, almost inevitably face declining demand during
periods of recession. As consumers trade down during these
periods, firms such as Pep Stores and Mr Price, which
appeal to more price-sensitive consumers, may prosper.
One other economic variable of considerable importance to
marketers is interest rates. High general interest rates reduce
consumers’ disposable income (also known as discretionary
income), as they have to pay more for their home loans,
credit card purchases and hire purchases. Higher interest
rates, therefore, reduce consumer demand for goods and
services. Clearly marketers prefer an environment of low
interest rates because a higher level of disposable income
increases sales and, therefore, profitability.
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9. Technological factors
LO11
Few environmental factors can have such a pervasive
influence on business firms as technological developments.
Failure to analyse the technological environment can be
disastrous. Motorola discovered this when Nokia and
Ericsson first made use of digital technology. Motorola had
been the market leader at one stage, but the use of analogue
technology in its cellphones allowed Nokia and Ericsson to
overtake the once-dominant Motorola. Moreover, the rate at
which new technological developments are commercialised
is increasing exponentially. New scientific knowledge,
research results, inventions and innovative thinking, which
often lead to new products, surface almost daily. Few
business leaders ten years ago would have been able to
predict the use and impact of information technology and
business tools, such as cellular phones, electronic mail, the
Internet and social media, which are in common use today,
on consumer markets and marketing practices.
Business firms can simply not afford to ignore
technological developments, such as computer technology
in general and information technology in particular. Smart
firms have not viewed technological developments with
scepticism or as a potential threat, but have used them as
opportunities to create value for their customers and to gain
a competitive advantage.
EXAMPLE >> Airlines are increasingly using self-check-in facilities via the
Internet and in airport lounges to enhance the convenience of travellers. The use
of technology will, it is hoped, reduce customer waiting time in queues and
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provide a better service. Both Standard Bank (see Reader 10 on Standard Bank’s
SnapScan) and Absa Bank are testing technology that will allow consumers to use
their cell phones to make payments for anything from taxi fares to big ticket
items such as cars. The Sunday newspaper Sunday Times, acknowledging the
growing trend of using electronic readers, has introduced three electronic
versions of their newspaper: a desktop edition, an editor’s choice edition and an
e-edition.
Another example of a firm using technology to enhance its need-satisfying
efforts and establish a competitive advantage is the American firm Frito-Lay. Every
Frito-Lay route-delivery person now has a hand-held computer terminal. When the
salesperson visits a shop, and inventory is updated, information is entered in the
hand-held terminal. At the end of the day, the data are transferred back to the
central office. That night, the information from all the different salespeople is
aggregated, analysed and summarised in reports. By the next morning, the
product manager knows what is selling where and in what quantities. Another
example is the Limited retail chain in the United States, which specialises in
women’s fashions. It tracks consumer preferences every day through point-of-sale
computers. Based on immediate analysis of what is selling, new product designs
are sent via satellite to suppliers in the United States, and to Hong Kong, South
Korea and Singapore. Within days, clothing produced to these designs flows from
these points in Asia and collects in Hong Kong. About four times a week a
chartered jet takes the clothing to the Limited’s distribution centre in Ohio, where
items are priced and then shipped to the specific shops within 48 hours.45
READER 10 >> Standard Bank rolls out mobile
payments to 10 000 merchants in South Africa
Standard Bank, one of South Africa’s largest financial services groups, has
launched a service that allows small merchants to accept mobile payments by
simply placing a QR code (Quick Response Code) at their point of sale, with
no Point of Sale (POS) terminal required. Consumers can make payments
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using the SnapScan app at 10 000 merchants across the country, including
Motherland in Johannesburg and The House of Machines in Cape Town. The
service is available to all consumers, regardless of whether they are Standard
Bank customers or not, and transactions are free of charge. Merchants sign up
for the service online to receive a unique QR code that they can then print out
and place at their point of sale. Consumers need to download the app and
register their details along with a nominated Visa or MasterCard. To make a
payment, they scan the merchant’s unique QR code, enter the amount due
and confirm the payment using their PIN number. The merchant then receives
an SMS notification from Standard Bank to confirm the transaction is
complete. Merchants with a business bank account can have their SnapScan
receipts paid directly into their bank, while small traders without an account
can request a voucher that they can redeem at any Spar outlet or at a
Standard Bank ATM. For small businesses, this is a real-time retail payment
solution that allows business owners safe, secure and convenient payment
methods for their customers. Having SnapScan also minimises potential loss
due to the lack of a POS system, essentially creating another sales stream.
SOURCE: Boden, R. 2014. Standard Bank rolls out mobile payments to 10 000
merchants in South Africa. Available from http://www.nfcworld.com (Accessed
22 May 2014)
Another example of a technological threat for some firms is
the one offered by speech recognition software (you talk and
your PC types it for you). Many firms and individuals
offering secretarial and typing services may lose business if
this software is widely adopted. In general, it is fair to say
that most forms of technology offer a variety of opportunities
to create value for customers. One application is the use of
customer databases and improved customer-relations
management using sophisticated software. As Richard
Came, ex-marketing director of Dimension Data, says with
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regard to the merging of computing and telephony:
‘Business can move from mass marketing to mass
customisation and can assume the role of the small
proprietor, once again doing business with individuals –
though hundreds of thousands of them – one at a time.’46
LO12
Technology and the Internet in particular will continue to
have a particularly significant and growing impact on
consumer markets and marketing practices in general. It is
estimated that the volume of Internet trade has already
exceeded R30 billion a year. The growth of this technology
has exceeded the growth rate of any other communication
medium or consumer electronics technology, including the
personal computer. Firms belonging to the Wooltru group,
such as Makro, Shield, Dion and CNA – and their
approximately 75 suppliers – already send about a million
transactions amongst themselves on the Internet each week.
The Internet provides access to almost limitless information
about the external environment. It is also a means of
communicating with consumers while simultaneously
receiving quick and reliable feedback from customers.
Twitter is a good example. Besides the advantages already
mentioned, smaller firms in particular will be able to utilise
the Internet by making their products more accessible –
even globally. It is a medium with an incredibly wide reach,
is relatively inexpensive and fairly simple to utilise.
Other firms may see the Internet as a serious threat.
Because potential travellers can now book hotel rooms on
web sites such as Booking.com and airline seats on the
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Internet (Tripadvisor) from the comfort of their homes,
some travellers may no longer require the services of travel
agents. The ability to purchase short-term insurance on the
Internet may similarly be a threat to some insurance
brokers. But consumers benefit because the Internet makes
wider distribution possible, and makes comparisons with
competitors – particularly price comparisons – easier for
those who want to shop around. Typical examples of
popular websites where South Africans can compare prices
are PriceCheck.co.za (where one can compare prices, read
product and retailer reviews, or charge directly to the
checkout page, knowing that you found the best deal on the
net) and Travelstart.co.za (where you can search for the
cheapest flights online).
WEBSITE
See the ease with which a hotel room can
be booked internationally at
www.booking.com
10. Political factors
LO13
Political factors refer to the factors influencing the political
situation in a country. Marketers, like most businesspeople,
prefer a situation of relative political stability. Most
westernised democracies enjoy the benefits of prolonged
political stability, which makes it relatively easy to plan and
execute marketing strategies. Other countries often find
themselves in periods of political turmoil. In many of these
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countries, the lead-up to elections contributes to this
undesirable situation. If governments change regularly –
with each new government introducing new economic
policies, such as increased government involvement in the
economy, which the next government reverses again – the
frequent changes contribute to political instability. If, before
an election, the government in power pursues a free-market
system, whereas the newly elected government introduces
socialist policies, this instability will be seen as a threat by
many marketing firms.
A major consideration for marketers entering foreign
markets is the attitude of the government in power towards
the economic freedom of its citizens. Some countries (such
as Cuba) still have a socialist government in power. Others
(such as Russia and Khazakstan and many Eastern
European and African countries, including Zambia and
Tanzania) are moving towards free-market economic
systems. In foreign markets in particular, marketers tend to
believe they have little influence on the political
environment, and refrain from challenging the political
dogma of the host country. By ensuring that no major
transgressions occur, international firms avoid punitive
legislation. For instance, a firm with oil refineries in Angola
will try to ensure that no major oil spillage or pollution
occurs that could jeopardise relations with local government
officials.
Sometimes legislation is passed in response to the
pressure created by consumers – for example, in response to
those who have fallen foul of ethical business practice, such
as some pyramid schemes. Other consumer groups, such as
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the Housewives League and the National Council Against
Smoking, are organised in formal structures to protect
consumers’ rights. Another example is the financial services
ombudsman, a regulatory body set up to protect consumer
rights in the financial services sector. The Media Monitoring
Group is another example of a consumer group protecting
the rights of consumers. It frequently complains to TV
stations about the violent content of its news bulletins.
Consumer rights organisations base their campaigns on the
four basic consumer rights, namely the right to safety, the
right to be informed, the right to choose and the right to be
heard. The International Charter of Consumer Rights,
endorsed by the Department of Trade and Industry, has
expanded these basic consumer rights to eight:47
•
•
•
•
The right to basic needs. The right to the basic goods
and services that guarantee survival, including adequate
food, clothing, shelter, healthcare, education and
sanitation
The right to safety. The right to be protected against
products, production processes and services that are
hazardous to health or life
The right to be informed. The right to be given the facts
needed to make an informed choice or decision. This
right implies protection from misleading or inaccurate
publicity material, whether included in advertising,
labelling, packaging or by any other means
The right to choose. The right to have access to a variety
of products and services at competitive prices and, in the
case of monopolies, to have an assurance of satisfactory
quality and service at a fair price
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•
•
•
•
The right to be heard. The right to advocate consumers’
interests with a view to receiving full and sympathetic
consideration in formulating and executing economic
and other policies
The right to redress. The right to fair settlement of just
claims due to misrepresentation
The right to consumer education. The right to acquire
the knowledge and skills to be informed consumers
throughout life
The right to a healthy environment. The right to a
physical environment that will enhance the quality of
life.
The movement to protect consumer rights is known as
consumerism. Pressure from consumer groups often leads to
industries setting up self-regulatory agencies.
10.1 Self-regulatory agencies
LO14
Some industries regulate themselves rather than wait to be
subjected to governmental laws and regulations. One of the
best examples is the Advertising Standards Authority of
South Africa (ASA), which self-regulates the South African
advertising industry.48 The ASA is an independent body, set
up and paid for by the advertising industry, to administer
the industry’s system of self-regulation. The ASA works
closely with government, industry and consumer bodies to
set and maintain the highest standards in advertising.
10.1.1 Advantages of self-regulation
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Self-regulation is internationally accepted as the ideal
system of regulating advertising, as it is faster and less
expensive than government legislation, more flexible and
ensures the speedy resolution of disputes. Self-regulation
also generates greater moral adherence than a law would
because codes and guidelines are voluntarily developed and
adopted by industry members. Such members agree to obey
not only the letter, but also the spirit of self-imposed rules
and to abide by the decisions of their peers.
10.1.2 The Code of Advertising Practice
ASA members support, and are obliged to adhere to, a code
of conduct. To keep abreast of socio-economic change, this
code is updated annually by a Code Revision Committee
appointed by the industry. While the code sets out the
advertising standards pertaining to a wide range of
industries, its basic principles may be summarised as
follows:
•
•
•
•
•
•
•
•
•
•
Stay within the law
Claim only what you can prove
Do not mislead
Do not disparage
Compete fairly
Act with responsibility
Do not offend
Do not steal
Do not exploit the vulnerable
Consider your neighbour.
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10.1.3 Fair adjudication
The ASA directorate investigates complaints that the code
has been breached, giving both parties a fair and equal
opportunity to state their point of view before the ASA
adjudicates on the matter. Members of ASA committees are
elected by their industry bodies to serve on ASA committees
and to make decisions on behalf of the industry. They are,
therefore, elected on the basis of their knowledge,
experience and standing in the industry. If an advertiser fails
to co-operate with the ASA, all ASA media members
(including newspapers, magazines, television, radio, cinema
and members of the Printing Industries Federation) have
agreed, in the public interest, not to accept advertising that
contravenes the Code of Advertising Practice from the
advertiser in question. When an advertiser is found to be
negligent, wilful or a regular contravener of the code, a preclearance requirement (all new advertising must be
approved by ASA before it may be used) may be imposed on
the advertiser. A selection of complaints that the ASA has
had to deal with recently include:
•
Pick n Pay Hypermarket’s claim of being ‘always
cheaper’ (ruled in favour of Pick ‘n Pay)
• Chicken Licken using a character parodying rival KFC’s
Colonel Saunders (discontinued voluntarily)
• Duracell battery’s claim of ‘lasts up to six times longer
than ordinary zinc-carbon batteries’ (ruled in favour of
Duracell)
• Artificial sweetener brand Canderel complaining that a
competitor, Selati, copied the packaging of its Sucralose
sweetener sticks (ruled in favour of Selati)
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•
•
Both Parrot’s Restaurant and Steakhouse boasting the
best steaks in the East Rand (ruled against Parrott’s)
Dis-Chem’s claim to be ‘SA’s favourite pharmacy’ (ruled
in favour of Dis-Chem as they submitted research
information to support the claim).
11. Legal factors
The legal system of a country can exert a profound influence
on how business in general and marketing in particular are
conducted. Legislation affecting marketing activities can be
divided into three main categories:
•
•
•
Laws promoting competition – such as the Competition
Act, which prohibits restrictive trading practices, such as
price collusion
Laws limiting competition – such as the laws providing
Telkom and the Post Office (Postal Services Act [No 124
of 1998]) with legal protection against competition
Laws protecting consumer rights – such as the Consumer
Protection Act (2011), the National Credit Act (No 34 of
2005) and the Usury Act (No 73 of 1968). Business needs
government regulation to protect innovators of new
technology, to promote the interests of society in
general, to protect one business from another and to
protect consumers. In turn, governments want business
to flourish, because trade generates taxes that are used to
support public efforts to educate our youth and defend
our shores, and so on. The private sector also serves as a
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counterweight to government. The decentralisation of
power inherent in a private-enterprise system places
some restriction on a government so essential for the
survival of a democracy.
Every aspect of the marketing mix is subject to laws and
restrictions. It is the duty of marketing managers or their
legal experts to understand the implications of these laws
and conform to them because failure to comply with
regulations can have major consequences for a firm.
Sometimes just sensing trends and taking corrective action
before a government agency intervenes can help avoid legal
action against a firm.
However, the purpose should not simply be to keep the
marketing department out of trouble, but also to help it
implement creative new programmes to realise marketing
objectives. It is all too easy for a marketing manager or
sometimes a lawyer to say no to a marketing innovation that
in reality entails little risk. For example, an overly cautious
lawyer may hold up the launch of a desirable new product
by warning that the package design could prompt a
copyright infringement lawsuit. Therefore, it is important to
have a thorough understanding of the laws of the central
government, provincial governments and regulatory
agencies to regulate marketing-related issues.
Laws and regulations can be a threat or an opportunity to
different firms. One firm that benefits from legal protection
is Telkom. The Telecommunications Regulatory Authority
ruled, after complaints from Telkom, that all callback
operators that competed with Telkom in the international
market had to cease operations. Another example of the
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effect of legislation is the opportunities that opened up for
firms selling cellphone car kits. Legislation that bans drivers
from using hand-held phones has doubled the sales of many
cellphone car-kit installers. Another firm that has exploited
a new law profitably is Mitsubishi. When the Receiver of
Revenue ruled that four-door, double-cab vehicles will no
longer be deemed to be used for business purposes
(meaning that businesspeople could no longer claim back
the 14 per cent VAT paid on them), sales of Mitsubishi’s twodoor double-cab brand, Clubcab, nicknamed ‘a cab and a
half’, soared.
11.1 Central government legislation
LO15
In South Africa marketers have recently had to deal with a
deluge of new legislation at both central and provincial
government level. The following sections provide
examples.49
11.1.1 Privacy and data protection
Some years ago, the South African Law Reform Commission
began to investigate the desirability of introducing privacy
and data-protection legislation. The commission
investigated all aspects related to the protection of the right
to privacy of a person in relation to the processing in any
way of his or her personal information by the state or
another person. The Protection of Personal Information Act
(POPI) provides for comprehensive regulation of all aspects
of the collection, use, disclosure, storage of and access to
personal information. The act prohibits any firm from using
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information supplied by a customer for any purpose other
than for which it was supplied. The act thus provides a legal
framework for the use of consumers’ private information
and preventing the indiscriminant use of such information.
A specific target is the regulation of direct marketing
practices and preventing the undesirable practice of ‘spam’
marketing (unsolicited emails and sms messages).
One implication will be that a magazine publisher may
then not sell its subscribers’ list to, say, a marketing research
firm or direct marketing company. Such a law may be a
serious threat to firms using customer databases (such as
catalogue sellers) to conduct their business. Measures to
protect privacy may also be perceived as a cost to business
and an unjustified constraint on the right of a firm to
conduct its business affairs as it wishes. On the other hand,
greater protection for the privacy of customers may promote
electronic commerce because customers who do buy online
will perceive lower risk in transacting online and will feel
better protected.
Firms using better-targeted niche advertising rather than
mass advertising will, however, be affected by the law, as
would firms exchanging information about clients – as
Nedbank, Wooltru, Didata and Old Mutual were at one stage
planning to do. The cellular telephone industry, which does
an automatic credit check on its clients every three months,
will also be affected by the new law.
The proponents of the expected law contend that its
purpose is to protect the privacy of consumers, whereas
firms that oppose the law argue that consumers who provide
confidential information should have the right to receive
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information not necessarily related directly to that
transaction. In most other countries in the world where
similar legislation is in place, consumers have the right to
indicate whether or not their personal details can be passed
on to third parties or not.
11.1.2 The Consumer Protection Act
As the name suggests the purpose of the Consumer
Protection Act is to protect consumers by promoting a fair,
accessible and sustainable market for consumer products
and services and by specifying national norms and
standards relating to consumer protection. Failure to do so
may have serious consequences. After analysing more than
500 complaints received by the National Consumer
Commission cell phone firms and time-share firms are
being investigated for alleged abuse of consumer rights. The
act is based on eight principles: equality in the consumer
market; privacy; choice; disclosure and information; fair and
responsible marketing; fair and honest dealing; fear, just
and reasonable terms and conditions; fair value, good
quality and safety. It requires businesses to reconsider many
traditional business practices to ensure that all their
dealings with consumers are fair, reasonable and honest.
The act holds producers, importers, distributors and
retailers – even if they weren’t negligent – jointly and
severally liable for damages caused by unsafe products,
product failures, defects or hazards in goods or inadequate
instructions or warnings. The act will force many business
firms to review their business models, strategies and service
delivery methods in order to satisfy the requirements of the
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act.
WEBSITE
You can read more about the Consumer
Protection Act on
http://www.acts.co.za/consumerprotection-act-2008/
11.1.3 The Tobacco Products Control Act
The Tobacco Products Control Act controls, among other
things, the advertising of tobacco products; the use of
tobacco trademarks, logos, brand names or company names
when promoting, for example, sporting, cultural or
educational events; the sampling of tobacco products;
accessibility to cigarette vending machines; the placement
of a cigarette name or trademark on anything other than a
cigarette package; and the placing of any other information
on tobacco packaging except for health warnings,
trademarks and trade names. Due to these restrictions
tobacco firms have had to find alternative ways to market
their products. The Tobacco Products Control Act was
introduced in South Africa in 1993, after smoking was rated
the second highest health concern, after HIV/AIDS. This act
has been amended several times during the past decade and
today South Africa has some of the strictest tobacco control
measures ever adopted by the government of a developing
country. It is estimated that cigarette consumption has fallen
dramatically since the early 1990s while the percentage of
adult smokers in the country has dropped from 32 to 26,5
percent. 50
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11.1.4 The Competition Act
The Competition Act prohibits any ‘agreement’ that may
reduce competition in an industry, including agreements to
fix prices, production quotas, or to restrict investment,
innovation, or divide markets by allocating customers,
suppliers or territories. It also prohibits collusive tendering
and vertical relationships in the same distribution channel
(for example a producer owning both a wholesaler and a
retailer). Several firms in South Africa, including fishing firm
Oceana (who had to pay a R35m fine) and construction
firms such as Murray and Roberts have fallen foul of this
law. An example of ensuring competition is when the
Competition Commission blocked Pick n Pay’s attempt to
buy the Fruit and Veg City retail chain ‘because the
transaction would limit competition in the market’.
WEBSITE
You can read more about the Competition
Act on
http://www.acts.co.za/competition-act1998/
11.1.5 The Electronic Communications and Transactions Act
The Electronic Communications and Transactions Act
regulates online trading and stipulates, among other things,
that:
•
•
Consumers must have the opportunity to withdraw from
an online transaction at any time before placing a final
order
The seller must accept responsibility for the protection of
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•
•
buyers’ confidential information
The buyer is entitled to cancel any online transaction
without reason within seven days of receipt of the goods
(certain product categories are exempt)
Consumers have the right to request not to be included
on the firm’s mailing list.
WEBSITE
You can read more about the Electronic
Communications and Transactions Act on
http://www.acts.co.za/electroniccommunications-and-transactions-act2002
11.1.6 The National Credit Act
The National Credit Act regulates the credit market in South
Africa by introducing the concepts of over-indebtedness and
preventing the reckless granting of credit. Overindebtedness is a situation where a consumer is unable to
meet all of his or her obligations in respect of credit
agreements entered into in a timely manner. If a court
determines that a consumer is over-indebted, it may extend
the period of the credit agreement, reduce payments,
postpone payments, or re-calculate the consumer’s
obligations. In other words, a debt rearrangement can be
sanctioned by the court. The National Credit Act ensures
that consumers are not drawn into applying for and agreeing
to the provision of credit when they will not be in a position
to service that credit line in the future. If credit is granted on
a reckless basis, the court may suspend the credit agreement
or set aside all or part of the consumer’s obligations in terms
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of such credit agreement. The ‘financial means, prospects
and obligations test’ will be applied when assessing
individuals for credit. This test will encompass an
assessment of the consumer’s income and right to receive
such income, the regularity of such income and the financial
means of any adult person within that consumer’s
household (such as that person’s spouse). The ultimate
objective of this act is the protection of the indigent, illiterate
consumer and to protect consumers who do not understand
the terms of credit agreements. The act requires credit
agreements to be set out in plain and understandable
language and if requested, credit providers have to provide
information (both written and oral) to consumers in the
preferred language of the consumer.51 From a marketing
perspective, the National Credit Act will limit and constrain
the amount of credit granted by banks and retailers (such as
furniture and clothing retailers), which will dampen
demand and, therefore, sales.
WEBSITE
You can read the National Credit Act on
http://www.acts.co.za/national-creditact-2005
11.2 Provincial government legislation
In South Africa, a provincial legislature is the legislative
branch of the government of a province, as provided for in
the Constitution of South Africa. The legislature is
empowered to pass legislation within its functional areas, as
well as a constitution for the province should it wish to do
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so.52 Provincial governments also pass their own laws that
have an impact on firms. Gauteng, for instance, has
consumer courts that allow consumers whose consumer
rights have been violated access to legal recourse.
11.3 International agreements
LO16
International business and trading agreements that the
government has entered into can also influence a firm’s
marketing initiatives. South Africa is a signatory to several
international trade agreements. Three of the most
prominent ones are worthy of further consideration.
11.3.1 World Trade Organisation (General Agreement on
Trade and Tariffs)
South Africa is a signatory to GATT (General Agreement on
Trade and Tariffs), a worldwide agreement aimed at
increasing free trade among member countries by limiting
the role of trade barriers, such as import duties, subsidies
and tariff protection. The responsibility for managing the
implementation of the agreement now rests with the World
Trade Organisation (WTO). In other words, although there is
sometimes confusion, the essence of GATT still exists under
the umbrella of the WTO, albeit under another name.
Membership of the WTO means that South African firms can
no longer be protected by the government by means of trade
barriers, and existing trade barriers must be phased out. One
casualty of the agreement is the General Export Incentive
Scheme, which has subsidised South African exports to the
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tune of R10 billion since 1990.
11.3.2 Southern African Customs Union
South Africa is also a member of the Southern African
Customs Union (SACU), whose objective is also to promote
free trade between the member countries, South Africa,
Botswana, Lesotho, Namibia and Swaziland.
EXAMPLE >> Several firms have recently felt the uncomfortable heat
of foreign competition as a result of reduced protection flowing from the freetrade agreements. Kelvinator tried to persuade the Board of Tariffs and Trade to
apply tariffs to cheap imports of white goods (stoves, fridges, etc.) from
Fridgemaster in Swaziland.53 The standard argument is that cheap imports
destroy the South African manufacturing base and, therefore, jobs. The counterargument is that South African consumers should have access to the cheapest
products possible and that consumers cannot be expected to subsidise
inefficient firms and poor labour productivity. Dairy producers have also
expressed concern about possible cuts in import tariffs on dairy products, as this
will lead to an increase in imports from countries such as New Zealand and
Australia. Dairy farmers complain that the competition caused by imports put the
profit margins of dairy producers under pressure because they cannot get price
increases to match production costs.54 Potato SA, the organisation looking after
the interests of the potato industry (including farmers, wholesalers and exporters)
recently complained about the import of cheap processed potatoes from France.
11.3.3 Southern African Development Community55
South Africa is part of the Southern African Development
Community (SADC) agreement that was established in 1992.
The SADC’s purpose is to turn this economic bloc into the
African economic engine by creating a common market and
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eliminating trade barriers. It has 14 members at present. In
the past, the GDP of the SADC countries often grew at a
faster rate than that of the rest of Africa. About threequarters of South Africa’s trade is with SADC countries.
SADC membership implies free trade and, therefore,
stronger competition, but also more exporting opportunities
for South African firms.
11.4 The marketing implications of legislation
Government interference in business through legislation
will always raise the cost of doing business and will
inevitably increase prices to consumers. The cost of
business compliance with the new Consumer Protection Act
is estimated to be R1 billion and for compliance with the
new Companies Act R3 billion. To comply with the
Consumer Protection Act Vodacom points out that it will
have to re-train all frontline staff, revise contract terms and
conditions and re-engineer some of its business processes.56
Telkom executives recently told Parliament that
‘compliance with a host of new laws would add considerably
to the cost of doing business, which would directly
contribute to inflation, as consumers would have to pay for
them’.57 Legislation and laws can obviously hamper
business activities and marketing initiatives.
The departing chairman of Woolworths recently said the
following about the impact that laws and regulation have on
business: ‘The over-emphasis on corporate governance is
killing business activity in South Africa. Too much focus and
time had to be devoted to complying with corporate
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governance rules and regulations instead of creating lasting
relationships with customers and ensuring that they are
supplied with the right products.’58 The previous CEO of
1Time airline recently said that the government’s red tape
and taxes are largely to blame for the airline’s financial
woes.59
READER 11 >> Obeying new laws will add to costs, says
Telkom
Compliance with a host of new laws would add considerably to the cost of
doing business, which would indirectly contribute to inflation, as consumers
would have to pay for them, Telkom executives have warned. The executives
briefed Parliament’s communications committee yesterday on the group’s
annual report, business conditions and future plans. The committee heard
that the group’s capital expenditure in future would be driven more by
regulatory requirements than by business imperatives. Group executive for
regulatory and government relations, Victor Moche, cited the Regulation of
Interception of Communications and Provision of Communication-Related
Information Bill, Promotion of Access to Information Act, State Information
Technology Agency (SITA) Amendment Bill, the Electronic and Communication
Transactions Act and Electronic Communications Security Bill as laws that
would create substantial additional costs. These higher costs would make it
hard for Telkom to be profitable in the long term, and would contribute to
higher consumer costs and, ultimately, inflation. The interception legislation
would oblige Telkom to collect an enormous amount of consumer information
and create a huge administrative burden for the corporation.
The Promotion of Access to Information Act would also require the
establishment of special units and the keeping of information, while the SITA
legislation would create a monopoly and contribute to inefficiency in the
economy.
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Moche also said the verification procedures required by the Electronic and
Communication Transactions Act and Electronic Communications Security Bill
would dampen business growth.
SOURCE: Adapted from Ensor, L. 2002. Obeying new laws will add to costs,
says Telkom. Business Day electronic edition, 23 October 2002
12. Competitive factors
LO17
The competitive environment encompasses the number of
competitors a firm must face, their relative size and their
degree of interdependence within the industry.
Management has little control over the competitive
environment confronting a firm. Yet the marketing mix,
particularly pricing, depends on the type and extent of
competition.
After years of relative isolation from international
competitors, South African marketers have been forced to
adapt to escalating levels of foreign competition lately. In
some cases, competitive considerations (or the lack thereof)
can present an opportunity. The number of courier firms
that have sprung up and prospered in recent years has been
made possible by the Post Office’s inability to satisfy the
needs of consumers.
The competitive environment is indeed challenging. The
firm’s organisational culture and its perceptions of possible
risks and returns will, to a large extent, determine how
occurrences, trends and potential opportunities and threats
are handled. Micro-lenders (sometimes cruelly referred to
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as ‘loan sharks’) spotted an opportunity in the financial
services market that the large established banks were not
interested in. Sometimes new competition emerges from
unexpected sources. Technology companies such as Google
(PayPal) and Apple are developing payment solutions that
will be a serious threat to conventional banks. Similarly,
Vodacom has applied for a financial services license and
already holds a short- and long term insurance license
allowing it to sell, amongst other things, funeral cover. Some
firms (such as large commercial banks) are often
conservative and will avoid what they regard as
unacceptable risks or developments they may not be
familiar with. Other firms – such as Capitec Bank and Rand
Merchant Bank – are more innovative and entrepreneurial
and will pursue opportunities others may prefer to stay clear
of. Capitec’s unsecured lending business is an example. This
culture will also influence perceptions of the likely risks and
returns (profitability) of a new venture.
13. Physical forces
LO17
Physical forces are becoming an increasingly relevant issue
in the marketing environment. A generation ago, physical
forces would not have merited much consideration by
marketing managers. However, awareness by consumers
and regulatory authorities of the impact of human activities
on the natural environment has made the physical
environment an important macro-environmental force that
impacts on marketing decisions. In South Africa, the
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physical forces that are relevant for marketing managers are
climate change, pollution, scarce resources, recycling and
non-wasteful packaging, and the use of environmentallyfriendly ingredients.60
13.1 Climate change
The impact of climate change on our physical environment
is possibly the greatest challenge facing the world this
century. Many argue that the depletion of the ozone layer by
such human activities as burning fossil fuels and the slashand-burn approach to harvesting timber from rainforests
(particularly in the developing world) has had a profound
negative impact on our climate. There have been numerous
attempts to regulate the activities of nations (and
businesses) in order to limit the impact of industrial activity
on the climate. A start to achieving global consensus on this
controversial topic was reached in 1997 in Kyoto, Japan. The
objective of the Kyoto Protocol is to articulate a strategy to
stabilise the emission of greenhouse gases to prevent the
hazardous interference with the climate system. The Kyoto
Protocol was adopted by South Africa in 2002. A
controversial issue, however, is how to reach a balance
between development and climate goals. Developed and
developing nations have different priorities and,
accordingly, opposing viewpoints as to what would
constitute a fair compromise, as there will obviously be costs
involved in implementing any agreement.
Although South Africa, because it is a developing country,
does not have to reduce its omissions under the Kyoto
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Protocol, the country has set itself voluntary targets, which
will hopefully see emissions peaking between 2020 and 2025
and then decline. This target is important because climate
change has the potential to have a serious negative impact
on South Africa’s economy. For example, tourism
contributes as much as ten per cent to the South African
GDP and 36 per cent of tourists to South Africa cite the
country’s natural resources (such as wildlife) as the primary
reason for visiting the country. Climate change may result in
a loss of habitats and biodiversity due to changes in
temperature and humidity, and an increased malaria risk,
resulting in a decrease in tourism-generated revenue.61
13.2 Pollution
Pollution can be described as the unwelcome concentration
of harmful substances detrimental to the environment.
Pollution can take the form of carbon emissions from
factories or combustion engines, chemicals, sewerage and
even an excessive concentration of fertilisers. More than 200
000 tons of tyres become waste every year and only 5 per
cent are recycled. All 11 million tyres are dumped illegally or
burnt to salvage the wire inside. The government’s
Recycling and Economic Development Plan is trying to
address this situation.62
Although pressure from government and consumer
groups can compel industries and local authorities to reduce
pollution, in some cases there are positive financial benefits
associated with a pollution-free environment. For example,
Gonubie Beach near East London has been awarded Blue
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Flag status, an internationally recognised symbol which is
awarded to beaches that are clean and meet international
environmental standards. This award means that tourists
are assured of certain physical environmental standards
when visiting the beach, which results in an increased
number of visitors to the area and, consequently, increased
revenue for local businesses.
13.3 Scarce resources
We have always lived in a world of finite resources –
although we may not always have appreciated this reality.
For example, in the past, manufacturers (and consumers)
were not too concerned about exhausting the world’s
natural resources and hence the expression ‘there are plenty
more fish in the sea’. This generations-old adage has proved
to be false, and we have found that, unless properly
managed, fish stocks can be depleted to the extent that
certain species of fish are now in danger of extinction.
Fortunately, fish stocks, if properly managed, like wood,
paper and leather, and harvested at a rate less than or equal
to their natural replenishment, are a renewable resource.
One of the biggest technological challenges in the world
today is finding sources of renewable energy to replace the
current reliance on oil and coal for generating much of the
world’s electricity and powering its transport. Even if one
concedes that global warming may be part of a natural cycle
rather than a consequence of excessive carbon emissions,
these resources are finite. It follows that governments and
firms marketing energy need to find other sources of energy.
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As a result, much of the effort of firms has turned to the
harvesting of what are known as ‘perpetual resources’, such
as the sun, tides, winds, sea currents and hydroelectricity.
These resources are in no danger of being exhausted and
will provide a sustainable and clean source of energy for
generations. As with any crises, there lies an opportunity
and it is estimated that as many as 1,2 million direct or
indirect jobs could be created in South Africa in the
renewable energy sector.63
Innovative firms, such as Nedbank, respond to these
concerns. The bank has designed the first branch, located in
Lansdowne Corner in Cape Town, which will be fully
powered by renewable energy sources.
13.4 Recycling and non-wasteful packaging
Although South Africa is behind the developed world in its
effort to implement recycling of materials and encourage the
use of environmentally-friendly packaging, it has recognised
this activity as an important national priority. To this end the
South African government introduced legislation to force
businesses to charge customers for the supply of plastic
shopping bags (and to make them more durable),
prompting a 90 per cent reduction in the use of plastic bags.
13.5 Environmentally-friendly ingredients
The trend towards using environmentally-friendly
ingredients as a component of, or in the manufacture of
products, is pervasive in all sectors of our economy. The
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wine industry in South Africa is one that has embraced
environmentally-friendly practices. This is a systemic
approach and embraces all aspects of the winemanufacturing process, from cultivating grapes in the
vineyard to bottling the wine.64 Even something as
innocuous as the traditional disposable baby’s nappy can
have a profound impact on the environment. One baby,
using disposable nappies, can produce up to two tonnes of
solid waste during its lifetime, which can take up to 500
years to decompose. Consequently, manufacturers of
nappies are investigating the use of more environmentallyfriendly
(biodegradable)
components.
Similarly,
manufacturers of personal computers and allied products
are investigating ways to limit the use of non-recyclable
components and harmful substances in their products. In
this area, one proposal being considered is to use corn
starch rather than plastic in printers.65
To summarise: the environmental occurrences and
trends that may represent opportunities and threats to
business firms, and that determine and shape the long-term
well-being of these firms are found within the marketing
environment. Once identified, the marketer has to evaluate
them and then decide how to respond to them. These two
considerations are discussed in detail in Chapters 4 and 14.
The competitive environment is so important in marketing
that we devote an entire chapter to this topic (Chapter 4).
<<< LOOKING BACK
At first glance the new DStv service appears to be a
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considerable threat to the traditional video store. However,
with only 3,49m SA subscribers to DStv in a population of
50,5m, the DStv market is small. In addition, the number of
films DStv has access to, are also limited. However, it is a
competitive threat all video stores will have to keep an eye
on in the future.
SUMMARY
1
2
The external environment of marketing and its impact
on a firm. The external marketing environment consists
of social, demographic, economic, technological,
political, legal and competitive factors. Marketers
generally cannot control the elements of the external
environment. Instead, they must understand how the
environment is changing and how change may impact
the firm and the target market. Then marketing
managers can create a marketing mix to effectively meet
the needs of target customers.
The nature of environmental scanning. Environmental
scanning ought to be an ongoing, rolling process. The
planning horizon is constantly adjusted over time. It
often emphasises the importance of environmental
trends for marketing decision-making. Environmental
scanning techniques may be of a qualitative or
quantitative nature. Studying current events, collecting
secondary data and analysing figures on economic
indicators are activities associated with environmental
scanning. Despite its speculative nature, the advantage
of environmental scanning is that it encourages
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managers to think about the long term, to translate
vague feelings into clear strategic issues and to think
strategically about opportunities and threats in the
external environment.
3 The nature of opportunities and threats. An
opportunity can be described as an area of buyer need
that a firm can utilise profitably. A threat, on the other
hand, is a challenge posed by an unfavourable trend or
development that would lead, in the absence of
preventative or remedial action, to a deterioration in
sales and profitability.
4 The importance of identifying opportunities and
threats. Failure to identify and utilise new opportunities
can lead to stagnation and losing out to more alert
competitors. Failure to identify potential threats can lead
to the demise of the firm.
5 Examples of threats and opportunities to South
African firms. The following broad threats can be
identified:
• A recession
• The impact of HIV/Aids
• Foreign competition
• A prolonged drought.
The following broad opportunities can be identified:
• An end to a recession
• Economic growth of 8 per cent
• Improved productivity
• Lower interest rates.
6 The social factors that affect marketing. Within the
external environment, social factors are perhaps the
most difficult for marketers to anticipate. Several major
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social trends are currently shaping marketing strategies.
First, people of all ages have a broader range of interests,
defying traditional consumer profiles. Second, changing
gender roles are bringing more women into the
workforce and increasing the number of men who shop.
Third, a greater number of dual-career families has led
to time poverty, creating a demand for time-saving
goods and services.
7 The demographic factors that affect marketing.
Demographic factors that impact on marketing are the
geographical distribution of the population, their age,
their levels of income and language usage.
8 The value of the Living Standards Measurement
(LSM). The South African Advertising Research
Foundation (SAARF) has developed a non-racial
measurement to describe the South African market. It
uses All Media Product Survey (AMPS) data to classify
people on the basis of their living standards. It measures
social class or living standards, regardless of race,
income or education. Instead of approaching social class
from the point of view of obvious demographic
differences, the LSM quantifies the ownership of certain
durable goods, access to services, and the like, to yield a
composite measure of social class. The attributes that are
included to define the LSM include measures such as
ownership of a fridge or freezer in the home, flush toilet,
the use of financial services, and the like. LSM group
membership correlates closely with variables such as
income, education and race, illustrating an upward
continuum from poor rural ‘have-nots’ to educated and
predominantly white urban ‘haves’ or ‘affluents’. There
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are ten LSM groups, from group 10, with the highest
living standards to group one, with the lowest.
9 Relevance of the economic environment. The
economic environment is of particular importance to
marketers because all the variables in this environment
influence the spending power of consumers. Examples
include interest rates, inflation and recessionary
conditions.
10 Consumer and marketer reactions to the state of the
economy: inflation and recession. During a time of
inflation, marketers generally attempt to maintain
pricing levels in order to avoid losing customer brand
loyalty. During times of recession, many marketers
maintain or reduce prices to counteract the effects of
decreased demand; they also concentrate on increasing
production efficiency and improving customer service.
11 The impact of technology on a firm. Monitoring new
technology is essential to keeping up with competitors in
today’s marketing environment. For example, in the
technologically advanced United States, many firms are
losing business to Japanese competitors, which are
prospering by concentrating their efforts on developing
marketable applications for the latest technological
innovations. In the United States, much research and
development expenditure goes into developing
refinements of existing products instead of fostering and
encouraging innovation. Without innovation, firms
cannot compete over the long term.
12 The impact of the Internet on marketing. The Internet
will have a particularly significant impact on consumer
markets and marketing practices in general. The Internet
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provides access to almost limitless data and information
about the external environment. It also provides a means
of communicating with consumers while receiving quick
and reliable feedback from customers. The industries
most likely to be affected by the Internet are travel, retail
and banking.
13 The role of political factors. Political factors refer to the
variables determining the political situation in a country.
The marketer, like any business person, prefers a
situation of relative political stability in a country. Most
westernised democracies enjoy the benefits of prolonged
political stability, which makes it relatively easy to plan
and execute marketing strategies. Other countries often
find themselves in periods of political turmoil. In many
of these countries, the approach to elections contributes
to this undesirable situation. If governments change
regularly – each introducing a new economic policy,
such as increased government involvement in the
economy, which the next government reverses again – it
will contribute to political instability. In foreign markets
in particular, marketers tend to believe they have little
influence on the political environment, and refrain from
challenging the political dogma of the host country. By
ensuring that no major transgressions occur,
international firms avoid punitive legislation. Sometimes
legislation is passed in response to the pressure created
by consumers – for example, in response to those who
have fallen foul of ethical business practice, such as
some pyramid schemes. Other consumers organise
formal structures to protect consumers’ rights.
14 Business’s attitude towards legislation. All marketing
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activities are subject to regulation by central and
provincial government. Marketers are responsible for
remaining aware of and abiding by such regulations.
15 Identifying legislation and its likely impact. There are
several laws that will impact on marketing managers’
decision-making in South Africa. Four examples are:
• The Tobacco Products Control Act (No 83 of 1993),
which gives the Minister of Health the discretion to
impose stricter controls on tobacco use, including a
total ban on advertising and sponsorship by tobacco
firms
• The overall aim of the Competition Act (No 89 of
1998) is to promote and maintain competition in
order to – among other things – promote the
efficiency, adaptability and development of the
economy; ensure that small and medium-sized firms
have an equitable opportunity to participate in the
economy; and to promote a greater spread of
ownership of the economy
• The Electronic Communications and Transactions
Act (No 34 of 2005) regulates online trading
• The National Credit Act (No 25 of 2002) will limit and
constrain the amount of credit granted by banks and
retailers (such as furniture retailers), which will
dampen demand and, therefore, sales.
16 The impact of formal trade agreements. The impact of
GATT (General Agreement on Trade and Tariffs) is that
there will be more foreign competition than in the past.
The Southern African Development Community (SADC)
agreement also encourages free trade among member
countries.
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17 The relevance of the competitive environment.
Increasing international competition, rising costs and
shortages of resources have heightened domestic
competition. Yet, with an effective marketing mix, small
firms continue to be able to compete with the
international giants.
DISCUSSION AND WRITING QUESTIONS
1
2
3
4
5
What is the purpose of environmental scanning? Provide
an example.
You have been asked to address a local Chamber of
Commerce on the subject of the banning of alcohol
advertising. Prepare an outline for your talk.
Periods of inflation require firms to alter their marketing
mix. A recent economic forecast expects inflation to be
almost ten per cent during the next 18 months. Your firm
manufactures hand tools for the home gardener. Write a
memo to the marketing director explaining how the firm
could alter its marketing mix.
How does the legal environment affect the marketing
environment for Peter Stuyvesant?
Fill in the LSM questionnaire at:
http://www.eighty20.co.za/databases/show_db.cgi?
db=fulllsmcalculator. Link your classification to your
monthly spending on non-essentials. Who are you a
target market for?
STRATEGY READER >> Retailers urged to shift to
innovative ‘feel-good’ trading
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Retailers can take advantage of the recession by offering value for money, and
bundling feel-good items that are still cost-effective. Gwen Morrison, CEO of
The Stores said last week that there had been a shift in the way consumers
shopped, with down-trading being evident and, in some cases, people opting
out of shopping. Morrison told businesspeople in Johannesburg last week that
travel by plane, for example, was being replaced by video conferencing. She
said companies needed to be innovative and creative in the economic
environment. Consumers faced a lack of credit, no spending power and some
products were starting to see deflation. Discount was king, and companies
that were trading on price and value were reaping the rewards. Morrison said
some people were spending only in the first ten days of the month.
As a result, retailers in countries where the credit crunch had hit hard were
being forced to rethink their strategies – lessons South African companies
could learn. Consumers wanted to be able to cut costs without necessarily
having to cut back on their lifestyle, Morrison said. They wanted high value for
low price.
Morrison said, however, that cutting prices could affect the credibility of
the brand, and consumers might wonder whether the initial price point had
been set too high, even though sales might ‘clear shelves’. She said retailers
should look at a form of retail therapy that did not break the bank, but did
uplift spirits. For example, Morrison said, retailers in the United States were
starting to promote products that made consumers feel happier, and
indicated that retailers – and suppliers – were trying to show they were on the
side of the consumer.
SOURCE: Adapted from Mawson, M. 2009. Retailers urged to shift to innovative ‘feel-good’ trading.
Business Day electronic edition, 20 April
QUESTIONS
1
2
Do you think that the proposed ‘feel-good’ retailing strategy will be
effective? Justify your response.
Suggest alternative strategies.
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KEY CONCEPTS
Baby boomers: people born between 1946 and 1964.
Competitive market: a large number of sellers marketing a standardised product
to a group of buyers who are well informed about the marketplace.
Demography: the study of people’s vital statistics, such as their location, age,
race and ethnicity.
Discretionary income (disposable income): money for purchases other than
necessities and taxes.
Environmental management: when a firm implements strategies that attempt
to shape the external environment within which it operates.
Generation X: consumers born between 1965 and 1976.
Generation Y: consumers born between 1977 and 1994.
Inflation: a general rise in prices without a corresponding increase in wages,
which results in decreased purchasing power among consumers.
Monopoly: an industry in which one firm controls the output and price of a
product for which there are no close substitutes.
Recession: a period of economic activity when income, production and
employment tend to fall – all of which reduce demand for goods and services.
Target market: a defined group most likely to buy a firm’s product.
Time poverty: lack of time to do anything but work, commute to work, handle
pressing family situations, do housework, shop, sleep and eat.
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Bisseker, C. 2014. Hike inevitable. Financial Mail, 31 January – 5 February
2014, p. 22.
Bleby, M. 2009. Tiger Brands gains from cheaper choices. Business Day
Companies section, 25 November 2009, p. 1.
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42 Schoeman, L. 1998. Festival shows take big knock. Eastern Province Herald, 7
July 1998, p. 1.
43 Moorad, Z. 2013. Festive shopper will be discerning. Business Day, p. 18.
44 Bleby, M. 2009. Tiger Brands gains from cheaper choices. Business Day
Companies section, 25 November 2009, p. 1.
45 Perreault, W.D. 1978. The shifting paradigm in marketing research. Journal of
the Academy of Marketing Science, 20(4), pp. 367–375.
46 Bidoli, M. 1998. Customer service rules. Financial Mail, 1 August 1998, p. 65.
47 Adapted from an advertisement by the Department of Trade and Industry
published in the Sunday Times, 15 March 1998, p. 15.
48 This section is based on information supplied by the Advertising Standards
Authority.
49 This section is based on Hazelhurt, E. 1998. With kid gloves, not a
sledgehammer, Financial Mail, 29 May 1998, pp. 42–43; De Bruin, P. 2003.
Privaatheid van burgers gou beskerm. Die Burger, 2 September 2003, p. 5;
and Tait, M. Unpublished lecture notes. 2003, Faculty of Law, Vista
University.
50 Thompson, V. 2012. The dangers of smoking. Available from
http://www.looklocal.co.za/looklocal/content/en/north-east-joburg/northeast-joburg-news-municipal?oid=5690567&sn=Detail&pid=490274&Thedangers-of-smoking (Accessed on 3 May 2014).
51 Werkmans attorneys, available: www.werkmans.com (Accessed on 25 June
2010).
52 The Constitution of South Africa. 1996. Available from
http://www.acts.co.za/constitution-of-the-republic-of-south-africa-act1996/ (Accessed on 5 May 2014).
53 Leshilo, T. 1997. Kelvinator calls for tariffs on imports. Business Times, 12 July
1997, p. 1.
54 Robertson, D. 1998. Imports threaten SA dairy industry. Business Times, 12
July 1998, p. 4.
55 Lourens, C. 1998. Engineering News, July 17–28 1998, p. 25.
56 Naidoo, P. 2011. High-Wired Act. Financial Mail, 20 May 2011, pp. 30–37.
57 Ensor, L. 2002. Obeying new laws will add to cost, says Telkom. Business Day,
23 October 2002.
58 Ensor, L. 2002. Hall hits at high price of ‘mad’ governance. Business Day, 22
November 2002, p. 21.
59 Barron, C. 2011. No country for bold men. Sunday Times, 18 September, p. 7.
60 Jobber, D. & Fahy, J. 2009. Foundations of marketing (third edition).
Berkshire: McGraw-Hill.
61 Turpie, J., Winkler, H., Spalding-Fecher, R. & Midgley, G. 2002. Economic
impacts of climate change in South Africa: A preliminary analysis of
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62
63
64
65
unmitigated damage costs. Southern Waters Ecological Research and
Consulting & Energy and Development Research Centre, University of Cape
Town.
Blaine, S. 2012. Tyre industry challenges Molewa’s plan. Business Day, 5
September, p. 2.
Earthlife Africa Johannesburg/Oxfam. 2009. Climate change, development
and energy problems in South Africa: Another world is possible. Available
www.earthlife.org.za/wordpress/wp-content/…/02/cc2_single_pages.pdf
(Accessed 25 June 2010).
Greenspan, M. 2009. The new ‘green revolution’. Wine Business Monthly
16(2), pp. 94–97.
Harvey, F. 2004. PC makers set to face costs of recycling. Financial Times, 4
February 2004, p. 3.
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CHAPTER
03
Understanding consumer
decision-making
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1 Explain why marketing managers should understand consumer
behaviour in general and decision-making in particular.
2 Analyse the components of the consumer decision-making
process.
3 Explain the consumer’s post-purchase evaluation process.
4 Suggest strategies to overcome post-purchase dissonance.
5 Identify the types of consumer buying decisions and discuss the
significance of consumer involvement.
6 Describe the factors that will determine the level of consumer
involvement.
7 Describe the marketing implications of consumer involvement.
8 Identify and describe the individual factors that affect consumer
buying decisions.
9 Critically evaluate the role of perception and processes of
perception in consumer behaviour.
10 Justify the study of motivation, learning, values and beliefs as
consumer behaviour variables.
11 Evaluate the process of changing beliefs and attitudes to
influence consumer buyer behaviour.
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12 Discuss the role of personality, self-concept and lifestyle in
consumer behaviour.
13 Relate social factors to consumer buying behaviour.
14 Explain the relevance of cultural influences on consumer
behaviour, particularly in the South African market environment.
15 Expand on the significance of reference groups and opinion
leaders in understanding consumer behaviour.
16 Describe the role of family membership, the family life cycle and
social class in understanding consumer behaviour.
17 Describe the role that a purchase situation can play in buyer
behaviour.
18 Identify the steps in the adoption process.
19 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
20 Provide a marketing-management solution related to any of the
above outcomes.
>>Marketing in practice
James goes shopping
James Bryant is a ten-year-old boy living in Pretoria. He
is a very enthusiastic tennis player. In fact, he is mad
about tennis. He thinks Rafael Nadal is the greatest
tennis player ever to walk this earth. He has posters of
Nadal on his bedroom walls and his autograph on a
shirt that a friend brought back from Wimbledon. He
recently told his dad that because he has grown so fast,
he needs a new tennis racquet. James is very excited
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about this possibility because this will be his first fullsize racquet. He is not sure what brand of racquet
Nadal plays with, but he is determined to get the same
one as his hero. ‘I’ll ask one of the first-team players at
school tomorrow’, he thinks.
Over the next few days he gets conflicting advice. He
learns that Nadal plays with a Wilson, but a tennis
magazine his uncle gave him suggests that Slazenger is
the best for non-professional players. He remembers
seeing an advertisement for a Kennex racquet in a
Sunday newspaper recently, but can’t quite recall what
it said. He also phones his cousin, who is a provincial
player, for his opinion. His dad, who used to play with a
Head racquet, thinks that it is the best brand. James can
recall once having a hit with both a Head and a
Slazenger at a tennis tournament in Cape Town, but
remembers them being very heavy and not well
balanced.
That Saturday, just before James and his dad set off
to their local sports shop, he notices a Wilson
advertisement in the morning newspaper. James
studies the advertisement in detail. After much
agonising, he decides to settle on a Wilson. He could
not be prouder when he gets into the car with his new
racquet safely tucked under his arm. After trying it out
that afternoon he phones Chris, one of his friends, to
tell him of his new racquet.
‘I don’t think you made the right choice’, Chris says.
‘My Dunlop hits the ball a lot harder, and it has a larger
“sweet spot” than the Wilson.’
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‘That is not true’, says James. ‘I saw an
advertisement this morning that said the Wilson hits
the ball the hardest and that it is the best-quality
racquet on the market.’
Lying in bed that night, James has a bit of a hollow
feeling in his stomach. ‘I hope I did not make the wrong
choice’, he thinks. ‘It will be a long time before I’ll be
able to afford a new tennis racquet again.’
QUESTIONS
1
2
3
4
What made James aware that he needs a new racquet?
Which factors influenced James’s choice of a racquet?
Which sources of information did he consult?
What can you say about James’s feelings after the purchase?
1. Introduction
Having read the opening reader about James Bryant, you
may ask the question, why do we have to study consumer
behaviour? The answer is that to be able to implement the
marketing concept, we need to understand consumer needs
and wants. How consumers respond to a firm’s marketing
strategies is the ultimate test of its success. If consumers
respond favourably and buy its products in sufficient
quantities, then the firm has done a good job in formulating
a successful marketing strategy that appeals to the target
market’s needs. Information about consumers, and in
particular how and why they make buying decisions, helps
marketers define the market they want to serve and identify
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opportunities and threats.
The discussion of consumer behaviour in this chapter is
based on the premise that we are dealing with rational
buyers. Based on economic buyer theory, we assume that
buyers:
•
•
•
Within reason, know all the relevant facts
Logically compare alternative choices in terms of cost
and value
Do not have enough money to buy everything they want,
so they try to make their money stretch as far as possible
– that is, they pursue maximum satisfaction at the lowest
cost.
2. The importance of understanding
consumer behavior
LO1
Consumers’ product and service preferences and buying
patterns are constantly changing. In order to address this
constant state of flux and create a proper marketing mix for a
well-defined market, marketing managers must have a
thorough knowledge and understanding of consumer
behaviour. Consumer behaviour describes how consumers
make purchase decisions and how they use and dispose of
the purchased goods or services. The study of consumer
behaviour also includes an analysis of factors that influence
purchase decisions and product usage. Research conducted
in South Africa has revealed that when small-business
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owners buy electronic gadgets, such as cellphones and other
mobile devices, ease of use is the most important buying
criterion followed by dependability and product quality.
Price is only the fifth most important criterion.1 This is the
type of information marketing managers need to base their
decisions and marketing strategies on.
Understanding how consumers make purchase decisions
can help marketing managers in several ways. For example,
if the management of a motor vehicle manufacturer knows
that petrol consumption is the most important attribute for a
certain target market, they can redesign the product to meet
that need. If the firm cannot change the design in the short
run, it can use promotion in an effort to change consumers’
decision-making criteria. For example, the manufacturer
may advertise the vehicle’s maintenance-free features or
sporty European style while downplaying petrol
consumption. In addition, consumers may differ in their
media preferences in terms of sourcing their information
before buying. For example, younger consumers prefer
electronic media sources such as the Internet to collect their
pre-purchase information while older consumers may
choose traditional sources such as magazines and
newspapers. In other words, marketers can change attitudes
and influence consumers’ buying decisions if they are
knowledgeable about consumer behaviour, and buying
behaviour in particular.
The purpose studying consumer behaviour by marketers
is therefore not only to understand consumer behavior but
also to predict consumer behaviour given a set of
circumstances and, finally, to influence consumers’ buying
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behaviour. In this quest to understand consumer behaviour,
marketers rely heavily on the rich reservoir of literature
generated by the social sciences over many years. Years of
dedicated research by the world’s psychologists, sociologists
and industrial psychologists have equipped marketers with
an array of concepts, models and techniques to help study
and understand consumer behaviour.
READER 12 >> South African shopping behaviour
unique?
While South Africans are embracing online and mobile shopping, the in-store
experience is as important as ever. About 46 per cent of local shoppers,
according to a worldwide Accenture survey, still lean towards purchasing instore and carrying home – 25 per cent are buying online or via mobile and
shipping home. This is the converse of global shoppers, 37 per cent of whom
prefer online over 28 per cent who favour in-store purchasing. This could be
because online shopping in South Africa is less developed than in other
countries – delivery constraints, slow and expensive broadband and disparate
online and in-store offerings have been an e-commerce inhibitor in South
Africa.
Where local respondents are using online shopping, the primary reason is
convenience, which is aligned with the global response. However, South
African shoppers lean towards using online to check product availability before
wasting a trip to the store and to compare prices between retailers.
‘South African shoppers find purchasing via online and mobile more
difficult than other markets. Consequently, after stores close, most shoppers
will wait for the store to open the next morning to purchase from their retailer
rather than buy online at that retailer’s website,’ Accenture said. Also, South
Africans are more interested in using their mobile phone while shopping instore than the other markets – wanting to gather loyalty points, receive real
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time promotions and scan products while shopping.
SOURCE: Moorad, Z. 2014. In-store experience still trumps online buying in SA. Business Day Live, 11
July. Available from http://www.bdlive.co.za/business/retail/2014/07/11/in-store-experience-stilltrumps-online-buying-in-sa (Accessed 24 July 2014)
3. A model of consumer behavior
Buyer behaviour is influenced by three sets of variables:
•
•
•
Individual factors
Social factors
The prevailing purchase situation.
All three are external variables that influence the consumer’s
decision-making process (an internal process), which will
again determine whether or not a consumer buys a product,
as shown in Figure 3.1. Figure 3.1 forms the basis of our
discussion of consumer behaviour in this chapter.
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Figure 3.1 A model of consumer behaviour
SOURCES: Adapted from Lamb, C.W., Hair, J.H. &
McDaniel, C. 1998. Marketing. International Thomson
Publishing, p. 160; Perreault, W.D. & McCarthy, E.J.
1996. Basic marketing. Chicago: Irwin, p. 216
Figure 3.2 The consumer decision-making process
We will follow a bottom-up approach in our study of
consumer behaviour by first considering the consumer
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buying decision-making process (see Figure 3.2). The reason
why consumers (potential buyers really) go through this
process is that they want to satisfy a need or a want.
Figure 3.2, therefore, describes the buying process itself
(i.e. the steps a buyer typically goes through when buying
something). Figure 3.1, on the other hand, identifies the
external variables or factors that influence the buying
decision-making process that culminates in the decision to
buy or not to buy. First we will consider the buying process
itself and the associated steps in the process, as illustrated in
Figure 3.2.
4. The consumer decision-making
process
LO2
When buying products, consumers generally follow the
consumer decision-making process shown in Figure 3.2,
namely:
1
2
3
4
5
Problem recognition of an unfulfilled need
Information search
Evaluation of alternatives
Purchase
Post-purchase behaviour.
These five steps represent a general process which moves
the consumer from recognition of an unfulfilled need to the
evaluation of a purchase after the event. This process is a
guideline for studying how consumers make decisions.
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It is important to note that this guideline does not assume
that consumers’ decisions will proceed in an inflexible order
through all of the steps of the process under all
circumstances. The consumer may end the process at any
time. In fact, the consumer may not even make a purchase.
Explanations as to why a consumer’s progression through
these steps may vary are offered in the section on the types
of consumer buying decisions. Before addressing this issue,
each step in the process (as depicted in Figure 3.2) will be
described in greater detail.
4.1 Problem recognition
The first stage in the consumer decision-making process is
problem recognition – that is, realising that an unfulfilled
need exists. A swimmer has a cut on her finger and wants to
keep it dry and hygienic while swimming has a unfulfilled
need (see Elastoplast advertisement on page 86). Problem
recognition occurs when consumers are faced with a
discrepancy between an actual state (I do not have a car)
and a desired state (I want my own car). For example, do
you often feel thirsty after strenuous exercise? Has a
television commercial for a new sports car ever made you
wish you could own it? Problem recognition is triggered
when a consumer is exposed to either an internal or external
stimulus. Hunger and thirst are internal stimuli. The brand
name of a motor vehicle mentioned by a friend, the design
of a package, a television programme featuring the latest
model of a sports car, a new magazine shown to you by a
friend, an advertisement on the radio, or the scent of the
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perfume worn by a stranger, for example, are all considered
to be external stimuli.
>> Strategy
A marketing manager’s objective is to get consumers to
recognise a discrepancy between their present state
and their preferred state. For example, marketers of
motor vehicles are now attempting to create consumer
demand for added features. Car manufacturers are
developing car seats with built-in stereo speakers;
under-seat storage space, electronic temperature
control and more comfortable seat belts.2 Marketers
want consumers to feel that they have to have these
features in their new vehicles. Volkswagen, for
instance, is advertising its new seat belts used in the
Jetta, which accommodate the female figure. The
advertisement says: ‘Fuller breasts and bulky clothing
are the most common causes of seat belt slack, which
in an accident can cause severe backlash and extensive
bruising. This most typically occurs with ordinary
inertia-reel seat belts …’ Volkswagen has replaced
these with a device called a ‘pyrotechnic pre-tensioner’
to solve the problem and is using advertising to make
potential female buyers aware of this unfulfilled need.
Marketers cannot create needs, such as hunger or thirst –
but they can create consumer wants (e.g. a want for a
hamburger, a cooldrink or a house). A want exists when
someone has an unfulfilled need and has established that a
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particular product or service will satisfy the need. Different
people have different wants. Young children might want
toys, ice cream and rugby balls. Teenagers may want
fashionable T-shirts, the ‘right’ brand of sunglasses and a
smartphone.
A want can be for a specific product, for a certain
attribute or feature of a product or for a specific brand. For
instance, older consumers typically want goods and services
that offer convenience, comfort and security. Remotecontrol appliances, home deliveries, speakerphones and
motorised golf carts are all designed to satisfy the need for
comfort and convenience. Likewise, a transmitter that can
call an ambulance or the police if the person wearing it has
an emergency offers security for older consumers. Wants
can also be related to specific brands – and that is the
ultimate objective of marketers. If a teenager wants a
Billabong T-shirt rather than any old T-shirt, a McDonald’s
hamburger rather than a home-made hamburger, or a Coke
rather than a Fanta, the marketer knows that he has
succeeded.
Consumers recognise unfulfilled wants in various ways.
The two most common ways occur when a current product
is not performing properly or when the consumer is about to
run out of something that is generally kept on hand.
Consumers may also recognise unfulfilled wants if they hear
about or see a product whose features make it seem superior
to the one currently used. Wants are usually created by
advertising, salespeople or other promotional activities. For
example, a young teenager may develop a strong desire for a
new Billabong T-shirt after seeing it on display in a retail
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store.
EXAMPLE >> Marketers selling their products in global markets must
carefully observe the needs and wants of consumers in various regions. General
Motors recently researched Japan’s new-car buyer market to determine what they
could do to make their Cavalier sedan more appealing to Japanese consumers.
What they discovered was that, to the Japanese car buyer, how a car looks inside
and outside is more important than how it drives. Since Japan’s typical small
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homes cannot accommodate many material possessions, many Japanese regard
their cars as their primary status symbol.
Even for low-end models, Japanese expectations are incredibly high. The
exterior must be flawless, with narrow, perfectly uniform sheet-metal seams and
mirror-like paintwork. Cloth interiors rival the finest of living room furniture. Plush
pile carpeting is a basic requirement. Owing to Japan’s narrow streets, the
Japanese also prefer fold-up wing mirrors. In addition, self-regulating airconditioning systems, computerised compasses and top-notch stereos are often a
must for them.3
4.2 Information search
After recognising a discrepancy, need or want, consumers
search for information about the various alternatives
available to satisfy their wants. An information search may
occur internally, externally or both internally and externally.
An internal information search is the process of recalling
information stored in the consumer’s memory. This stored
information stems largely from previous experience with a
product. For instance, while shopping you encounter a
brand of cake mix that you tried some time ago. By
searching your memory, you can probably remember
whether it tasted good, pleased guests and was easy to
prepare.
By contrast, an external information search collects
information from the outside environment. There are two
basic types of external information sources: non-marketingcontrolled and marketing-controlled. A non-marketingcontrolled information source is not associated with
marketers promoting a product. A friend, for example, might
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recommend a Dell personal computer because he or she
bought one and likes it. Non-marketing-controlled
information sources include personal experience (e.g. trying
or observing a new product, such as test-driving a car);
personal sources (family, friends, acquaintances and coworkers); public sources, such as advisers; magazine articles
(not advertising); consumer information provided by the
media (such as Matthew Lester’s column in the Sunday
Times); product evaluations published in the media, such as
road reports of newly launched cars in Car Magazine;
product comparisons in columns such as Fair Lady’s ‘Test
House’ column; and industry experts (various publications
offer financial and investment advice in newspapers and
magazines). Blogs are other examples of non-marketing
controlled information.
In Table 3.1, Car Magazine compares three 4x2 vehicles
in terms of price, power torque, fuel consumption and other
criteria consumers may base a buying decision on – a
wonderful source of independent (non-marketingcontrolled) information for prospective 4x2 buyers.
A marketing-controlled information source, on the other
hand, is by definition biased because it originates with
marketers promoting that product. Marketing-controlled
information sources include mass-media advertising (radio,
newspaper, television and magazine advertising), sales
promotions (contests, displays, premiums and so forth),
salespeople, product labels and packaging. Some
consumers are sceptical and wary about the information
they receive from marketing-controlled sources, arguing
that most marketing campaigns stress the attributes and the
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benefits of the product but don’t mention its limitations.
When buying a motor vehicle, Car Magazine (or its online
version, www.cartoday.com) would be regarded as a nonmarketing-controlled source of information, whereas a
Toyota
advertisement
or
the
Toyota
website
(www.toyota.co.za) would be regarded as a marketingcontrolled source of information.
The extent to which individuals conduct an external
search depends on their perceived risk, knowledge, prior
experience and level of interest in the product or service.
Generally, as the perceived risk of the purchase increases, so
the consumer enlarges the scope of the search and
considers more alternative brands. For instance, assume
you want to buy a new car. The decision is a relatively risky
one, mainly because of the high cost, so you are motivated
to search for information about different models and
attributes, such as petrol consumption, durability and
passenger capacity. You may also decide to collect
information about more models because the trouble and
time expended in finding the information are minimal
compared with the cost of buying the wrong car. By contrast,
you are less likely to expend great effort in searching for the
right kind of bath soap. If you make the wrong selection, the
cost is minimal and you will have the opportunity to make
another selection in a short period of time.
A study of the effect of consumers’ level of perceived risk
in the search for information on computer mail-order
shopping found that those who perceive higher risk with a
purchase expend more effort in an external information
search and consult a greater number of different types of
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information sources than those who perceive lower levels of
risk.4 Information searches, therefore, reduce risk.
A consumer’s knowledge about the product or service
will also affect the extent of an external information search.
If the consumer is knowledgeable and informed about a
potential purchase, he or she is less likely to need to search
for additional information. In addition, the more
knowledgeable the consumer, the more efficiently he or she
will conduct the search process, thereby requiring less time
to search.
Another closely-related factor that affects the extent of a
consumer’s external search is confidence in one’s decisionmaking ability. A confident consumer not only has plenty of
stored information about the product, but also feels selfassured about making the right decision. People lacking this
confidence will continue an information search even when
they know a great deal about the product. Consumers with
prior experience in buying a certain product will perceive
less risk than inexperienced consumers. They will, therefore,
spend less time searching and limit the number of products
that they would consider buying.
A third factor influencing the external information search
is product experience. Consumers who have had a positive
previous experience with a product are more likely to limit
their search to only those items related to the positive
experience. For example, many consumers are loyal to
Honda cars, which enjoy low repair rates and high customer
satisfaction. For these consumers the information search
will be very short, if not completely unnecessary.
Finally, the extent of the search undertaken is positively
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related to the amount of interest a consumer has in a
product. That is, a consumer who is more interested in a
product will spend more time searching for information and
alternatives. For example, suppose you are a dedicated
runner who reads jogging and fitness magazines and
catalogues. In searching for a new pair of running shoes, you
may enjoy reading about the new brands available and
spend more time and effort than other buyers in deciding on
the right shoe.
Table 3.1 Example of comparative information for consumers
SOURCE: http://www.car-specs.za.net
>> Technology in action
The marketspace
We have all heard about the value of the Internet for
business and the influence it has had on the behaviour
of consumers. But what is so special about the Internet?
Why has it had such a huge impact on the way we live
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and go about our daily business? Commentators have
pointed out that the Internet changes business in three
fundamental ways. Firstly, the content of the
transaction is different: information about the physical
product replaces the products themselves. In other
words, if we want to find out information about a
second-hand car, we need not visit a number of
second-hand car dealers to find out information about
what cars are available, their condition and their price
because this information is readily available on our
home computer via the Internet. Secondly, the context
in which the transaction occurs is different: an
electronic, on-screen transaction replaces a face-toface transaction with the car salesman. Thirdly, the
infrastructure that enables the transaction to occur is
different: computers and communication lines replace
the shop floor or, in our example, the second-hand car
dealership.
No doubt you will immediately point out that mailorder companies (where one typically orders a product
from a printed catalogue or brochure) have been
following a similar business model for years. Indeed,
the value of a mail-order company and an online
shopping facility both add value by virtue of their
ability to separate information about a product from
the product itself. However, the Internet allows
information to be modified quickly and to be
distributed at a very low marginal cost, which makes it
relatively easy for a business to satisfy an almost
unlimited demand for information in real time. This
virtual marketplace has also been described as the
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‘marketspace’, and allows for lower costs, convenience
and a potential market that comprises every user of the
Internet.
SOURCES: Rayport, J.F. & Sviokla, J.J. 1995. Exploiting the virtual value
chain. Harvard Business Review 73(6), pp. 75–85; Pitt, L., Berthon, P. &
Berthon, J-P. 1999. Changing channels. The impact of the Internet on
Distribution Channels. Business Horizons, March–April 1999, pp. 19–28
The consumers’ information search should yield a group of
brands – sometimes called the buyer’s evoked set (also
called a consideration set) – that are the consumer’s
preferred alternatives and that will be seriously considered
before a purchase. From this set, the buyer will further
evaluate the alternatives and make a choice. Consumers do
not consider all the brands available in a product category,
but they do seriously consider a much smaller set. For
example, there are more than 1 500 types of motor vehicles
to choose from in South Africa, yet most potential buyers
seriously contemplate only two or three models when faced
with a purchase decision.
An information search tool of increasing importance to
many consumers is the Internet. Companies such as Toyota
(www.toyota.co.za) and Volkswagen (www.vw.co.za) offer a
wealth of information on their websites, such as product and
model information, where to find dealers, vehicle prices,
information on motor sports and even the option to
calculate monthly repayments.
Many firms that have established an online presence for
online buying – particularly travel agents, airlines, hotels
and car dealers – have found that most consumers are still
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reluctant to buy online, but use their sites to collect prepurchase information.
WEBSITE
Visit the Car Magazine website at
www.carmag.co.za and see how it makes
information available for the potential
buyer of used motor vehicles (click on
‘Autocollector’).
4.3 Evaluation of alternatives and purchase
After collecting information and compiling an evoked set
(those brands that the consumer seriously considers before
making a purchase) of alternative products, the consumer is
ready to make a decision. They will use the information
stored in their memories and obtained from outside sources
to develop a set of decision-making criteria. These criteria,
or standards, help the consumer evaluate and compare
alternatives. One way to begin narrowing the number of
choices in the evoked set is to pick an important product
attribute and then to exclude all products in the set that do
not have that attribute.
READER 13 >> The role of recommendation and review
sites in online consumer behaviour
One of the significant outcomes of the ‘powerful consumer’ phenomenon is
the role of personal recommendation as part of the marketing process. Wordof-mouth is an important form of communication and the influence of
individuals’ comments has also become increasingly important online. Web
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businesses have emerged that specialise in providing a platform for consumer
reviews – for example, TripAdvisor (travel and tourism industry) and Amazon
have facilities for feedback and comments on products and customer service.
According to some research, 70 percent of Internet shoppers find the personal
ratings and reviews section on a retail website the most useful to them,
particularly when both positive and negative reviews of a product are shown.
Amazon has an interesting take on personal reviews, in that it encourages
other customers to say if they found particular reviews useful. The reviews that
are found to be most useful are found nearer the top of the list of reviews
(whether positive or negative).
TripAdvisor provides easy access worldwide to leading online travel
agencies including Expedia, Orbitz, Travelocity, hotels.com, Priceline,
Booking.com, and more. TripAdvisor branded sites make up the largest travel
community in the world, reaching nearly 260 million unique monthly visitors,
and more than 150 million reviews and opinions covering more than 4 million
accommodations, restaurants, and attractions. The sites operate in 41
countries worldwide, including South Africa. TripAdvisor, however, leads the
way in the use of personal customer reviews, with over 41,6 million users a
month and 40 million reviews on hotels, cities, airlines and even excursions.
Reviews by previous travellers have been found to influence future consumer
purchasing behaviour. TripAdvisor is growing at a rate of 21 new reviews per
minute, which can lead to information overload for wary travellers. The
implication for marketing managers is not only that they have to produce
excellent products that people want to buy, but they also must manage online
reviews, as poor reviews that people trust can have a significant impact on
consumer decision-making.
SOURCES: Adapted from http://www.kwikchex.com (Accessed June 2014); Cohrane.K. 2011. Why
TripAdvisor is getting a bad review. The Guardian, 25 January, p. 6. (Available from
www.theguardian.com (Accessed June 2014); TripAdvisor: Fact Sheet. Available from
http://www.tripadvisor.com/PressCenter-c4-Fact_Sheet.html (Accessed June 2014)
The objective of the marketing manager is to determine
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which attributes are most important in influencing a
consumer’s choice. Several factors may collectively
influence a consumer’s evaluation of products. A single
attribute, such as price, may not adequately explain how
consumers form their evoked set.5 Moreover, attributes
thought to be important by the marketer may not be very
important to the consumer. For example, one study found
that motor vehicle warranty coverage was the least
important factor in a consumer’s purchase of a motor
vehicle.6 Another example to illustrate the above is a
cellphone buyer who searched for information on
smartphones and ends up with a decision between the
iPhone and Samsung S5 (the evoked set). The person
believes that buying an iPhone would result in a significant
cost saving and that both models are virtually identical on
other attributes (e.g. reliability, design and speed). Cost
savings are very important to this person and so are thus a
very good attribute to possess. The buyer, therefore, has a
more favourable attitude toward the iPhone.
The Internet has made evaluation very easy and
convenient for certain product categories. In addition to
detailed information about its own products, Honda’s
website (www.honda.com) also provides its visitors with a
facility to do a detailed comparison with competing vehicle
models to help them make an informed decision when
buying a motor vehicle.
Following the evaluation of alternatives, the consumer
decides which product to buy or decides not to buy a
product at all. If he or she decides to make a purchase, the
next step in the process is an evaluation of the product after
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the purchase.
WEBSITE
Visit the Vodacom website at
www.vodacom.co.za, and click on
‘cellphone’ under the ‘shopping’ button to
compare different cellphone models on a
variety of different criteria. The same
comparison can also be done on tablets,
by click the ‘tablet’ button instead of the
‘cellphone’ button.
>>Technology in action
Comparison websites
The evaluation of the different alternatives and the
decision to buy a product can often be a trying and
time-consuming (and perhaps confusing) process.
Most consumers have limited resources (money) and
are confronted with many choices. In this respect, the
Internet is a paradox. On the one hand, the web is a
source of almost limitless information and opinions
about products (which could confuse purchasers even
more), but on the other hand, the Internet offers a
solution to deal with the overwhelming amount of
information. It is known as comparison websites.
A comparison website is like a ‘virtual salesperson’
that asks the individual to enter details about their
needs, and then offers a number of solutions to allow
the shopper to make an informed decision. One such
website is www.Travelocity.com, which focuses on the
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tourism sector and offers consumers choices about
products such as holiday packages, flights, hotels and
cruises. On the basis of the information provided
online, the website presents different options to the
consumer who can purchase the product online. A
similar service is offered by www.Pricecheck.co.za,
whose stated purpose is to ‘find and compare products
from established online shops catering for Internet
purchases in South Africa …’ The focus of
www.Pricecheck.co.za is fairly broad, incorporating
products as diverse as electronic items, wine, sporting
goods, used cars and properties.
Although comparison websites may be useful for
some products, there are doubts whether they can be
considered as a universal panacea for bargain hunters.
For example, they may be useful for comparing prices
on products such as electronic goods where the
specifications of the product are easily evaluated, but
their value is less certain when it comes to items such
as houses. It may be difficult to express many of the
intangible (and subjective) factors, such as the
condition of the neighbours’ property and proposed
new developments in the area, which may affect the
price of a property using this medium. Similarly, many
financial products, such as life insurance, car insurance
and endowments, are complicated, and it may
therefore be difficult to convey the key decision-making
criteria in a simplistic website.
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4.4 Post-purchase behavior
LO3
When buying products, consumers expect certain outcomes
or benefits to accrue from the purchase. How well these
expectations are met determines whether the consumer is
satisfied or dissatisfied with the purchase. For example,
when Colleen bought a used car, she had somewhat low
expectations of its actual performance. To her surprise, the
car turns out to be one of the best she has ever owned. So
Colleen’s satisfaction is high because her fairly low
expectations were exceeded (see Figure 1.1 in Chapter 1).
On the other hand, Eleanor, who bought a brand-new car,
expects it to perform particularly well. If it turns out to be a
flop, she will be very dissatisfied because her high
expectations have not been met.
Price often creates high expectations. A buyer of a R1,3m
Toyota Lexus LS 460 will certainly have higher expectations
of his future driving experiences than a buyer of a R125 000
KIA Picanto. A subscriber who pays about R8 000 a year for
M-Net’s DStv service will certainly have higher expectations
than one who pays the SABC R500 a year to use its TV
service.
4.4.1 Post-purchase dissonance
LO4
For the marketing manager, one important element of any
post-purchase evaluation is lingering doubts whether the
purchase decision was sound. When people recognise
inconsistency between their values or opinions and their
behaviour, they tend to feel an inner tension or anxiety
called cognitive dissonance (or post-purchase doubt).
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For example, suppose a consumer spends half his
monthly salary on a new high-tech music system. If he stops
to think how much he has spent, he will probably feel
dissonance. Dissonance occurs because the person knows
the purchased product has some disadvantages as well as
advantages. In the case of the music system, the
disadvantage of the cost clashes with the advantage of
technological superiority. In other words, dissonance is
post-purchase uncertainty or anxiety.
Typically, consumers who experience this dissonance or
anxiety try to reduce this unpleasant feeling by justifying
their decision to themselves. They might seek new
information that reinforces positive ideas about the
purchase (confirming that it was the right decision), avoid
information that contradicts their decision or revoke the
original decision by returning the product to the retailer.
People who have just bought a new car often read more
advertisements of the car that they have just bought than for
other cars in order to reduce dissonance and reinforce the
correctness of the decision. In some instances, they
deliberately try to find contrary information in order to
refute it themselves and in this way reduce their dissonance.
Dissatisfied customers sometimes rely on word-of-mouth to
reduce cognitive dissonance by letting friends and family
know they are displeased with their own buying decision.
Marketing managers can help reduce dissonance using
effective communication with purchasers. For example, a
customer-service manager may slip a note inside the
package congratulating the buyer on making a wise
decision. Post-purchase letters sent by motor vehicle
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manufacturers and dissonance-reducing statements in
instruction booklets may help new car buyers feel at ease
with their purchase.
Advertising that displays the product’s superiority over
competing brands and guarantees can also help relieve the
possible dissonance of someone who has already bought the
product. Nissan has an advertisement that says: ‘Experience
the luxury and peace of mind of owning a Maxima and
knowing you’ve made the right decision.’ Some car dealers,
for example, offer refunds to new car buyers within three
days of their purchase if they decide they are dissatisfied.
EXAMPLE >>
Another example is the winemaker Zonnebloem’s
advertisement, which says: ‘Do you typically leave the bottle store with a good
wine or with sour grapes? When leaving a bottle store, people often wonder if
they’ve just bought an average bottle of wine or spent too much money. Or both.
But if you’re leaving with a Zonnebloem you’re taking away over fifty years of
award-winning craftsmanship in every bottle.’
In the South African life insurance industry, buyers of insurance policies have
a 21-day cooling-off period during which a buyer of an insurance policy can
cancel it without penalty. When buying a house, the cooling-off period is five
days. The chain store Game has a policy of refunding the difference if any buyer
can prove that they could have bought a product more cheaply elsewhere.
Similarly, Morkels calls itself ‘the two-year guarantee store’. All these are
strategies used by marketers to reduce post-purchase dissonance.
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Good marketing means that the firm needs to monitor and
manage customer’s post-purchase behaviour by, amongst
others, monitoring social media sites such as Facebook and
Twitter and video-sharing sites such as YouTube, to identify
problems and by responding rapidly to complaints.
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5. Types of consumer buying decisions and
LO5
consumer involvement
All consumer buying decisions generally fall along a
continuum of three broad categories: routine response
behaviour, limited decision-making and extensive decisionmaking (see Table 3.2). The placement of goods and services
in these three categories can best be described in terms of
five factors:
•
•
•
•
•
The level of consumer (or buyer) involvement
The length of time a buyer takes to make a decision
The cost of the product or service
The degree of information search the buyer does
The number of alternatives the buyer considers before
actually buying.
The level of consumer involvement is perhaps the most
significant determinant in classifying buying decisions.
Involvement is the amount of time and effort a buyer invests
in the search, evaluation and decision processes of
consumer behaviour.
Frequently purchased, low-cost goods and services are
generally associated with routine response behaviour. These
products and services can also be called low-involvement
products because consumers spend little time on
researching the decision before making the purchase.
Usually, buyers are familiar with several different brands in
the product category, but stick with one brand. Consumers
engaged in routine response behaviour do not normally
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experience problem recognition until they are exposed to
advertising or see the product displayed in a shop – they buy
first and evaluate later (the reverse is true for extensive
decision-making). A parent, for example, will not stand at
the breakfast cereal shelf in a supermarket for 20 minutes
thinking about which brand of breakfast cereal to buy for the
children. Instead, he or she will walk to the shelf, find the
family’s usual brand, and put it into the trolley – i.e. low
involvement. To illustrate, it has been found that grocery
buyers spend only about ten seconds on average in front of a
grocery shelf for a specific item before moving on.7
Products and services that are purchased regularly and
are not considered expensive are generally associated with
limited decision-making. These are also associated with low
levels of involvement (although higher than routine
decisions), because consumers do expend moderate effort
in searching for information or in considering various
alternatives. Suppose the children’s usual brand of breakfast
cereal, Kellogg’s Corn Flakes, is unavailable. With no cereal
at home, the parent now must select another brand. Before
making a final selection, he or she may pull from the shelf
several brands similar to Kellogg’s Corn Flakes to compare
their nutritional value and calories and to decide whether
the children will like the new cereal.
Consumers engage in extensive decision-making when
buying an unfamiliar, expensive product or an infrequently
bought item. This process is the most complex type of
consumer buying decision and is associated with high
involvement on the part of the consumer. Extensive
decision-making closely resembles the model outlined in
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Figure 3.1. These consumers want to make the right
decision, so they want to know as much as they can about
the product category and available brands. People usually
experience cognitive dissonance only when buying highinvolvement products because of the higher costs associated
with the purchase and the consequent higher risk.
Buyers involved in extensive decision-making use several
criteria for evaluating their options and spend much more
time collecting information. Buying a home, a car or an
overseas holiday, for example, calls for extensive decisionmaking.
The type of decision-making that consumers use to
purchase a product does not necessarily remain constant.
For instance, if a routinely purchased product no longer
satisfies their needs, consumers may engage in limited or
extensive decision-making to switch to another brand.
People who first use extensive decision-making may then
use limited or routine decision-making for future purchases.
For example, a new mother may at first extensively evaluate
several brands of disposable nappies before selecting one.
Provided she is satisfied, subsequent purchases of baby
nappies will then become routine decisions. Converting
potential buyers from using extensive decision-making to
routine decision-making for future purchases depends
heavily on how effective the branding of the product is. The
more effective the brand building the lower the risk for the
buyer and the more likely it becomes that repeat purchases
will take place. Branding thus simplifies the decisionmaking process as the potential buyer does not have to rethink their options every time a need arises.
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5.1 Factors determining the level of
consumer involvement
LO6
The level of involvement in the purchase depends on five
factors: previous experience, interest, perceived risk,
situation and social visibility.
•
•
•
Previous experience. When consumers have had
previous experience with a product or service, the level
of involvement typically decreases. After repeated
product trials, they learn to make quick choices. Because
they are familiar with the product and know whether it
will satisfy their needs, consumers become less involved
in the purchase over time. For example, people with
pollen allergies typically continue buying the sinus
medicine that has relieved their symptoms in the past.
Interest. Involvement is directly related to consumer
interests, such as motor vehicles, music, movies, bicycles
or electronics. Naturally, these areas of interest vary from
one individual to another. Although some people have
little interest in nursing homes, a person with elderly
parents in poor health may be highly interested. Those
who regard a motor vehicle as no more than a means of
getting from A to B will not be involved in a purchasing
decision for a vehicle to the same extent as those who
eat, sleep and live cars.
Perceived risk of negative consequences. As the
perceived risk in purchasing a product increases, so does
a consumer’s level of involvement. The types of risks that
concern consumers include financial risk, social risk and
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psychological risk. First, financial risk is associated with
exposure to loss of wealth or purchasing power. Because
high risk is associated with high-priced purchases,
consumers tend to become extremely involved when
products are expensive. Therefore, price and
involvement are usually directly related: as price
increases, so does the level of involvement. For example,
someone who is thinking of buying a house will normally
spend a great deal of time and effort to find the right one.
Second, consumers take social risks when they buy
products that may affect other people’s social opinions
of them (examples include driving an old, run-down car
or wearing old-fashioned clothes). Third, buyers
undergo psychological risk if they feel that making the
wrong decision might cause some concern or anxiety.
For example, should a working parent employ a
babysitter or enrol the child in a day-care centre?
Therefore, the higher the perceived risk, the higher the
level of involvement in the purchasing decision.
• Situation. The circumstances of a particular purchase
may temporarily transform a low-involvement decision
into a high-involvement one. High involvement occurs
when the consumer perceives risk in a specific situation.
For example, an individual might routinely buy lowpriced brands of liquor and wine. However, when the
boss is invited for dinner, the consumer might make a
high-involvement decision and buy a more prestigious
brand. The prevailing situation may, therefore,
necessitate higher (or lower) involvement in a
purchasing decision.
• Social visibility. Involvement also increases as the social
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visibility of a product increases. Products often on social
display include clothing (especially designer labels, such
as Pierre Cardin), jewellery, motor vehicles, and
furniture (e.g. a leather lounge suite). All these items
make a statement about the purchaser and, therefore,
carry a social risk. To avoid the social risk, consumers
become more involved in the purchasing decision.
Table 3.2 Continuum of consumer buying decisions
5.2 The marketing implications of consumer
LO7
involvement
The marketing strategy that a marketing manager uses will
depend on the level of involvement associated with the
product. For high-involvement product purchases,
marketing managers have several responsibilities. First,
communication with the target market should be extensive
and informative. A good advertisement gives consumers the
information they need for making the purchase decision as
well as specifying the benefits and unique advantages of
owning the product. For example, when ACDelco launched
the first ‘truly maintenance-free’ car battery it clearly
highlighted the features that distinguish the product from
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competing batteries. These include the fact that it never
needs water, and it has a heat-sealed cover, liquid gas
separators, recessed terminals, calcium expanded grids and
envelope separators to prevent shorting.
With low-involvement product purchases, consumers
may not recognise their wants until they are in a shop.
Therefore, in-store advertising is an important tool when
advertising low-involvement products. Marketing managers
have to focus on package design so that the product will be
eye-catching and easily recognised on the shelf. Examples of
products that take this approach are yoghurts and soft
drinks.
>> Strategy
In-store displays often stimulate the sales of lowinvolvement products. A good display can explain the
product’s purpose and encourage prompt recognition
of a want. Displays of health and beauty items in
supermarkets and department stores have been known
to increase sales many times above normal. Coupons,
‘cents-off’ deals and ‘two-for-the-price-of-one’ offers
also effectively promote low-involvement items.
Linking a product to a higher-involvement issue is
another tactic that marketing managers can use to
increase the sales of a low-involvement product. For
example, many food products are no longer just
nutritious, but are also low in fat or cholesterol.
Although packaged food may normally be a lowinvolvement product, reference to health issues raises
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the involvement level. Special K cereal takes advantage
of today’s interest in health and low-fat foods by
advertising that its cereal contains no fat. Likewise, Rice
Krispies promotes the fact that its formula is low in
sugar, and Jungle Oats claims that it is an excellent
source of oat bran. Kellogg’s raises the level of
consumer involvement when people buy breakfast
cereal by linking its hi-fibre brand to the prevention of
colon cancer.
As was pointed out earlier in our model of consumer
behaviour (Figure 3.1), buyer behaviour is influenced by
three sets of variables:
•
•
•
Individual factors
Social factors
The prevailing purchase situation.
The impact of each of these sets of variables on consumers’
buying decisions is considered in the following sections.
6. Individual factors influencing consumer
LO8
buying decisions
The consumer decision-making process does not occur in a
vacuum. On the contrary, several individual and social
factors strongly influence the decision-making process.
These factors have an effect from the time a consumer
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becomes aware of an unfulfilled need or is exposed to a
stimulus (such as an advertisement or another consumer’s
word-of-mouth) through to post-purchase behaviour. The
individual factors that affect consumer behaviour are
unique to each person. These factors include perception,
motivation, learning, values, beliefs, attitudes, personality
factors, self-concept and lifestyle.
6.1 Perception
The world is full of stimuli. A stimulus is any unit of input
affecting the five senses: sight, smell, taste, touch and
hearing. The process by which we select, organise and
interpret these stimuli into a meaningful and coherent
picture is called perception. It is a means of making sense of
the world around us and determines how we recognise that
we have a consumption ‘problem’ (discrepancy).
People cannot perceive and internalise every stimulus in
their environment. Therefore, they use selective exposure to
decide which stimuli to take note of and which to ignore. A
typical consumer is exposed to more than 150 advertising
messages a day, but notices only between 11 and 20. The
familiarity of an object, contrast, movement, intensity (such
as increased sound volume or number of exposures) and
smell are cues that influence perception. Consumers use
these cues to identify and define products and brands. The
shape of a product’s packaging, such as Coca-Cola’s
signature contour bottle, for instance, can influence
consumers’ perception. Why? Because most consumers are
familiar with this shape following years of effective brand
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building.
Colour is another cue and plays a key role in consumers’
perceptions. An advertisement for a type of medicine
featuring a medical doctor in a black overall will influence
consumers’ perceptions. Marketers use colours creatively
and make sure they avoid others. Would you buy meat in a
green package? Would the green colouring of packaged
meat influence your perception of its freshness? The same
applies to smells. Chemists, Italian restaurants and bakeries
are examples of types of business that use smells to
influence consumers’ perceptions.
In a study that has illustrated the role of colour in
perception, university students were given three different
‘flavours’ of chocolate pudding that were, in reality, all
vanilla pudding with tasteless food colouring added to
varying degrees. The students rated the dark brown pudding
as having the best chocolate flavour and the two lighter
puddings as being creamier. Not one of the students
indicated that he or she had tasted a flavour of pudding
other than chocolate. Thus, colour proved to be a critical cue
for judging chocolate pudding despite the fact that the three
puddings were exactly the same in terms of taste.8
A similar study found that when wine drinkers are
presented with two glasses of wine from exactly the same
bottle of wine but are told that the wine in glass number one
is very expensive and the wine in glass number two is cheap
wine, they consistently report that the more expensive wine
tastes better. Therefore, the price of the wine influences
their perceptions.9
Another important aspect of perception that marketers
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must keep in mind is that not all consumers perceive stimuli
in the same way. Toyota once had to withdraw an
advertisement featuring a pig in mud because of objections
from the Muslim community. Some perceived it as a
humorous advertisement. The Muslim community
perceived it as something totally different. Similarly CocaCola had to cut out a section of their ‘Brrr’ TV advertisement
when Indian consumers in South Africa complaint about
stereotyping.
What is perceived by consumers may also depend on the
stimulus’ vividness or shock value. Graphic warnings of the
hazards associated with a product’s use are perceived more
readily and remembered more accurately than less vivid
warnings, or warnings that are written in text (such as those
found on cigarette packaging).
EXAMPLE >> The TV advertisements used by the Arrive Alive campaign
featuring a car accident scene with screaming, injured children lying on the road
is a good example of the use of vividness or shock value. ‘Sexier’ advertisements
excel at attracting the attention of younger consumers. Brands like Calvin Klein
and Dolce & Gabbana perfume use sensuous ads to ‘cut through the clutter’ of
competing ads and other stimuli to capture the attention of the target audience.
Similarly, Benetton ads use shock value to cut through the clutter by portraying
taboo social issues, such as racism and homosexuality.
Two other concepts closely related to selective exposure are
selective distortion and selective retention. Selective
distortion occurs when consumers change or distort
information that conflicts with their feelings or beliefs. For
example, suppose a consumer buys a motor vehicle such as
a Corsa. After the purchase, if the consumer receives new
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information about a similar alternative brand, such as a
Ford Focus, he or she may distort the information to make it
more consistent with the prior view that the Corsa is better
than the Ford. In a similar vein, business travellers who fly
frequently may distort or discount information about airline
crashes because they have no choice – they need to use air
travel regularly in their jobs. And people who smoke and
have no plans to stop smoking may distort information from
medical reports about the link between smoking and lung
cancer.
Selective retention is remembering only information that
supports existing personal feelings or beliefs. The consumer
forgets all information that may be inconsistent with those
prior feelings and beliefs. After reading a pamphlet that
contradicts one’s political beliefs, for instance, a person may
forget many of the points outlined in it because the reader
wants to remember what he or she wants to remember.
Which stimuli will be perceived and internalised often
depends on the individual. People can be exposed to the
same stimuli under identical conditions but perceive them
very differently (see Reader 14 ‘Different perceptions of
dance show quality’, below). For example, two people
viewing a television commercial may have different
interpretations of the advertising message. One person may
be thoroughly engrossed by the message and become highly
motivated to buy the product. However, 30 seconds after the
advertisement ends, the second person may not be able to
recall the content of the message or even the product that
was advertised. For instance, can you remember which
firms sponsored the 2010 World Cup in South Africa? Some
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will be able to identify them all – others will not be able to
name one of them.
READER 14 >> Different perceptions of dance show
quality
Dance show of quality
From John Gerryts, Port Elizabeth
Bravo Opera House! On Saturday night, Port Elizabeth was treated to a dance
show of outstanding quality by ten dancers from the State Theatre Dance
Company. What an experience! Those who saw the international gem ‘Dedale’
at the Grahamstown Festival must have felt proud when realising that we have
the talent and flair to put on a similarly creative show, though on a smaller
scale. The excellent and accurate review by Ann Knight in the Herald on
Monday told the story to those who missed it. Well done, Olga Hafner and the
Opera House! We look forward to more to come.
Yes, but was it dancing?
From E. Moffat, Walmer, Port Elizabeth
I refer to the State Theatre Dance Company’s performance at the Opera House
on Saturday night: Perhaps Ann Knight had been given inside information on
‘Sur les ailes de Sue’, but to my family and [me] it was totally disjointed,
confusing and repetitive. And what was the story? The young people in the
company are very fit, athletic and agile, but their contortions, gyrations and
acrobatic feats to my mind are never dancing. The first part of the show,
‘Cicadas’, was at least understandable, but again I could never describe it as
dancing. The ear-splitting music throughout the show was so untuneful and
mournful I was glad when it all came to an end. I do not think I was the only
one who had this view.
SOURCE: Letters to the Eastern Province Herald, 16 February 2000, p. 4
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6.1.1 The marketing implications of perception
LO9
Marketers must recognise the influence of cues, or signals,
on consumers’ perceptions of products. They should first
identify the important attributes, such as price or quality,
that the targeted consumers want in a product and then
design signals (or cues) to communicate the existence of
these attributes to them. For example, consumers will pay
more for chocolate wrapped in expensive-looking foil
packages. However, shiny labels on wine bottles signify less
expensive wines while dull labels indicate more expensive
wines.
Using price as a cue to influence perceptions, the
American beer brewer Anheuser-Busch raised the price of
many of its less expensive beers to make its premier brand,
Budweiser, more attractive to consumers.10
South African Breweries market their premium brands,
such as Castle Lite, in green bottles.
Marketers often use product warranties as a signal to
consumers that the product is of a higher quality than
competing products. Consumers who perceive these
warranties as credible generally perceive the product to be
of higher quality.11 To convey the message that its tyres are
of a superior quality Firestone markets its Firehawk brand
by emphasising its guarantee under the slogan ‘Whatever
the damage – Whatever the cause. It’s free – Can you afford
to be without it?’.
EXAMPLE >>
Brand names also send signals to consumers and
influence their perceptions. The brand names of Close-Up toothpaste, Duracell
batteries and Frigidaire appliances, for example, identify important product
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qualities. Brand names that incorporate numbers or letters, such as Mazda RX-7
or WD-40, invoke images of masculine, high-tech products.12 Consumers also
associate quality and reliability with certain brand names. Most firms watch their
brand identity closely, largely because a strong link has been established
between perceived brand value and consumer loyalty, especially when the brand
is ‘cool’.
Among young people in South Africa the coolest brands are:13
• BMW
• Coca-Cola
• Nike
• Samsung
• Apple.
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Naming a product after a place can also add perceived value
by association. Names such as Western Province Cellars and
Gautrain sometimes add credibility to a brand name. Tabac
after-shave lotion is marketed under the caption ‘German
classic’.
Marketing managers are also interested in the threshold
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level of perception, which is the minimum difference in a
stimulus that the consumer will notice. This concept is
sometimes referred to as the just-noticeable difference. For
example, how much would Sony have to drop the price of a
DVD player before consumers recognised it as a bargain?
R100? R200? More? One study found that the just-noticeable
difference in a stimulus is about a 20 per cent change. For
example, consumers are significantly more likely to notice a
20 per cent price decrease in price than a 15 per cent
decrease. Mango airlines has increased the legroom on its
aeroplanes by 7,5 cm to improve passenger comfort. Will
passengers notice the difference? This marketing principle
can be applied to other marketing variables as well, such as
package size or the loudness of a broadcast advertisement.14
Besides changing stimuli such as price, package size, and
volume, marketers can change the product. For example,
how many sporty features will Volkswagen have to add to
the Polo before consumers begin to perceive the model as a
sports car? How many new services will a discount store
need to add before consumers perceive it as a full-service
department store?
Marketing managers who intend to do business in global
markets should be aware of how foreign consumers perceive
their products. For instance, in Japan, product labels are
often written in English or French even though they may not
translate into anything meaningful. Nevertheless, many
Japanese associate foreign words on product labels with the
exotic, and with expensive high-quality items.
When the world’s soccer governing body, FIFA, started
marketing tickets for the 2010 Soccer World Cup it was
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frustrated by the slow tempo of sales. South Africans are not
used to buying sports tickets months in advance and prefer
to buy over the counter. They are not used to buying tickets
by completing forms or on the Internet. ‘We have come to
accept that South Africa is very different from what we are
used to’, FIFA marketing Director, Thierry Weil, said. FIFA,
therefore, had to change its sales strategy to incorporate
over-the-counter sales.15
Whatever the cue (brand, price, product feature) that
forms or influences a person’s perception, it is important to
realise that a short-term perception, over time, ‘decays’ into
a long-term attitude towards the object. Marketers must
carefully consider, therefore, the impact that all cues that are
open to interpretation may have on consumers’ perceptions
– and eventually on their attitude towards the product or
brand. These cues can influence a consumer’s perceptions,
and those perceptions will determine an attitude. If that
attitude is negative, consumers are unlikely to buy the firm’s
products. South African winemakers, for instance, struggle
to overcome negative perceptions about Africa and South
Africa in the American market. Charles Back of the Fairview
estate says: ‘The result is that winemakers have to put a
bottle of wine worth US$15 on the market for $10 to offset
those perceptions.’16
6.2 Motivation
LO10
By studying motivation, marketers can analyse the major
forces that influence whether consumers buy or do not buy
products. When you buy a product, you usually do so to
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satisfy some kind of need. These needs become motives
when aroused sufficiently. For instance, suppose this
morning you were so hungry before going to lectures that
you needed to eat something. In response to that need, you
stopped at a Wimpy for breakfast. In other words, you were
motivated by hunger to stop at the Wimpy. Motives are the
driving forces that cause a person to take action to satisfy
specific needs.
Why are people driven by particular needs at particular
times? One popular theory that addresses this question is
Maslow’s hierarchy of needs, illustrated in Figure 3.3, which
arranges needs in order of importance. These needs are
ranked in categories: physiological (the most basic needs),
safety, social, esteem, and self-actualisation (the highest
level needs). According to Maslow, as a person satisfies one
need, a higher-level need becomes more important.
Figure 3.3 Maslow’s hierarchy of needs
According to Maslow’s theory, the most basic human
needs are physiological – that is, needs for food, water and
shelter. Because they are essential to survival, these needs
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must be satisfied first. Advertisements showing a juicy
hamburger or a road runner gulping down Energade after a
marathon exemplify the use of appeals to satisfy
physiological needs. Many advertisements are based on a
sexual appeal, another example of a physiological need. An
example is Wonderbra’s ‘Nights in black satin’ campaign,
featuring a pretty blonde woman wearing a black bra.
Safety needs include security and freedom from fear, pain
and discomfort. Marketers often exploit consumers’ fears
and anxieties about safety to sell their products. A few years
ago, Mercedes-Benz used an actual incident during which a
Mercedes-Benz owner survived a crash on Chapman’s Peak
near Cape Town as the basis of a television advertising
campaign. The basic message was that the safety features
offered by the Mercedes-Benz ensured the survival of the
occupant – a clear appeal to safety needs. Today a
Volkswagen Golf advertisement says: ‘Its roadholding is
legendary.’ Llumar, a company that sells protective film to
be applied to windows, says ‘Protect your loved ones …’.
EXAMPLE >> Consumer demand for products containing Vitamin E has
been soaring following several scientific studies that suggest the vitamin inhibits
agents that attack cells and cause deterioration. Marketers have promoted other
studies that conclude that Vitamin E may also help ward off degenerative
ailments, such as heart disease and cancer, and some symptoms of ageing.17
Another example of an advertisement using a security appeal is one used by
Police sunglasses. It proclaims: ‘Get police protection. Total UV protection.’
Maslow suggested that after physiological and safety needs
have been satisfied, social needs, especially love and a sense
of belonging, become the focus. Love includes acceptance
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by one’s peers and friendship, as well as romantic love.
Marketing managers probably appeal more to this need
than to any other. Advertisements for clothes, cosmetics and
holiday packages suggest that buying the product can bring
love. The need to belong is also a favourite appeal used by of
marketers.
Love is acceptance without regard to one’s contribution.
Esteem is acceptance based on one’s contribution to the
group. Self-esteem needs include self-respect and a sense of
accomplishment. Esteem needs also include prestige, fame
and recognition of one’s accomplishments. Mont Blanc
pens, Mercedes-Benz cars and clothing boutiques all appeal
to esteem needs. Imperial Car Rental appeals to esteem
needs by offering ‘a range of luxury cars’ to a very specific
segment. In an advertisement the firm says: ‘Nobody goes
further to recognise your success. Status cars – elevating you
to greater heights.’ L’oréal advertisements say ‘Because
you’re worth it.’
According to Maslow, the highest human need is selfactualisation. This is reflected in the need for finding selffulfilment and self-expression, reaching the point in life at
which people are what they feel they should be, or the
feeling that one has achieved something. Fun, freedom and
relaxation are also needs that can be classified under selfactualisation. Many advertisements focus on this type of
need. For example, American Express advertisements
convey the message that acquiring its card is one of the
highest attainments in life. Barron, a company that sells
corporate gifts, says ‘Ambitious? Successful? Look the part.’
EXAMPLE >> Purity advertises its baby food with the slogan ‘No
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preservatives’, which obviously appeals to a mother’s safety needs. A social need
is probably the need Hallmark appeals to when it advertises its cards under the
slogan, ‘When you care enough to send the very best’. An example of an appeal to
esteem needs is Oude Molen’s 100 Reserve Brandy advertisement, ‘Why settle for
less when you can have 100?’, suggesting that someone of your status should not
be satisfied with anything less than the very best. Alfred Dunhill appeals to the
need for self-actualisation when it uses the slogan ‘Luxury accessories [pens,
wristwatches, etc.] for the discerning gentleman’.
6.3 Learning
LO10
Almost all consumer behaviour results from learning, which
is the process that creates changes in behaviour through
experience and practice. It is not possible to observe
learning directly, but we can infer from a person’s action
that learning has taken place. For example, suppose you see
an advertisement for a new, improved medicine for colds. If
you go to a chemist that day and buy that remedy, we can
infer that you have learnt something about the cold
medicine.
There are two types of learning: experiential and
conceptual. Experiential learning occurs when an experience
changes your behaviour. For example, if you try the new
cold medicine when you get home and it does not relieve
your symptoms, you may not buy that brand again.
Experiential learning has led to this decision. Conceptual
learning, on the other hand, is not learned through direct
experience. Assume, for example, that you are standing in
front of a cooldrink vending machine and notice a new diet
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cooldrink with an artificial sweetener. But someone has told
you that diet beverages using artificial sweeteners leave an
aftertaste, so you choose a different drink. You have learnt
that you would probably not like this new diet drink without
even trying it. This is an example of conceptual learning.
Reinforcement and repetition enhance learning.
Reinforcement can be positive or negative. If you see a shop
selling frozen yoghurt (stimulus), buy it (response) and find
the yoghurt to be quite refreshing (reward), your behaviour
has been positively reinforced. On the other hand, if you buy
a new flavour of yoghurt and it does not taste good (negative
reinforcement), you will not buy that flavour of yoghurt
again. Without positive or negative reinforcement, a person
will not be motivated to repeat the behaviour pattern or to
avoid it. Therefore, if a new brand (such as Virgin Cola)
evokes neutral feelings, some marketing activity – such as a
price change or an increase in promotion – may be required
to induce further consumption. Learning theory is helpful in
reminding marketers that concrete and timely actions are
what reinforce desired consumer behaviour.
Repetition is a key strategy in marketing communication
campaigns because it can lead to increased learning. South
African Airways uses repetitive advertising so consumers
will learn that SAA provides ‘Africa’s warmest welcome’.
Generally, to heighten learning, advertising messages
should be spread over time rather than concentrated in a
short period of time.
A related learning concept useful to marketing managers
is stimulus generalisation. In theory, stimulus generalisation
occurs when one response is extended to a second stimulus
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similar to the first. Marketers often use a successful, wellknown brand name for a family of products because it gives
consumers familiarity with and knowledge about each
product in the family. Such brand-name families spur the
introduction of new products and facilitate the sale of
existing items.
EXAMPLE >> Examples of brand-name families are Colgate marketing
shampoos after the successful marketing of its Colgate soap, and Nashua adding
cellular phones to its range of office products using the same brand name. When
StaSoft added a new peach fragrance to its existing line of fabric softeners, it
used exactly the same shaped bottle and labelling used for all the other versions
in the product line. Why? Because StaSoft wanted potential buyers to associate
the new product with its existing brands (stimulus generalisation) and, therefore,
overcame the risk and consumer resistance typically associated with buying new,
unknown products.
Sometimes, however, marketers do not want new products
to be associated with any existing product or brand. They
prefer a clear differentiation not influenced by any existing
associations. This is referred to as stimulus discrimination,
the direct opposite of stimulus generalisation.
EXAMPLE >> When Coca-Cola introduced Powerade to compete with
Energade in the energy drink market, Powerade was never associated with the
Coca-Cola brand at all. It was not marketed as ‘Coca-Cola Powerade’ – just as
Powerade. The marketers of Powerade wanted the brand to stand alone and did
not want any consumer association with the Coca-Cola brand. This is an example
of stimulus discrimination.
Marketers, therefore, either use the learning process so that
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consumers learn to associate certain things with their
products and brands – or not to. These associations are ways
in which they differentiate their products or brands from
those of competitors. With some types of products, such as
aspirin, petrol, bleach and paper towels, marketers rely on
marketing communication to point out brand differences
that consumers would otherwise not recognise. This
process, called product differentiation, is sometimes based
on superficial differences. For example, Bayer tells
consumers that it is the aspirin ‘doctors recommend most’.
6.4 Values, beliefs and attitudes
LO10
Learning helps people shape their value systems. In turn,
values help shape a person’s self-concept, personality and
even lifestyle. A value is an enduring belief that a specific
mode of conduct is personally or socially preferable to
another mode of conduct. People’s value systems exert
considerable influence on their buyer behaviour.
Consumers with similar value systems tend to react alike to
marketing-related stimuli, such as advertisements, prices
and product packaging. Values are also related to
consumption patterns. In other words, what and where
people buy is influenced by their value systems. For
instance, people who want to protect the environment try to
buy only products that don’t harm it, and some firms have
responded by marketing environmentally friendly products.
Values can also influence consumers’ TV viewing habits, the
magazines they read or the radio stations they listen to.
Many Christians in South Africa listen to radio stations
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such as Radio Pulpit and Radio Kingfisher. Others who
strongly object to violence avoid shows on television that
depict a lot of crime. Likewise, people who object to public
displays of nudity do not buy Playboy magazine.
EXAMPLE >> Value systems can vary quite a bit across cultures and
subcultures. For example, leisure time is valued in South Africa. Consumers spend
a considerable amount of time and money on sports events, outdoor activities
such as mountain-biking, movies, restaurants, holidays and amusement parks.
South African workers traditionally expect eight-hour days, five-day work weeks
and holiday leave. Japanese workers, on the other hand, typically work 12-hour
days and often work on Saturdays as well. Only half of Japanese workers use all
their leave. One reason most Japanese do not take more time off is that they do
not want to burden their colleagues by leaving early or taking a holiday.
Traditional Japanese workers also feel that their work will suffer if they put effort
into other things. These Japanese values contrast sharply with the values of some
South Africans, who regard sick leave as a fringe benefit that ought to be fully
utilised.
The personal values of target consumers often have
important implications for marketing managers. Beliefs and
attitudes are closely linked to values. A belief is an organised
pattern of knowledge that an individual holds as true about
his or her world. A consumer may believe that Sony’s video
camera makes the best home videos, tolerates heavy use
and is reasonably priced. These beliefs may be based on
own experience, faith or hearsay. Consumers tend to
develop a set of beliefs about a product’s attributes and
then, through these beliefs, form a brand image – a set of
beliefs about a particular brand. In turn, the brand image
shapes consumers’ attitudes towards the product.
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Attitudes tend to be more enduring and complex than
beliefs because they consist of clusters of interrelated
beliefs. An attitude is a learnt tendency to respond
consistently to a given object, such as a brand. Attitudes also
encompass an individual’s value system, which represents
personal standards of good and bad, right and wrong, and so
forth. From a marketing perspective, the objective is to
cultivate a positive attitude towards a firm, product or
brand.
Consider the different attitudes of consumers around the
world towards the habit of purchasing on credit. Americans
have long been enthusiastic about charging goods and
services to a credit card and are willing to pay high interest
rates for the privilege of postponing payment. But to many
European consumers, doing what amounts to taking out a
loan – even a small one – to pay for anything seems absurd.
Germans especially are reluctant to buy on credit. Italy has a
sophisticated credit and banking system well suited to
handling credit cards, but Italians prefer to carry cash –
often huge wads of it. Most Japanese consumers have credit
cards, but card purchases amount to less than 1 per cent of
all consumer transactions. The Japanese have long looked
down on credit purchases, but acquire cards to use while
travelling abroad.18
If a product or service is meeting its profit goals, positive
attitudes towards the product merely need to be reinforced.
However, if the brand is not succeeding, the marketing
manager must strive to change target consumers’ attitudes
towards it. This change can be accomplished in three ways:
changing beliefs about the brand’s attributes, changing the
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relative importance of these beliefs and adding new beliefs.
6.4.1 Changing beliefs about attributes
LO11
The first technique is to turn neutral or negative beliefs
about product attributes into positive ones. For example,
pork was losing sales to chicken because consumers thought
pork was fatty and unhealthy. To counter this belief, pork
producers launched the ‘Pork: the other white meat’
campaign to reposition their product in the minds of
consumers. The campaign tells consumers that pork is
leaner, lower in calories, and lower in saturated fat than they
think. It took wine makers a long time to convince wine
lovers that screw caps are better at preserving wine than
cork. It will probably take just as long to convince them that
wine in marketed polyethylene terephthalate (or PET)
bottles similar to those soft drinks are sold in, will not affect
the quality or taste of wine.
EXAMPLE >> When South African red meat faced negative attitudes,
the South African Feedlot Association launched the ‘Beef it up’ campaign to
convince consumers of the hygiene and wholesomeness of South African beef.
Likewise, in America, BMW is continuing its efforts to reposition itself as a safe,
affordable vehicle for the entire family and to steer away from its image as a
yuppie statement. Its new television advertising concentrates on safety features,
such as traction control; its print advertisements show children for the first time.
BMW also hopes the campaign will convince consumers that the cars are not as
expensive as they might think.19
The South African Sugar Association launched an advertising campaign to try
and change the belief that sugar is fattening. In the campaign they pointed out
that:
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•
•
•
•
Sugar is a natural carbohydrate
The sugar consumed by the average South African only contributes about 60
calories to his/her diet
A tomato sandwich contains 240 calories and a teaspoon of sugar contains
15 calories
A human body will burn away 15 calories during 15 minutes of sleep.
When margarine was first marketed in South Africa,
marketers had a tough time convincing consumers that
margarine was healthier than butter and not a cheap
substitute for those who could not afford butter.
6.4.2 Changing the importance of beliefs
The second approach to modifying attitudes is to change the
relative importance of beliefs about an attribute. For years,
consumers have known that bran cereals are high in natural
fibre. The primary belief associated with this attribute is that
the fibre tends to act as a mild, natural laxative. Today,
however, cereal marketers promote the high fibre content of
bran cereals as a possible factor in preventing certain types
of cancer, vastly increasing the importance of this attribute
in the minds of consumers.
>> Strategy
General Electric (GE) has tried to change Japanese
consumers’ beliefs about the attributes that are most
important to them in a refrigerator. Japanese
manufacturers believe that Japanese consumers prefer
stylish and feature-studded appliances that domestic
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makers sell in small sizes. A typical Japanese-made
refrigerator is a nine-cubic-foot $1 300 model with
three doors and a compartment for raw fish. Larger
Japanese models have six doors and sell for around $3
200. GE discovered, however, that many Japanese
would gladly trade these characteristics for larger,
simpler and cheaper models. Since more Japanese
women work after marriage and cannot shop for food
on a daily basis as their mothers did, big, inexpensive,
two-door refrigerators suddenly make sense. As a
result, GE quickly increased sales in the Japanese
market with its modest $800 model.20
Research done by the marketers of the cordial drink
Oros to understand their declining sales revealed that
many mothers were concerned about the quality of
some concentrated beverages. Product quality is
important to them and Oros’s image and positioning as
‘fun for the kids’ and affordability were not enough.
Pure fruit juices were viewed as being good quality and
recognised for their ‘goodness’. To stop the slide in
sales, the marketers of Oros believed it needed to
reassure mothers about its quality, while retaining and
enhancing children’s enjoyment of Oros. The
marketers decided to embark on an advertising
campaign to change the importance of mothers’
beliefs. The campaign objectives were to reassure
mothers about Oros’s goodness and quality, so they
would feel they were doing the right thing when buying
Oros for their children.21
Whirlpool has tried to change European consumers’
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beliefs about the attributes that are most important to
them in a washing machine. European manufacturers
believe that European consumers prefer washing
machines that are narrow and load from the top owing
to the limited space available in most European homes.
Whirlpool’s research, however, indicates that
Europeans prefer machines with superior overall
performance – a reliable machine that cleans well, is
easy to use and economises on water, detergent and
energy. Whirlpool contends that if all these criteria are
met, other features – such as where the machine opens
and how big it is – become less important to
consumers. Whirlpool used this information to change
its marketing strategies in Europe.
6.4.3 Adding new beliefs
The third approach to transforming attitudes is to add new
beliefs. Although changes in consumption patterns often
come slowly, the marketers of rooibos tea are trying to
convince consumers that rooibos is more than just an
everyday beverage. They want to convince consumers that
rooibos tea also has some medicinal properties – including
its curative effect for colicky babies, insomnia and allergies –
and that it can be used as a flavouring ingredient in baking
and cooking.22 Similarly, some breakfast cereal producers
promote eating the cereal straight from the box as a snack.
Makers of chewing gum are also attempting to add new
beliefs about the uses of their products. Advertisements tout
chewing gum as an alternative to smoking or as a way to
remove food residue from one’s teeth. For example, Trident
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sugarless gum advertises that it ‘actually helps fight cavities
when you chew it after meals’.23
>> Strategy
Adding new beliefs is not easy. For example, when the
American beer brewer Anheuser-Busch, owner of the
Budweiser brand, first introduced Bud Dry beer,
consumers were confused because the word ‘dry’ is
commonly used to describe wines or cider.
Nevertheless, many consumers have since added the
new belief that beer, too, can be described as dry. Volvo
faced a similar problem in introducing its sporty 850
model. For over a quarter of a century, Volvo has
successfully crafted an image of being the safest car on
the road. Indeed, Volvo did such a good job of driving
home its safety message that consumers had a hard
time imagining a Volvo as anything other than an
unglamorous, boxy, steel-reinforced tank.
When Procter & Gamble first introduced disposable
nappies in Japan, interest was limited. Research
suggested that price and health concerns were a
sticking point, as was the product fit. The nappies
leaked because the design was too large for most
Japanese babies. From a production vantage point,
these were problems that could be solved quite easily.
However, another powerful cultural force was also at
work. At that time, most Japanese mothers were
expected to dedicate themselves to caring for their
babies. Many women who could afford the
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convenience of disposable nappies felt guilty using
them. Furthermore, it was often a woman’s mother-inlaw who aggressively kept that guilt burning. Although
fathers were typically uninvolved in caring for babies, it
was the Japanese mother-in-law’s traditional role to
oversee how the mother cared for the grandchild. And,
by tradition, caring mothers always sacrificed their own
convenience for the baby’s well-being. Japanese firms
that entered the market later used advertising to
emphasise that disposable nappies were best for the
baby. That appeal relieved the mother’s guilt and
simultaneously helped with the mother-in-law
problem. Even so, it took time for basic attitudes to
change.24
Firms attempting to market their goods overseas
may need to help consumers add new beliefs about a
product in general. Many hygiene practices common in
South Africa, for example, are unheard of in foreign
countries. In rural India, most Indians have never
handled such products as a toothbrush or a tube of
toothpaste. For generations, they have used charcoal
powder and indigenous plants to clean their teeth. To
educate Indians on the benefits of toothpaste, ColgatePalmolive sends marketers to rural villages on market
days equipped with a half-hour ‘infomercial’ featuring
Colgate toothpaste. A story of a couple on their
wedding night sends Colgate’s message: Colgate is
good for your breath, teeth and love life. The
infomercial ends with a dentist explaining that the
traditional oral-hygiene methods, such as charcoal
powder, are less effective. Free samples are handed out
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while a Colgate marketer demonstrates how to use the
Colgate toothpaste and toothbrush.25
6.5 Personality, self-concept and lifestyle
LO12
Each consumer has a unique personality. Personality is a
broad concept that can be thought of as a way of organising
and grouping the consistencies of an individual’s reactions
to situations. Thus, a person’s personality is a combination
of his/her psychological make-up and environmental forces.
Personality includes people’s underlying dispositions,
especially their most dominant characteristics. Some
marketers believe that personality influences the types and
brands of products purchased. For instance, the type of car,
clothes or jewellery that a customer buys may reflect one or
more personality traits. Personality characteristics, such as
autonomy, aggressiveness, dominance, sociability and selfconfidence, may be used to describe a consumer’s
personality.
Self-concept, or self-perception, is how consumers
perceive themselves. Self-concept includes attitudes,
perceptions, beliefs and self-evaluations. Although selfconcept may change, the change is often gradual. Through
self-concept, people define their identity, which, in turn,
constitutes consistent and coherent behaviour.
Self-concept combines the ideal self-image (the way an
individual would like to be) and the real self-concept (how
an individual actually perceives himself or herself).
Generally, we try to raise our real self-image towards our
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ideal self-image (or at least narrow the gap). Consumers
seldom buy products that jeopardise their self-image. For
example, someone who sees himself as a trendsetter would
not buy clothing (such as a safari suit) that does not project a
contemporary image.
Human behaviour depends largely on self-concept.
Because consumers want to protect their identity as
individuals, the products they buy, the stores they patronise
and the credit cards they carry support their self-image.
Men’s and women’s fragrances, for example, tend to reflect
the self-images of their wearers. Chanel’s Egoïste is ‘for the
man who has everything and knows it’. Likewise, Elizabeth
Taylor’s White Diamonds perfume is ‘the fragrance dreams
are made of’, for all those women who strive for legendary
beauty.26
By influencing the degree to which consumers perceive
goods or a service to be self-relevant, marketers can
influence their motivation to learn about, shop for and buy a
certain brand. Marketers also consider self-concept
important because it helps explain the relationship between
individuals’ perceptions of themselves and their buying
behaviour.
An important component of self-concept is body image –
how one perceives the attractiveness of one’s own physical
features. For example, individuals who have plastic surgery
often experience significant improvements in their overall
body image and self-concept. Moreover, a person’s
perception of body image can be a stronger reason for
weight loss than either good health or other social factors.27
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EXAMPLE >> Sales of at-home hair colour to ageing baby boomers in
the United States have substantially increased as more middle-aged men and
women colour their hair in order to ‘age gracefully’.28 GNC is capitalising on
consumers’ desire for quick fixes by marketing pills that should produce ‘quick
energy’.29 In South Africa a whole category of lifestyle-enhancing treatments has
developed over recent years. These include Celebra for arthritis, Detrol for
incontinence, Evista for osteoporosis, Propecia for hair loss and Sonata for sleep
enhancement.30 Likewise, health clubs and gymnasiums, such as Virgin Active,
exercise-equipment manufacturers, such as Energym, and diet plans, such as
WeighLess, target consumers who want to improve their self-concept by exercising
and losing weight.
A person’s personality and self-concept are reflected in their
lifestyle. A lifestyle is a mode of living as identified by a
person’s activities, interests and opinions (see the Jeep
advertisement below). Psychographics is the analytical
technique often used by marketers to examine consumer
lifestyles and categorise consumers. Unlike personality
characteristics, which are hard to describe and measure,
lifestyle characteristics are useful in segmenting and
targeting consumers.
Many industries now use psychographics to analyse and
better understand their market segments (see Chapter 6).
For example, the motor vehicle industry has a
psychographic segmentation scheme for classifying car
buyers into one of six groups according to their attitudes
towards cars and the driving experience. At one extreme are
‘gearheads’, true car enthusiasts who have petrol in their
veins and who enjoy driving and working on their cars
themselves. At the other extreme are the ‘negatives’ – those
who view cars as a necessary evil that they would have liked
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to do without.
Mobil Corporation has used psychographics to classify
petrol buyers into five groups: road warriors, true blues,
generation F3, homebodies and price shoppers.31 These
groups vary in their brand loyalty, amount purchased,
method of payment, location preference and usage of
convenience stores. Psychographics and lifestyle
segmentation schemes are discussed in more detail in
Chapter 6. Suffice to say at this stage that people with
different personalities and lifestyles buy different products
at different shops. As marketers, we need to understand the
reasons for their behaviour.
7. Social factors influencing consumer
buying decisions
LO13
The second major group of factors that influence consumer
decision-making are social factors (see Figure 3.1). Social
factors include all effects on buyer behaviour that result
from interactions between a consumer and the external
environment. Social factors include factors such as culture
and subcultures, reference groups, opinion leaders, family
life-cycle, as well as the consumer’s social class.
7.1 Culture
Culture is the set of values, norms and attitudes that shape
human behaviour, as well as the artefacts, or products, of
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that behaviour as they are transmitted from one generation
to the next. Culture is environmentally orientated. The
nomads of Finland have developed a culture for Arctic
survival. Similarly, people who live in the Brazilian jungle
have created a culture suitable for tropical living, as have the
San for the conditions prevailing in the Kalahari Desert. The
warmer climate in Africa has contributed to behaviour such
as outdoor cooking, which is uncommon in colder
countries, such as Norway and Sweden.
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Human interaction creates values and prescribes
acceptable behaviour for each culture. By establishing
common expectations, culture gives order to society.
Sometimes these expectations are encoded as laws. For
example, drivers in Western culture are expected to stop at a
red traffic light.
As long as a value or belief meets the society’s needs, it
remains part of the culture. If it is no longer functional, it
fades away. Large families, for example, were valued in the
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19th and early 20th centuries. Children were considered an
asset because they could help with the farm work and look
after the parents in their old age – an attitude that probably
still exists in most African countries. Today, in an industrial
economy, large families are not necessary, and in some
countries (such as Germany), the population growth rate is
close to zero.
It is important that marketers realise that culture is
dynamic. It adapts to changing needs and an evolving
environment. The rapid growth of technology in this century
has accelerated the rate of cultural change. Television has
changed
entertainment
patterns
and
family
communication, and heightened public awareness of
political and other news events. Automation has increased
the amount of leisure time we have and, in some ways, has
changed the traditional work ethic. Cultural norms will
continue to evolve because of our need for social patterns
that solve problems.
Without understanding a culture, a firm has little chance
of selling products to that cultural group. Colours, for
example, may have different meanings in overseas markets
from those at home. In China, white is the colour of
mourning, and brides wear red; in South Africa, black is for
mourning, and brides wear white. Pepsi had a dominant
market share in Southeast Asia until it changed the colour of
its coolers and vending equipment from deep regal blue to
light ice-blue. In that part of the world, light blue is
associated with death and mourning.
Language is another important aspect of culture that
global marketers must deal with. They need to take care
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when translating product names, slogans and promotional
messages into foreign languages so as not to convey the
wrong message.
EXAMPLE >> Consider the following examples of blunders made by
marketers when sending their messages to non-English-speaking consumers:
when Kentucky Fried Chicken introduced its brand in China their ‘finger-lickengood’ slogan came out ‘eat your fingers off’; the brewery Coors encouraged its
English-speaking customers to ‘Turn it loose’, but the phrase in Spanish means
‘suffer from diarrhoea’; and when the American slogan for Salem cigarettes
(Salem – Feeling free) was translated into Japanese it came out as ‘When
smoking Salem, you feel so refreshed that your mind seems to be free and
empty.’
>> Strategy
McDonald’s had to adapt its marketing approach in the
UK when research revealed that the firm was perceived
as loud, brash, uncaring, insensitive, insincere and
arrogant by the British. Owing to the cultural gap
between the two countries, McDonald’s had to make
radical changes to the way it served its customers. To
succeed in the UK, McDonald’s had to adapt to the
needs of its customers, who wanted warmth,
helpfulness, time to think before ordering a meal,
friendliness and advice.
As more firms expand their operations globally, the need to
understand the cultures of foreign countries becomes more
important – as the above firms soon found out. Marketers
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should become familiar with the culture and adapt to it.
What works well in Bloemfontein could be a flop in Durban
if marketers are not sensitive to the nuances of the local
culture.
7.1.1 Cultural values in South Africa32
LO14
South Africa can today be classified as a developing country,
a contrast of First World technology and ideas and Third
World roots and reality. Because its population represents a
multicultural, heterogeneous society, change in values and
lifestyles is an ongoing process. Major changes among
urban whites during the past decade have been a decline in
the role of hierarchical authority and the Protestant ethic, an
increase in the need for self-expression and an acceptance
of political reform. Among black consumers, there is also a
shift to a more ambitious outlook on life, a move away from
being conservative and traditional to becoming selfmotivated, with a drive for self-improvement and education.
The emergence of churches such as the Rhema Church
and Christian Harvest Church shows that South Africans’
values are also becoming more religion-orientated – albeit
not necessarily as members of the traditional mainstream
churches. More people are seeking spiritual guidance to
deal with immorality, violence and crime, despite the fact
that – in political terms – South Africa is now a secular state.
Although we have religious freedom, no mention is made of
God in the new constitution. Yet religious values create a
sense of equality and justice.
The need for cultural synergy is also emphasised by many
leaders in South Africa today. The common assumption that
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only one cultural tradition matters is wrong, because one
culture is not something in which all people should or could
share. Any dominant culture would inhibit freedom, as it
would reject the value of other cultures, thereby making it
impossible for people to express their deepest selves in an
open and accepting environment.
The primary belief underlying Afrocentricity is the
concept of ubuntu. This concept means a person can be a
person only through other people. It can be defined as: ‘A
person is a person through other human beings’ or ‘I am
because you are; you are because we are’. Ubuntu
emphasises supportiveness, co-operation, cohesion of
family and community, and group solidarity. A disadvantage
of ubuntu, from a Eurocentric viewpoint, is that the group
does not always recognise, value or support individual
performance, achievement or success.33 Firms who wish to
capitalise on the collectivist values of segments of the
market that underwrite these values will typically use
advertising that shows groups of people (families, sports
teams, and so on) rather than individuals – as illustrated by
the Amante Bridalwear advertisement on page 111.
Eurocentric, westernised values, by contrast, focus on
individualism, materialism, a strong work ethic and
individual achievement and success. Individualism places a
high value on being oneself. Self-reliance, self-interest, selfconfidence, self-esteem and self-fulfilment are popular
expressions of individualism, implying a rejection of
dependency on others.34 In the South African context,
privacy is part of this value, strengthened by the drive for
security of one’s property, vehicles and other possessions
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against crime. Materialism reflects the accumulation of
wealth and objects. It demonstrates personal comfort, the
‘good life’, and symbolises material success and status in
society.
Some subcultures’ work ethic and achievement can be
traced to the Protestant work ethic, which considers hard
work to be wholesome, spiritually rewarding and an
appropriate end in itself. Many South Africans cherishing
westernised values today do not feel guilty about their
achievements or wealth because they feel they have worked
hard for them. Some are critical of this value system.
Former-president Thabo Mbeki recently criticized what he
termed ‘conspicuous material consumption’. Referring to
the objective of personal enrichment, Mbeki says: ‘Cecil
Rhodes and other successful businesspeople after him came
to represent the very epitome of human success, which all of
us had to emulate. Today, the best South African is the
person, whether black or white, who is dressed in the most
expensive clothes. He or she owns the most expensive car
and lives in the most luxurious house. He or she consumes
the most exotic products and spends holidays at the most
expensive locations in South Africa and the rest of the world.
He or she will have the most expensive coffin and funeral.
Anybody who questions this value system is a moegoe or a
mampara.’35
South African marketers must be particularly sensitive to
cultural differences. Despite these differences in values held
by South Africans, the country is on the path of developing
shared values. Evidence of this is seen in joint support for
our sports stars, musicians and national symbols, and the
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realisation that we need a team-building effort as a nation to
create a united South African loyalty and pride. Shared
values are developed by:
•
•
•
Adopting the demonstrated values of people we admire
Using experience to evolve a set of values that work well
for us
Responding to social influences from people with whom
we mix.36
Cultural values that are often used in advertising are:
•
•
•
•
•
Wisdom – knowledge, expertise
Practicality – effectiveness, durability, convenience
Family – nurturing a family, happy home, getting
married
Health – fitness, vigour, athleticism
Sexiness – good appearance, glamorousness.
7.2 Subculture
A culture can be divided into subcultures on the basis of
demographic characteristics, geographic regions, political
beliefs, religious beliefs, national and ethnic background,
and the like. A subculture is a homogeneous group of people
who share elements of the overall culture as well as cultural
elements unique to their own group. Within subcultures,
people’s attitudes, values and purchase decisions are even
more similar than within the broader culture. Subcultural
differences may result in considerable variation within a
culture in terms of what, how, when and where people buy
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goods and services.
>> Strategy
If marketers can identify subcultures, they can then
design special marketing strategies to serve their needs.
The US firm Kraft recently launched a brand of fastmelting white cheese and rich cream called Valle
Lindo, Spanish for ‘beautiful valley’, especially for
Hispanic consumers. Advertisements for the products
are in Spanish and are aired on Spanish-language
television and radio stations. Kraft is also expanding its
Spanish-language advertising for existing brand
products popular among Hispanic consumers.37
Similarly, Simon & Schuster is launching a line of
Spanish-language books, including translations of
popular American titles.38
7.2.1 Subcultures in South Africa
As pointed out earlier, a subculture is a distinct cultural
group that exists as an identifiable segment within a larger,
more complex society. Members of a subculture possess
beliefs, values and customs that set them apart from other
members of the same society.39 Subcultures can be
identified by age, geography, ethnic identity and activities
(see Reader 15 ‘The Harley-Davidson legend lives on’).
In South Africa there is a debate over whether there really
is such thing as a ‘black market’. In the 1990s it was argued
that certain products were bought predominantly by black
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consumers. Examples given were sorghum beers, such as
King Korn and iJuba; foods such as mealie meal, samp and
sour milk; and personal products, such as skin lighteners,
hair straighteners and laxatives.40 There is also evidence that
black people’s physical features differ from other market
segments. Many black women do not fit into the average
white woman’s evening gown or bikini, and black men need
special styles of suits more often than non-black men.41 The
jeans brand Levi Straus has adapted its marketing strategy
for this market segment. Nuholt Huisamen, their marketing
manager says: ‘The black middle class will be a key part of
our growth. Their shopping behaviours are different and
branded companies will have to communicate differently
through their marketing campaigns.’42
Other cultures found in South Africa include the
Protestant, white Anglo-Saxon Protestant (WASP), Jewish,
Catholic and Muslim subcultures. These so-called
subcultures often differ in terms of the products they buy
and do not buy, where they buy them and when they buy
them. Retail shops that target Muslims often experience
demand up to four times higher than normal after the
fasting period associated with holy month of Ramadan.
Christians spend three times more in December (the
Christmas period) than in any other month of the year.
READER 15 >> The Harley-Davidson legend lives on
A Harley-Davidson motorcycle is a special kind of investment. A man – or,
occasionally, a woman – who buys a Harley is buying into a tradition, a
fellowship, a global family, a way of life – all those things that draw
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aficionados to Harley-Davidson rallies by the hundreds of thousands every
year.
During World War II, Harleys were used by allied troops all over the world,
and many thousands of soldiers learnt to ride, maintain and love them. After
the war, a new breed of biker emerged, the antisocial nonconformists
disillusioned with the American way of life. They made Harley-Davidson
motorbikes, stripped and modified into choppers, a symbol of rebellion and
freedom from the norm. This trend was epitomised in the films The Wild One
and Easy Rider, both influential among the youth of their time. Out of the
rebels’ habit of modifying their bikes to suit themselves grew the phenomenon
of customising bikes, today a full-scale industry.
The archetypal roughneck biker became part of the Harley heritage and
helped it to attain cult status, which endured even after the rebels reached
middle age and were reabsorbed into society. The image of the Harley rider
evolved into that of the long-haired, bearded, beer-bellied older individual.
Nowadays – in South Africa at least – he is a respectable suburbanite with a
social conscience, with an average age of 44. And his nostalgia for the classic
old-style machines is greater than ever. After seven decades, the business was
still run by Harleys and Davidsons and the machines were still being partially
hand-assembled by lifelong employees in the time-honoured way.
SOURCE: Innes, G. 2000. Me and my Harley. Personal Wealth, supplement to the Financial Mail, third
quarter, pp. 39–40
In South Africa, ethnic subcultures are often based on
language, religion and race. As far as religious subcultures
are concerned, South Africa has various religious groups, of
which Catholics, Protestants, Jews, Muslims and Hindus
form the major groups.
Besides religious subcultures, many other subcultures
can be identified. Some are concentrated geographically.
People belonging to the Muslim religion are found mainly in
and around Cape Town. The majority of South Africans of
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Indian origin is located in Durban and its surrounds. Many
artists have converged on areas such as Melville in
Johannesburg, Knysna and, more recently, Darling in the
Western Cape. Many wave surfers converge on Jeffreys Bay,
and fly-fishermen on Dullstroom. Other subcultures are
geographically more dispersed. Christians, for instance, are
found almost anywhere in South Africa, as are many Xhosaspeaking people. All subcultures have identifiable attitudes
and values that distinguish them from the larger culture.
The fact that South Africa has eleven different official
languages makes the home language an important factor to
be considered when distinguishing among subcultures. For
instance, Afrikaans-speaking citizens generally used to be
more conservative and religion-orientated, whereas
English-speakers were more liberal and adaptable to
change. These stereotypes, however, may no longer apply in
the ‘new’ South Africa. The same argument goes for
geographical location as a basis to distinguish among
subcultures – particularly between urban and rural people.
For example, although a large proportion of the poorer
sectors of the population still reside in the rural areas, it
would be a gross generalisation to state that these people
have stronger moral convictions or are slower to adapt to a
changing environment than urban dwellers.
Subcultures can also be grouped around lifestyle choices.
The gay community in urban centres or youth groups in the
townships are examples. Research carried out in Soweto in
the early 1990s identified nine different subcultures among
township teenagers – Pantsulas, Mshosas, Ivys, Rastas,
Punks, Cats, Hippies, Comrades and Inkatha. Each of these
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groups had distinctly different lifestyles, wore different
clothes and spoke a township lingua franca that was difficult
for the ordinary citizen to understand.
7.3 Reference groups
LO15
All the formal and informal groups that influence the buying
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behaviour of an individual are that person’s reference
groups. Consumers may use products or brands to identify
with, or become a member of, a group. They learn from
observing how members of their reference groups consume,
and they use the same criteria to make their own consumer
decisions.
Reference groups and opinion leaders alike possess what
is known as social power – the power to influence the actions
of others. Generally, four bases of power can be
distinguished:
•
•
•
•
Information power – the power that emanates from
superior knowledge. Your university professor or
medical doctor has information power over students (to
study for an exam) or patients (to take medication)
owing to their superior knowledge
Legitimate power – the power accorded to someone by
virtue of their connection with some legitimate structure,
such as the law. Police officers and judges derive their
power from legal structures, such as laws
Referent power – the power accorded to a group or
person who is admired and emulated. An actress or
sports star may have the power to influence teenagers’
buying behaviour
Expert power – the power derived from possessing a
specific skill or expertise.
Reference groups can be categorised very broadly as either
direct or indirect (see Figure 3.4). Direct reference groups
are face-to-face membership groups that touch people’s
lives directly. They can be either primary or secondary.
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Primary membership groups include all those with which
people interact regularly in an informal, face-to-face
manner, such as family, friends and co-workers. By contrast,
people associate with secondary membership groups less
consistently and more formally. These groups may include
sports clubs, professional groups and religious groups.
Figure 3.4 Types of reference groups
Consumers are also influenced by many indirect, nonmembership reference groups that they do not belong to.
Aspirational reference groups are those that a person would
like to join. An example is the aspiration to become a
professional cricketer. To join an aspirational group, a
person must at least conform to the norms of that group.
(Norms are the values and attitudes deemed acceptable by
the group.) Thus, a person who wants to be elected to public
office may begin to dress more conservatively, as other
politicians do. He or she may go to many of the restaurants
and social engagements that city and business leaders
attend and try to play a role that is acceptable to voters and
other influential people. A teenager, on the other hand, may
dye his hair, experiment with body-piercing and tattoos, and
listen to alternative music to fit in with the ‘in’ group.
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Similarly, a student who has just qualified as a chartered
accountant is likely to exchange his earring for the
customary grey suit in an attempt to conform to the norms
of his chosen profession.
Some firms try to position their products or services in a
way that makes consumers aspire to be a client. Products or
services using a status appeal are typical examples. There
are at least seven financial institutions that provide private
banking to wealthy South African clients. Absa private bank
says: ‘Private banks want to maintain a discreet mystique –
they’re aspirational.’43
Non-aspirational reference groups, or dissociative groups,
influence our behaviour when we try to maintain distance
from these groups. A consumer may avoid buying some
types of clothing or cars, going to certain restaurants or
stores, or buying a home in a certain neighbourhood in
order to avoid being associated with a particular group.
Some people may deliberately not drink Black Label from a
quart bottle, smoke Lucky Strike cigarettes or wear a white
vest with holes in public. However, others will do exactly
these things because they identify with a certain reference
group.
The activities, values and goals of reference groups
directly influence consumer behaviour. For marketers,
reference groups have three important implications: they
serve as information sources and influence perceptions;
they affect an individual’s aspiration levels; and their norms
either constrain or stimulate consumer behaviour. For
example, more than 40 per cent of Americans seek the
advice of family and friends when shopping for doctors,
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lawyers and car mechanics,44 and South Africans are no
different. Individuals are also likely to solicit others’ advice
when selecting a restaurant for a special occasion or
deciding which movie to see.
7.4 Opinion leaders
LO15
Reference groups frequently include individuals known as
group leaders or opinion leaders. These are people who
influence others. A school career-guidance teacher who
helps a high-school pupil with the choice of a career is an
example of an opinion leader. Obviously, it is important for
marketing managers to persuade such people to purchase
their products or services. Many products and services that
are integral parts of our lives today got their initial boost
from influential opinion leaders. For example, when tablet
computers were first introduced they were embraced by
opinion leaders well ahead of the general public. Opinion
leaders were also among the first to turn 4x4s into the ‘family
vehicle’ of the 1990s.45
>> Strategy
When Swedish liquor firm Facile entered the
overcrowded vodka market in the UK with its ‘seriously’
brand (spelt with a lower-case ‘s’), it had very little
money to spend on advertising and promotion. Facile’s
research, however, showed that 43 per cent of people
who approach a bar counter have not made up their
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mind what drink they are going to order. People behind
bars, therefore, have tremendous influence over the
buying decisions of their patrons. Facile decided that
the barmen in the 12 000 licensed outlets in the UK
should be turned into opinion leaders who could
recommend their brand to potential buyers. This they
did by giving bar owners a financial stake in the success
of the ‘seriously’ brand by offering them a 16,7 per cent
share in the company.46
Opinion leaders are often the first to try new products and
services out of pure curiosity. They are typically activists in
their communities, on the job and in the marketplace.
Furthermore, opinion leaders tend to be self-indulgent,
which makes them more likely to explore new, unproven –
but intriguing – products and services. This combination of
curiosity, activism and self-indulgence makes opinion
leaders trendsetters in consumer markets.47 Opinion
leadership is a casual, face-to-face phenomenon and is
usually very inconspicuous, so locating opinion leaders can
be difficult. As a result marketers, often try to create opinion
leaders. They may use high-school cheerleaders to model
new summer fashions or civic leaders to promote insurance,
new cars and other merchandise. On a national level, firms
sometimes use movie stars, sports figures and other
celebrities to promote products, hoping they are appropriate
opinion leaders. The marketers of sports goods in South
Africa give free equipment, such as tennis racquets and
cricket bats, to teachers who double up as coaches of sports
teams, because they know they can influence the buying
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behaviour of school children. Other examples are Ryk
Neethling (Tag Heuer watches), Trevor Immelman (Rolex),
Lucas Radebe (Aquafresh), Charlize Theron (Dior) and
David Beckham (Pepsi).
The effectiveness of celebrity endorsements depends
largely on how credible and attractive the spokesperson is
and how familiar people are with him or her. Endorsements
are most likely to succeed if an association between the
spokesperson and the product can be established. For
example, comedian Bill Cosby failed as an endorser for
financial products, but succeeded with such fun products as
Kodak cameras. Consumers could not mentally link Bill
Cosby with serious investment decisions, but could
associate him with leisure activities and everyday
consumption. The use of Daryll Cullinan (a former
professional cricketer) to advertise Vicotops – ‘the complete
mobile office solution’ – may be questioned on similar
grounds. Similarly, celebrities’ actions or words can
sometimes undermine a brand’s values. For example, when
actress Sharon Stone said that an earthquake in China was
‘karma’ for the way the country had treated Tibet, Dior was
forced to issue an apology and pull all advertisements in
China featuring Sharon Stone. Similarly, the consulting
giant Accenture ended its six-year relationship with Tiger
Woods following news of his extramarital affairs, stating ‘the
company has determined that he is no longer the right
representative for its advertising’.
Additionally, in the selection of a celebrity endorser,
marketers must consider the broader meanings associated
with the endorser. Although the endorser may have certain
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attributes that are desirable for endorsing the product, he or
she may also have other attributes that are inappropriate. A
marketing manager can also try to use opinion leaders
through group sanctioning or referrals. For example,
Mentadent-P toothpaste is ‘recommended by dentists’, and
manufacturers such as Hella automotive products refer in
their advertising to the fact that they are holders of the South
African Bureau of Standards’ ISO 9002 Quality Management
System award.
Marketers sometimes use endorsements from a variety of
organisations rather than from individuals. The sports drink
Powerade is marketed as the ‘official sports drink of the
Olympic Games’, and MTN is the ‘official supplier of the
South African cricket team’. Seeking an endorsement is a
form of group opinion leadership. Flora margarine, for
instance, claims it is endorsed by the Heart Foundation.
Salespeople often ask to use opinion leaders’ names as a
means of cultivating greater personal influence in a sales
presentation.
7.5 Family
The family is the most important social institution for many
consumers. The family strongly influences values, attitudes,
self-concept and buying behaviour. For example, a family
that strongly values good health will have a grocery list that
is distinctly different from that of a family that views every
dinner as a gourmet event. Moreover, the family is
responsible for the socialisation process, the passing down
of cultural values and norms to children. Children learn by
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observing their parents’ consumption patterns, and will
tend to shop in a similar pattern and buy similar products.
Decision-making roles among family members tend to
vary significantly, depending on the type of item purchased.
Family members assume a variety of roles in the purchase
process. Initiators are the ones who initiate, suggest or plant
the seed for the purchase process. The initiator can be any
member of the family. For example, sister might initiate the
product search by asking for a new bicycle as a birthday
present. Influencers are those members of the family whose
opinions are valued. In our example, Mom might function as
a price-range watchdog, an influencer whose main role is to
veto or approve price ranges. Brother may give his opinion
on certain styles and brands of bicycles. The decision-maker
is the member of the family who actually makes the decision
to buy or not to buy. For example, Dad may choose the final
brand and model of bicycle to buy after collecting further
information from sister about cosmetic features, such as
colour, and imposing additional criteria of his own, such as
durability and safety. The purchaser (probably Dad or Mom)
is the one who actually exchanges money for the product.
Finally, the consumer is the actual user – sister, in the case of
the bicycle.
Marketers should consider family purchase situations
along with the distribution of the consumer and decisionmaker roles among family members. Ordinary marketing
views the individual as both decision-maker and consumer.
Family marketing adds three other possibilities: sometimes
more than one decision-maker is involved; sometimes more
than one consumer is involved; and sometimes the
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decision-maker and the consumer are different people.
Children today can have considerable influence over the
purchase decisions of their parents (see Chapter 2). In many
families, with both parents working and with limited time
available, children may be encouraged to participate in
decision-making. In addition, children in single-parent
households become more involved in family decisionmaking at an earlier age than children in two-parent
households.
Children are especially influential in decisions about
food. Children often help decide where the family goes for
fast food, provide input into the kinds of food the family eats
at home, and many even influence the specific brands that
their parents buy. Finally, children influence purchase
decisions for toys, clothes, holidays, recreation and motor
vehicles – even though they are usually not the actual
purchasers of such items.
7.5.1 Family life cycle
The life cycle stage of a family can also have a significant
impact on consumer behaviour. The family life cycle is an
orderly series of stages through which consumers’ attitudes
and behavioural tendencies evolve, through maturity,
experience and changing income and status.
Marketers often define their target markets in terms of
family life cycle. For instance, young singles spend more
than average on electronic devices such as cell phones and
computers, education and entertainment. New parents
typically increase their spending on healthcare, clothing,
housing and food, whereas they decrease their spending on
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their own education, entertainment and transport.
Households with older children spend more on food,
entertainment (such as holidays), personal-care products
and their children’s education, as well as cars and petrol.
After their children leave home, spending by older couples
on travelling, vehicles, women’s clothing, healthcare and
long-distance phone calls typically increases. Marketers
should also be aware of the many non-traditional life cycle
paths that are common today, which provide insights into
the needs and wants of such consumers as divorced parents,
lifelong singles and childless couples.
7.6 Social class
LO16
A social class is a group of people who are considered nearly
equal in status or community esteem, who regularly
socialise among themselves both formally and informally
and who share behavioural norms. South Africa, like other
societies in the rest of the world, has a social class system. In
some countries, the class system is fairly rigid. In Japan, for
instance, people of unequal status do not sit together during
meetings, and the Japanese language contains expressions
to be used only when addressing those of a higher status.
The UK is a highly class-conscious country, and
consumption patterns are often preordained by family
background and one’s inherited position. The upper classes
have typically tended go to educational establishments such
as Oxford, Cambridge and Eton. Wealthy young men are
referred to as ‘Hooray Henrys’ and like to engage in
expensive pastimes, such as playing polo.
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A number of techniques have been used to measure
social class, and a number of criteria have been used to
define it. One view of the contemporary status structure in
the United States is discussed below:
•
•
Upper class: The upper class consists of the very rich
and the well-to-do. Upper-class individuals seem to
think of themselves as nice-looking people and are
concerned with personal appearance. They are more
confident, outgoing and culturally orientated than
people of other social classes. They also seem a bit more
permissive and are willing to tolerate alternative views.
The upper social classes are more likely than other
classes to try to contribute something to society – for
example, by volunteer work for charitable organisations,
or active participation in civic affairs. In terms of
consumer buying patterns, the affluent are more likely to
own their own home, purchase new cars and 4x4s, and
are less likely to smoke. The very rich typically spend
more on owned holiday homes, overseas holidays,
housekeeping and gardening services than other social
classes.48
Middle class: Middle-class consumers have a particular
perspective on life. Attaining goals and achieving status
and prestige are important. Compared with the lower
classes, members of the middle classes have a stronger
orientation towards society in general, and towards
peers in particular. Apparently, the middle-class lifestyle
is more dynamic than the relatively static lifestyle of the
lower classes. Educational attainment seems to have the
biggest impact on a person’s social and economic status.
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•
•
People who fall into the middle class live in the gap
between the haves and have-nots. They aspire to the
lifestyle of the more affluent, but are constrained by the
economic realities and cautious attitudes that they share
with the working class.49
Working class: This group is a distinct subclass of the
middle class. The working-class person depends heavily
on relatives and the community for economic and
emotional support. Members of this social subclass rely
on relatives for tips on job opportunities, for advice on
purchases and for help in times of trouble. The emphasis
on family ties is one sign of this group’s intensely local
view of the world. For instance, working-class people
prefer the local news far more than middle-class
audiences, who show greater enthusiasm for national
and international coverage. Working-class people also
holiday closer to home and are more likely to stay with
relatives when they do go on holiday.
Lower class: Lower-class members typically fall at or
below the poverty level. This social class has the highest
unemployment rate, and many individuals or families
are subsidised through the welfare system. Many are
illiterate, with little or no formal education. Lower-class
members also have poorer physical and mental health
and a shorter lifespan than members of other classes.
Compared with more affluent consumers, lower-class
consumers have poorer diets and typically purchase
staple of foods when they shop.
Lifestyle distinctions between the social classes are greater
than the distinctions within a given class. The most
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significant separation among the classes is between the
middle and lower classes. It is here that the biggest gap in
lifestyles is evident.
Marketers do not believe that any class is superior to
another, but are interested in social class for a number of
reasons. Different social classes have different buying and
consumption patterns. Marketers must, therefore, market
products and services differently to the different class
groups. For instance, social class often indicates which
medium to use for advertising. Suppose an insurance firm
wants to sell its policies to middle-class families. It may
advertise during the local evening news because middleclass families tend to watch more television than other
classes. However, if the firm wishes to sell more insurance
policies to individuals in higher social classes, it may instead
place a print advertisement in a business publication, such
as the Financial Mail, or an upmarket magazine, such as
Elle, which are read by more educated, affluent people.
Social class can also indicate to marketers where certain
types of consumers shop. Wealthy, upper-class shoppers
tend to frequent expensive stores, such as Woolworths, for
food and boutiques for clothing – places where members of
the other classes may feel uncomfortable. Marketers also
know that middle-class consumers regularly visit large
shopping centres. Therefore, marketers with products to sell
to the middle class may decide to distribute their products
through large shopping centres, such as Tyger Valley and
Canal Walk in Cape Town, and Eastgate in Bedfordview,
Johannesburg.
Although social class is becoming less of an indicator of
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purchase behaviour in some markets, in many overseas
markets social class has become a key determinant. Russia’s
transition to a market economy, for instance, has created a
distinct class structure with upper-, middle- and lower-class
markets. While the super-rich who capitalised on the
emerging market’s opportunities appeared almost instantly,
lately there have been a surprising number of Russians who,
despite high inflation and a weak currency, are working
harder, earning more and living better. These middle-class
Russians buy consumer goods ranging from televisions to
automatic breadmakers, and are bolstering Russia’s political
and economic stability. At the core of Russia’s new middle
class are its young professionals and small-business owners
in the big cities. Russia’s middle class has become the prime
target for consumer goods marketers, such as Sony
Corporation of Japan, which views Russia as one of its prime
growth markets for colour televisions.50
8. The influence of the purchase situation
LO17
on buying decisions
Individual consumers’ buying behaviour is affected by the
purchase situation they find themselves in at the time of
purchasing (see Figure 3.1). Three variables that can play a
role are purchase reason, time influences, and physical
surroundings:
•
Purchase reason affects buying. Why a consumer
makes a purchase can affect buying behaviour. For
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•
•
example, a person buying a watch to wear during longdistance running will buy a different type of watch as a
gift for his mother’s 70th birthday.
Time affects buying. Time influences a purchase
situation. When consumers make a purchase, and the
time that they have available for shopping, both
influence their behaviour. A Valentine’s Day dinner (see
Reader 17 ‘Valentine’s Day sales expected to soar’) is
different from a quick meal before a rugby match.
Physical surroundings can affect buying behaviour.
The excitement of an auction may stimulate impulse
buying, for example. And surroundings may discourage
buying too. For example, some people don’t like to stand
in a checkout queue in a supermarket where others can
see what they are buying – even if the other shoppers are
complete strangers. In the case of medical services, and
when applying for a loan at a bank, the physical
environment ought to provide privacy. If not, many
consumers will simply walk away.
Needs, benefits sought, attitudes, motivation and even how
a consumer selects certain products all vary depending on
the purchase situation. So different purchase situations may
require different marketing mixes – even when the same
target market is involved.
READER 16 >> Online shopping means no impulse
buying
For consumers, one of the great things about shopping online is bypassing the
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queue to check out. For producers of the candy, magazines and drinks often
sold there, it’s a problem. In Britain, the country where e-commerce is most
popular, about 13 percent of people do all or most of their grocery shopping
online. Yet this only accounts for 5 percent of overall spending, suggesting
consumers spend more when they visit a store. That is because online
shoppers search for what they need, usually sticking close to their shopping
lists. They don’t spontaneously buy magazines they opened while waiting to
pay, or chocolate to eat on the go. Elizabeth Clark, a 40-year-old teacher in
Liverpool, England now does most of her shopping on the Internet, and says
she ends up buying fewer sweets, newspapers, toys and wine. ‘In the
supermarket, obviously you walk past it and you see a special offer and you
think “Oh, I’ll have that”,’ she said. Even though retailers try to do the same
thing by flagging special offers at online check-out, it doesn’t usually work. ‘I
always just press ‘next, next, next, next’ without even reading them,
deliberately, because I don’t want to be tempted.’
Companies most at risk are Mondelez International, Mars Inc and Nestle,
the top three candy makers, soda makers like Coca-Cola and PepsiCo, and
magazine publishers like Time Warner and Hearst Corp. The latest survey of
European shoppers by IRI found that 73 percent spent more time planning
shopping in order to avoid non-essential purchases amid the economic
slowdown. ‘Shoppers are reducing their impulse purchasing,’ said Cristina
Lazzaroni, who monitors the confectionary market for IRI in Italy, where online
shopping is less of a habit. And when they do buy chocolate at stores, more
Italian shoppers are buying larger take-home tablets instead of single-serve
snacks, Lazzaroni said, noting that the shift can hurt the bottom line as
smaller packages often carry higher margins.
SOURCE: Adapted from Geller, M. and Thomasson, E. 2013. Online shopping means no impulse buying.
Business Day, 28 April, p. 19
READER 17 >> Valentine’s Day sales expected
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to soar
Tough times and mounting personal debt will not deter enthusiastic lovers
celebrating Valentine’s Day on Thursday from saying ‘I love you’ in style. ‘There
are 30 to 40 per cent more customers than last year this time,’ e-commerce
firm Netflorist MD Ryan Bacher said on Tuesday. Netflorist sends bouquets,
arrangements, gifts, perfumes and a range of jewellery to ‘loved ones, friends
and associates both locally and around the world’. Over the next two days the
company will deliver more than 18 000 orders nationally.
‘The standard bouquet of red roses is still the most popular and costs
R399. There are more men using Netflorist than women, but women are
buying the more expensive gift hampers for their men,’ Mr Bacher said.
Wednesday and Thursday is so busy that the company had hired an extra 800
temporary workers to cope with delivery, he said.
And for those who still prefer to talk the talk, cards are still big. Hallmark
expects to sell 145-million cards and 151-million to change hands globally.
The company reportedly has 1 400 variations of Valentine’s Day greeting
cards.
SOURCE: C. Goko. 2014. Valentine’s Day sales expected to soar. Business Day, 13 February 2014, p.
5
9. Buying ‘new-to-the-world’ products
LO18
When consumers buy brand-new products that have not
been on the market before (e.g. an iPod Touch), a buying
process is used which is slightly different from the one
described earlier in the chapter (based on Figure 3.1). It is
called the adoption process, and consists of six basic steps,
namely:
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•
•
•
•
•
•
Awareness – the consumer becomes aware of the new
product, but does not have any details
Interest – if interested, the consumer will start collecting
general information on an informal basis
Evaluation – a mental trial follows to assess its possible
need-satisfaction properties
Trial – experimental use, such as a test drive
Decision – the consumer adopts or rejects the product
Confirmation – the adopter continues to rethink the
decision. Was it the right decision?
These steps are discussed in more detail in Chapter 9.
10. Buying behaviour and technology
51
Lastly, we have to consider the impact of modern
technology on consumer behaviour. Some argue that
technology is breeding a new type of consumer. Empowered
by the Internet, consumers are increasingly taking control of
the buying process. It is already commonplace for a
consumer to walk into a computer shop and pull out his
phone, connect to the Internet, compare the price with the
price in another shop (using a website such as
Takealot.com) and instantly order the other shop’s
merchandise. That, says McCann-Erickson’s Don Dillon, is
one of the ways in which technology is ‘creating a world
unlike any we have ever known’. According to Dillon, the
new reality is a consequence of the connectivity of the Web:
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‘Information can now be transferred and turned into
knowledge instantly from everywhere. There are few
competitive technologies, tools, product insights or
knowledge areas in London or New York that are not
available in Buenos Aires or Bangkok. Because so
many companies have access to this technology, the
speed at which they need to compete has dramatically
increased. But the central motivation of the
purchasing model remains the same. Consumers are
drawn to value. This has always been a value based
on cost, quality and convenience. But technology has
driven the perception of value to embrace new
dimensions. Consumers want to buy now. We’ve
never before dealt with such powerful consumers.
And because they have more control, they expect
more personal attention.’
<<< LOOKING BACK
Returning to the discussion that opened the chapter, you
should now be able to see how individual and social factors
affect the consumer decision-making process. In the
‘Marketing in Practice’ example, you saw how James
became aware of his need for a new tennis racquet and how
he consulted a number of different sources of information.
The range of racquets he considered makes up what is
known as an evoked set. You also saw an illustration of how
the human mind selects and interprets information.
Finally, you also read about James’s post-purchase
doubts (cognitive dissonance). Cognitive dissonance refers
to the post-purchase question: did I make the right choice?
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As a marketing scholar, you know that the concept of
cognitive dissonance is important in understanding
consumer behaviour. You also know that there are certain
approaches available to overcome the impact of cognitive
dissonance.
SUMMARY
1
2
3
Why marketing managers should understand
consumer behaviour. Consumer behaviour describes
how consumers make purchase decisions and how they
use the products they buy. An understanding of
consumer behaviour reduces marketing managers’
uncertainty when they are defining a target market and
designing a marketing mix.
The components of the consumer decision-making
process. The consumer decision-making process begins
with problem recognition, when stimuli trigger
awareness of an unfulfilled want. If additional
information is required to make a purchase decision, the
consumer may engage in an internal or external
information search. The consumer then evaluates the
additional information and establishes purchase
guidelines. Finally, a purchase decision is made.
The consumer’s post-purchase evaluation process.
Consumer post-purchase evaluation is influenced by
pre-purchase expectations, the pre-purchase
information search and the consumer’s general level of
self-confidence. Cognitive dissonance is the inner
tension that a consumer experiences after recognising a
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purchased product’s disadvantages. When a purchase
creates cognitive dissonance, consumers tend to react by
seeking positive reinforcement for the purchase
decision, avoiding negative information about the
purchase decision or revoking the purchase decision by
returning the product.
4 Strategies for reducing post-purchase dissonance.
Marketing managers can help reduce dissonance
through effective communication with purchasers.
Advertising that displays the product’s superiority over
competing brands or guarantees can also help relieve the
possible dissonance experienced by someone who has
already bought the product.
5 The types of consumer buying decisions and the
significance of consumer involvement. Consumer
decision-making falls into three broad categories. First,
consumers exhibit routine response behaviour for
frequently purchased, low-cost items that require very
little decision effort. Routine response behaviour is
typically characterised by brand loyalty. Second,
consumers engage in limited decision-making for
occasional purchases or for unfamiliar brands in familiar
product categories. Third, consumers practise extensive
decision-making when making unfamiliar, expensive or
infrequent purchases. High-involvement decisions
usually include an extensive information search and a
thorough evaluation of alternatives. By contrast, lowinvolvement decisions are characterised by brand loyalty
and a lack of personal identification with the product.
The main factors affecting the level of consumer
involvement are price, interest, perceived risk of negative
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consequences, situation and social visibility.
6 The factors determining consumer involvement are:
•
Previous experience
•
Interest
•
Perceived risk of negative consequences
•
Situation
•
Social visibility.
7 Marketing implications of consumer involvement. The
overall implication is that consumer involvement
influences the marketing strategies that could and
should be used. For low-involvement goods convenient
availability (distribution) and low prices are important.
For high-involvement goods quality, image, shopping
assistance and information may be more important. In
both cases, branding is very important.
8 The individual factors that affect consumer buying
decisions. These factors include perception, motivation,
learning, values, beliefs and attitudes, personality, selfconcept and lifestyle. Perception allows consumers to
recognise their consumption problems. Motivation is
what drives consumers to take action to satisfy specific
consumption needs. Almost all consumer behaviour
results from learning, which is the process that creates
changes in behaviour through experience. Consumers
with similar values, beliefs and attitudes tend to react
similarly to marketing-related inducements. Finally,
certain products and brands reflect consumers’
personality, self-concept and lifestyle.
9 The role of perception. The world is full of stimuli. A
stimulus is any unit of input affecting the five senses:
sight, smell, taste, touch and hearing. The process by
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which we select, organise and interpret these stimuli into
a meaningful and coherent picture is called perception.
Perception is a means of making sense of the world
around us and determines how we recognise that we
have a consumption problem (discrepancy). Consumers’
perceptions of products, brands, advertising, and so on
will, over time, determine their attitudes and
consequently the likelihood of purchase.
10 Motivation, learning, values and consumer behaviour.
Motivation drives consumers to take action (to buy) to
satisfy specific consumption needs. Almost all consumer
behaviour results from learning, which is the process
that creates changes in behaviour through experience.
Consumers with similar values, beliefs and attitudes
tend to react similarly to a marketing mix. Certain
products and brands, such as a sports car or a cigarette
advertisement, reflect a consumer’s personality, selfconcept and lifestyle.
11 Changing beliefs. Perceptions, over time, become an
attitude. To change an attitude, first perceptions have to
be changed. This change can be accomplished in three
ways: changing beliefs about the brand’s attributes,
changing the relative importance of these beliefs and
adding new beliefs. It is a valid and important skill in
marketing to – for instance – reposition a product.
12 Personality, self-concept and lifestyle. Each consumer
has a unique personality. Personality is a broad concept
that can be thought of as a way of organising and
grouping the consistencies of an individual’s reactions to
situations. Therefore, personality combines
psychological make-up and environmental forces. It
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includes people’s underlying dispositions, especially
their most dominant characteristics. Some marketers
believe that personality influences the types and brands
of products purchased. Self-concept is how consumers
perceive themselves. Human behaviour depends largely
on self-concept. Because consumers want to protect
their identity as individuals, the products they buy, the
shops they patronise, and the credit cards they carry
support their self-image and lifestyle.
13 Social factors and consumer behaviour. A major group
of factors that influence consumer decision-making are
social factors, which include all effects on buyer
behaviour that result from interactions between a
consumer and the external environment. Social factors
include cultures and subcultures, reference groups,
opinion leaders, family, life cycle and social class.
14 Cultural influences in consumer behaviour. Cultural
values influence consumers’ perceptions and attitudes
and, therefore, their buyer behaviour. As marketers, we
have to understand and be sensitive to those values to
ensure that we satisfy their needs and avoid offending
potential customers.
15 The role of reference groups in affecting consumer
buying decisions. Social factors include external
influences, such as reference groups and opinion
leaders. Consumers may use products or brands to
identify with or become a member of a reference group.
Opinion leaders are members of reference groups who
influence others’ purchase decisions.
16 The role of family membership in understanding
consumer buying decisions. Family members also
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influence purchase decisions. For example, children
tend to shop in patterns similar to those of their parents.
Marketers often define their target markets in terms of
consumers’ life cycle stage, social class, culture and
subculture; consumers with similar characteristics
generally have similar consumption patterns. Because all
consumer behaviour is shaped by individual and social
factors, the main goal of marketing strategy is to
understand and influence them.
17 The role that a purchase situation can play in buying
behaviour. Individual consumers’ buying behaviour is
affected by the purchase situation they find themselves
in at the time of purchasing. Three variables that can
play a role are the purchase reason (i.e. why a consumer
makes a purchase), time influences (when consumers
make a purchase, and the time they have available for
shopping) and physical surroundings. Needs, benefits
sought, attitudes, motivation, and even how a consumer
selects certain products all vary depending on the
purchase situation.
18 The steps in the adoption process are:
•
Awareness
•
Interest
•
Evaluation
•
Trial
•
Decision
•
Confirmation.
DISCUSSION AND WRITING QUESTIONS
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The American electronics company Apple markets its
1 products under the following brand names: iMac, iPod,
iPhone, and iPad. In terms of consumer behaviour, how
would you describe the choice of brand names? Why do
business firms use this approach in the choice of their
brand names?
2 Choose a recent purchase which involved you and other
people in the decision-making. What decision-making
process did you go through? At each stage try to
remember what your were thinking about and what
activities took place.
3 Recall an occasion when you experienced cognitive
dissonance about a purchase. In a letter to a friend,
describe the event and explain what you did about it.
4 To which needs do the following advertising slogans
appeal:
•
Blue Seal Vaseline: ‘No. 1 skin protection’
•
Pulsar watches: ‘The living watch. Driven by
adrenaline’
•
American Express traveller’s cheques: ‘Peace of
mind when travelling’
•
John Rolfe cigarettes: ‘The taste for adventure’
•
Dimple whisky: ‘For the person who hasn’t sat
around for the past 15 years’?
5 Family members play many different roles in the buying
process: initiator, influencer, decision-maker, purchaser,
consumer. In your family, name who might play each of
these roles in the purchase of a personal computer
system, breakfast cereals and dinner at a fast-food
restaurant.
6 You are a new marketing manager for a firm that
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produces a line of athletics shoes to be targeted at the
university student subculture. Write a memorandum to
your boss listing some product attributes that may
appeal to this subculture and recommend some
marketing strategies.
STRATEGY READER >> Multicultural marketing in South
Africa
South Africa is described as the ‘rainbow nation’ in an effort to reflect the
diversity of its people. Multicultural marketing is used in South Africa as a
means of improving the effectiveness of marketing communication
programmes by simultaneously targeting a number of different South African
cultural groups. However, effective execution of this strategy requires an indepth understanding of cross-cultural differences and similarities, as well as
socio-cultural values. Compounding this challenge for marketers is that, in
many instances, there are different languages spoken by the diverse cultural
groups in South Africa.
One trait that advertisers feel is generic amongst all South Africans is their
sense of humour. However, what can be funny to one cultural group may be
offensive to another. Consider, for example, the Castrol advertisement where a
white man places Castrol cans under his bed as protection against the
mythical creature in Xhosa culture, the Tokoloshe. Although white viewers
found this advertisement funny, many Xhosa people found the image
inappropriate (the Tokoloshe mainly attacks women and not men) and
perceived the advertiser as poking fun at their culture. It follows that
marketers also need to be careful in their use of language and make sure that
cultural groups are not alienated by what they perceive to be the offensive use
of their language. However, this is no easy task, as language is a dynamic
medium in South Africa. In addition to the 11 official languages, a ‘12th
language’ is emerging known as ‘Scamto’. This ‘language’ (formerly known as
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‘tsotsi taal ’) comprises a mix of languages, with nicknames for beer, cars and
weapons, and has become the language of choice for South Africa’s black
urban youth. For example in ‘Scamto’ the latest word for a Mercedes-Benz is a
‘TY’ (Tony Yengeni) and for a 3 Series BMW, a ‘G-string’ (because of the look of
the front grill).
SOURCE: http://www.iol.co.za (accessed 25 June 2010)
QUESTIONS
1
2
Why is it important to take into consideration cultural influences when
designing advertising strategies?
Can you list examples when South African firms or brands suffered
reputational damage due to their failure to take cognisance of cultural
perspectives of advertising?
KEY CONCEPTS
Aspirational reference group: a group that someone would like to join.
Attitude: a learned tendency to respond consistently to a given object, such as a
brand.
Belief: an organised pattern of knowledge that an individual holds as true about
his or her world.
Cognitive dissonance: inner tension that a consumer experiences after
recognising an inconsistency between behaviour and values or opinions.
Consumer behaviour: the study of how consumers make purchase decisions
and how they use and dispose of the purchased goods or services.
Consumer decision-making process: the step-by-step process used by
consumers when buying goods or services.
Culture: the set of values, norms, attitudes and other meaningful symbols that
shape human behaviour, as well as the artefacts, or products, of that behaviour
as they are transmitted from one generation to the next.
Evoked set (consideration set): a group of brands resulting from an information
search, from which a buyer can choose.
Extensive decision-making: the most complex type of decision-making
exhibited by consumers buying unfamiliar, expensive or infrequently bought
items; requires use of several criteria for evaluating options and much time for
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seeking information.
External information search: seeking information in the outside environment.
Ideal self-image: the way an individual would like to be.
Internal information search: the process of recalling information stored in the
memory.
Involvement: the amount of time and effort a buyer invests in the search,
evaluation and decision processes of consumer behaviour.
Learning: the process that creates changes in behaviour through experience and
practice.
Lifestyle: a mode of living identified by a person’s activities, interests and
opinions.
Limited decision-making: the type of decision-making exhibited by consumers
buying regularly purchased, inexpensive goods and services; requires moderate
search and decision time.
Marketing-controlled information source: a product information source that
originates with marketers promoting the product.
Maslow’s hierarchy of needs: a popular theory of motivation that arranges
needs in ascending order of importance – physiological, safety, social, esteem
and self-actualisation.
Motive: the driving force that causes a person to take action to satisfy specific
needs.
Non-aspirational reference groups: groups that influence people’s behaviour
when they try to maintain distance from them; also known as dissociative
groups.
Non-marketing-controlled information source: a product information source
that is not associated with advertising or promotion.
Norms: the values and attitudes deemed acceptable by a particular group.
Opinion leaders: group leaders who influence others.
Perception: the process by which we select, organise and interpret stimuli into a
meaningful and coherent picture.
Personality: ways of organising and grouping the consistencies of an
individual’s reactions to situations. Personality reflects a person’s traits, attitudes
and habits.
Primary membership groups: all groups with which people interact regularly in
an informal, face-to-face manner, such as family, friends and co-workers.
Problem recognition: result of an imbalance or discrepancy between actual and
desired states.
Real self-image: how an individual actually perceives himself or herself.
Reference groups: all formal and informal groups that influence the buying
behaviour of an individual.
Routine response behaviour: a type of decision-making exhibited by consumers
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buying frequently purchased, low-cost goods and services; requires little search
and decision time.
Secondary membership groups: groups with which people associate less
consistently and more formally, such as clubs, professional groups and religious
groups.
Selective distortion: the phenomenon whereby consumers change or distort
information that conflicts with their feelings or beliefs.
Selective exposure: the process whereby a consumer notices certain stimuli and
ignores other stimuli.
Selective retention: remembering only information that supports personal
feelings or beliefs.
Self-concept: how consumers perceive themselves (self-perception).
Social class: a group of people who are considered nearly equal in status or
community esteem, who regularly socialise among themselves both formally
and informally and who share behavioural norms.
Socialisation process: passing down cultural values and norms to children.
Stimulus: any unit of input affecting the five senses.
Stimulus discrimination: learning to differentiate among similar products.
Stimulus generalisation: a learning process that occurs when one response is
extended to a second stimulus similar to the first.
Subculture: a relatively homogeneous group of people who share elements of
the overall culture and cultural elements unique to their own group.
Value: an enduring belief that a specific mode of conduct is personally or
socially preferable to another.
Want: an unfulfilled need that someone has determined will be satisfied by a
particular product or service.
REFERENCES
1 Stones, L. 2009. Ease of use trumps price when choosing a cellphone.
Business Day, 16 September 2009, p. 17.
2 Henderson, A. 1996. Coming in tomorrow’s car seat: Storage, built-in safety
belts and surround sound. Wall Street Journal, 22 January, pp. B1 and B8.
3 Reitman, V. & Stern, G. 1995. Adapting a US car to Japanese tastes. Wall Street
Journal, 26 June 1995, pp. B1 and B6.
4 Sundaram, D.S. & Richard, M.D. 1995. Perceived risk and the information
acquisition process of computer mail-order shoppers. In Engelland B.T &
Smart D.T (eds) 1995. Proceedings of the Southern Marketing Association
Conference, pp. 322–326.
5 Bruce, E.D. & Fullerton, S. 1995. Discount pricing as a mediator of the
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6
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consumer’s evoked set. In Thompson D.L. & Swift C.O. (eds) 1995.
Proceedings of the Atlantic Marketing Association Conference, pp. 32–36.
Shuptrine, F.K. 1995. Warranty coverage: How important in purchasing an
automobile. In Engelland B.T & Smart D.T. (eds) 1995. Proceedings of the
Southern Marketing Association Conference, pp. 300–302.
Tiger returns to its basic stripes. Food and Beverage Reporter, January–
February 2010, p. 24.
Tom, G. 1987. Cueing the consumer: The role of salient cues in consumer
perception. Journal of Consumer Marketing, spring, pp. 23–27; Meyers-Levy,
J. & Peracchio, L.A. 1995. Understanding the effects of color: How the
correspondence between available and required resources affects attitudes.
Journal of Consumer Research 22(2), September, pp. 121–138.
If the price is right, the wine is too. Cape Times electronic edition, 25
February 2008.
Gibson, R. 1994. Anheuser-Busch makes price moves in bid to boost sales of
flagship brand. Wall Street Journal, 28 February 1994, p. A7A.
Boulding, W. & Kirmani, A. 1993. A consumer-side experimental examination
of signaling theory: Do consumers perceive warranties as signs of quality?
Journal of Consumer Research, June, pp. 111–123.
Pavia, T.M. & Costa, J.A. 1993. The winning number: Consumer perceptions
of alpha-numeric brand names. Journal of Marketing, July, pp. 85–98.
Media release by Ogilvy Public Relations on the Sunday Times ’Generation
Next survey, 30 May 2014.
Wilson, E.J. 1987. Using the Dollarmetric Scale to establish the just
meaningful difference in price. In Douglas S. et al. (eds), Proceedings of the
AMA Educators’ Conference. Chicago: American Marketing Association, p.
107.
Ntloko, M. 2009. Slow sales of tickets force FIFA to adapt. Business Day
electronic edition, 14 May 2009.
Slabber, E. 2009. A tippling good year: Excellent wines for 2009. Indwe, the inflight magazine of SA Express, April 2009, p. 105.
Murray, M. 1996. Americans eat up Vitamin E supplies. Wall Street Journal,
June 1996, pp. B1 and B8.
Lipin, S., Coleman, B. & Mark, J. 1994. Pick a card: Visa, American Express,
and MasterCard vie in overseas strategies. Wall Street Journal, 15 February
1994, pp. A1 and A5.
Goldman, K. 1994. BMW banks on affordability and safety. Wall Street
Journal, 17 January 1994, p. B3; Goldman, K. 1993. BMW shifts gears in new
ads by Mullen. Wall Street Journal, 21 May 1993, p. B10.
Shirouzu, N. 1995. Flouting rules sells GE fridges in Japan. Wall Street
Journal, 31 October 1995, pp. B1 and B2.
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21 Adapted from: Oros targets kids and moms. In ‘Zapping the target market’,
supplement to the Financial Mail, 20 November 1998, p. 15.
22 Cant, M. & Machado, R. 1998. Marketing success stories. Cape Town: Oxford
University Press Southern Africa.
23 Ono, Y. 1994. Broadening war against smoking proves a blessing to gum
makers. Wall Street Journal, 29 March 1994, p. B9.
24 Perreault, W.D. & McCarthy, E.J. 1996. Basic marketing (12th editon).
Chicago: Irwin.
25 Jordan, M. 1996. In rural India, video vans sell toothpaste and shampoo. Wall
Street Journal, 10 January 1996, pp. B1 and B3.
26 Wilkie, M. 1995. Names that smell. American Demographics, August 1995, pp.
48–49.
27 Rifon, N.J. & Ziske, M.C. 1995. Using weight-loss products: The roles of
involvement, self-efficacy and body image. In Stern B.B. & Zinkhan G.M (eds)
1995. Proceedings of the AMA Educator’s Conference. Chicago: American
Marketing Association, pp. 90–98.
28 Ono, Y. 1994. Home hair-color sales get boost as baby boomers battle aging.
Wall Street Journal, 3 February 1994, p. B6; Hwang, S.L. 1993. To brush away
middle-age malaise, male baby boomers color graying hair. Wall Street
Journal, 2 March 1993, pp. B1 and B10.
29 Murray, M. 1996. GNC makes ginseng, shark pills its potion for growth. Wall
Street Journal, 15 March 1996, pp. B1 and B3.
30 Bisseker. C. 1998. Sorry, you can’t afford to feel that good. Financial Mail, 13
November 1998, p. 42.
31 Sullivan, A. 1995. Mobil bets drivers pick cappuccino over low prices. Wall
Street Journal, 30 January 1995, pp. B1 and B4.
32 Du Plessis, P.J & Rousseau, G.G. 1999. Buyer behaviour: A multi-cultural
approach. Cape Town: Oxford University Press Southern Africa.
33 Mbigi, L. & Maree, J. 1995. Ubuntu, the spirit of African transformation
management. Randburg: Knowledge Resources.
34 Schiffman, L.G. & Kanuk, L.L. 1997. Consumer behavior (sixth edition). New
Jersey: Prentice Hall, pp. 426–427.
35 Molebeledi, P. 2003. Smooth Tony’s career hits the skids. Business Day, 6
March 2003.
36 Renton, M. 1996. Corporate values that are more than cosmetic. People
Dynamics, November/December, pp. 25.
37 Ono, Y. 1995. Kraft hopes Hispanic market says cheese. Wall Street Journal,
13 December 1995, p. B7.
38 Reilly, P.M. 1995. How do you say ‘bestseller’ in Spanish? Wall Street Journal,
4 January 1995, pp. B1 and B6.
39 Schiffman, L.G.S. & Kanuk, L L. 1997. Consumer behavior (sixth edition). New
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40
41
42
43
44
45
46
47
48
49
50
51
Jersey: Prentice Hall, p. 440.
Can South Africa be treated as if it is one market? 1991. The Black Market
Report 6(23), September 1991, p. 8.
University of Cape Town, Unilever Institute of Strategic Marketing. 2013. 4
Million and Rising presentation. Cape Town: University of Cape Town.
Huisman, J. 2014. Levi Strauss sets sights on black middle class. Business Day,
18 November, p. 2.
Theobald, S. 2000. Service and offshore flavour are the bait for the super-rich.
Financial Mail, 17 November 2000, p. 104.
Walker, C. 1995. Word of mouth. American Demographics, July 1995, pp. 38–
44.
Maximizing the market with influentials. American Demographics, July 1995,
pp. 42–43.
Thornhill, J. 2000. Trying to make selling spirits seriously easy. Financial
Times, 11 October 2000, p. 10.
Maximizing the market with influentials. American Demographics, July 1995,
pp. 42–43.
Crispell, D. 1994. The very rich are sort of different. American Demographics,
March 1994, pp. 11–13.
Crispell, D. 1994. Middle Americans. American Demographics, October 1994,
pp. 28–35.
Liesman, S. 1995. Rising prosperity: More Russians work harder, boost
income, enter the middle class. Wall Street Journal, 7 June 1995, pp. A1 and
A6.
Koenderman, T. 2000. Technology breeds a new consumer. Financial Mail, 2
June 2000, p. 87.
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CHAPTER
04
Analysing the competitive
situation
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
Distinguish between the four levels at which competitive activity
can occur.
2 Differentiate between the customer-based and the strategicgroup approaches to identify competitors.
3 Use customer-based approaches to identify competitors.
4 Use the strategic-group approach to identify competitors.
5 Compare the different competitive situations faced by marketers
in terms of the four industry structures.
6 Use the five competitive forces to analyse the competitive
structure of an industry.
7 Discuss the value of analysing key competitors.
8 Describe the process of analysing current competitors.
9 Describe the process of analysing potential competitors.
10 Compare a firm with its key competitors using the key success
factors of the industry.
11 Highlight the typical reaction patterns of firms in a competitive
market.
12 Describe the factors that determine the extent of direct rivalry in
a competitive market.
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13 Advise a firm on which competitors to attack and which to avoid.
14 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
15 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice
The launch of Ariel has sent Unilever
into a froth
Household goods giants Unilever and Procter &
Gamble have gone to war in SA over laundry
detergents. Unilever has enjoyed market dominance for
years through brands like Omo, Surf and Skip. But now
P&G has entered the market aggressively with Ariel and
the marketing gloves are off. Since Ariel’s launch
Unilever has been forced to shuffle its marketing
strategy to protect its market share. ‘In the short time
Ariel has been in SA, it has quickly achieved awareness
in consumers’ minds,’ says Craig Page-Lee, MD of
outdoor media agency Posterscope. Its marketing has
been particularly effective in the out-of-home sector,
which includes billboards, experiential and brand
activations. It is also running a TV campaign. To
counter all this, Unilever has had to switch marketing
spend from other parts of its marketing budget.
Page-Lee says Ariel has won market share through
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its distinctive brand identity and resonance with a
broader spread of buyers. ‘The power of its green
branding is very visible and has made a big impact,’ he
says. ‘It has positioned itself to a cross-section of
society, not just the lower-income market (Surf and
Omo) or the higher segments (Skip).’
Ariel spokesman Khululiwe Mabaso says that in its
first three months in SA the product ‘has received very
positive feedback’. Justin Aspey, Unilever’s vicepresident for brand building in the homecare division,
is coy about the group’s marketing response. He says
Unilever will increase its advertising spending, but not
on what. It is South Africa’s biggest advertiser, having
spent R 1,8bn in 2012.
SOURCE: Mokgata, Z. 2013. War of the soaps. Financial Mail, 19–24 July
2013, p. 58
QUESTIONS
1
How do you think Unilever should respond to the competitive threat of
Ariel?
1. Introduction
In Chapter 1, the importance of identifying and utilising
opportunities to ensure the long-term survival and growth of
the firm was emphasised. In Chapter 2, we pointed out that
these opportunities manifest themselves in the so-called
marketing environment. In other words, progressive firms
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need to scan the external environment continually in search
of opportunities to utilise profitably. Unfortunately, it is not
only opportunities that are found in the external
environment, but also threats. One of the main threats for
any firm is its competitors. As a result of competition or
pending competition, a new firm should assess the likely
impact of competition before it decides to invest resources
in an attempt to utilise an opportunity. By the same token,
existing firms also need to continually assess the likelihood
of new competitive forces emerging in their industry and
markets that may threaten their profitability and survival.
Today’s competitive markets are populated by
consumers with changing and increasingly diverse needs.
The same markets are crowded with competitors whose
intensifying rivalry inevitably reduces the overall prospects
for profitability for all industry players. Private road hauliers,
for instance, have significantly reduced the profitability of
Transnet. And private courier firms have harmed the Post
Office’s profitability. The competition offered by online
music has harmed the profitability of the music retailer
Musica to such an extent that it has been forced to close
many of its stores. An understanding of competitive forces is
critical, therefore, when considering the choice of
opportunities to utilise in market segments that offer
exceptional profit potential.
From a strategic point of view, firms need to be sensitive
to and detect, understand, and possibly participate in new
forms of competition as they emerge. Unfortunately, the
temptation to keep on doing things the way they have always
done them is too comforting for many firms, especially if it
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has been profitable for a long time. As a result, newer, more
innovative, alternatives are often overlooked or ignored. To
avoid that trap, one has to be sensitive to new business
forms by studying them as they emerge, even if they are
small or very different in concept. A regular and thorough
competitor analysis provides one vehicle for doing so.
This chapter examines the role that competition plays in
marketing and marketing planning. It also provides
guidelines for a so-called competitive analysis, which ought
to be a key component of the strategic marketing plan of all
firms (see Chapter 14).
2. Identifying competitors
LO1
It would seem a simple task for a firm to identify its
competitors. However, it is not as straightforward as it
appears. The range of actual and potential competitors
faced by a firm is often far broader than appears to be the
case at first sight. Therefore, it is important to acknowledge
the difficulties of defining the boundaries of an industry. It is
also important to realise that most firms are more likely to
be taken by surprise and hit hard by latent competitors than
by current competitors whose patterns of marketing
behaviour are largely predictable. It is against this
background that a firm should view competition operating
at four levels, ranging from narrow to broad:1
•
Level 1: Level 1 competition consists only of those firms
that offer a similar product or service to the same target
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•
•
•
market (see Reader 18 ‘Lesson in selling’ concerning
Zara’s entry into the clothing retail market). These firms
are known as direct competitors. For example, Beacon
competes directly against Nestlé and Cadbury in the
market for chocolate sweets. Vodacom knows that MTN,
Cell C and Virgin Mobile are its major competitors, Defy
knows that LG is a major competitor, and Apple knows
Samsung is a major competitor in the cell phone market.
But the range of a firm’s actual and potential competitors
is in fact much broader, as illustrated by levels 2 to 4.
Level 2: Competition can emanate from all firms
operating in the same product or service category. These
firms are known as indirect competitors. For example,
Beacon also competes against manufacturers of nonchocolate sweets, such as Cadbury’s Endearmints,
Chappies or Halls.
Level 3: This level of competition consists of all firms
that manufacture or supply products and services that
satisfy the same need. Chocolate manufacturers also
compete against, for example, manufacturers of snacks
(Simba), ice cream (Ola) and dried fruit (Safari). In a
similar vein, long-distance coach operators compete not
just against each other, but also against railways, cars,
airlines and motorcycles.
Level 4: Competition is made up of all firms competing
for the same spending power (e.g. sweets vs soft drinks,
tea, coffee or takeaways).
READER 18 >> Lesson in selling
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Spanish retailer Zara, a company in the Inditex Group, entered the SA clothing
market with a bang when it opened a store in Sandton City’s new Protea Court
in November 2011. The 2 700 m2 store is the trendy retailer’s largest
worldwide, and sold all its floor stock on debut. As a result, there is definitely
‘a lot of nail biting’ among local players, says Flux Trends trend analyst Dion
Chang.
Others agree. ‘Zara will clearly have an impact on the retailers,’ says
Nedbank Group retail analyst Syd Vianello, adding that it will initially affect the
established retailers’ growth more than their profits. The company has a
unique business model, using the customer as the main business driver.
Customer feedback is used to direct Zara’s 250-strong design team, says
Chang. New stock is delivered twice weekly to each store, customised for
different cultures, shopping habits, local environments and climates, and the
shops are in prime locations in major shopping centres.
When it comes to consumer loyalty, Chang says, ‘I don’t think there is
much loyalty at all.’ Little wonder that established retailers may be nervous –
Zara’s fresh approach to customer care could redefine the market. Chang says
the ‘SA consumer has been underestimated’. Decisions about what is or is not
too outrageous have been made for shoppers for too long. Evidently, locals
have reacted positively to the liberty and respect Zara provides.
SOURCE: Gorecki, R. 2011. Lesson is selling. Financial Mail, 22 December 2011
Often a firm is more likely to be hurt by new competition or
new kinds of technology than by current, known
competitors (see Specsavers advertisement on page 130). In
recent years, many businesses have failed, for example, to
consider the Internet and the capabilities this medium offers
to potential competitors. For instance, a few years ago, the
US book store chains Barnes & Noble and Borders were
competing to see who could build the most mega-stores,
where book browsers could sink into comfortable couches
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and sip cappuccino. However, while these massive chains
were deciding which books and coffee to stock in their cafés,
Jeffrey Bezos was building an online empire called
Amazon.com. Bezos’s innovative new cyberstore had the
advantage of offering an almost unlimited selection of books
without the expense of stocking inventory. Now both Barnes
& Noble and Borders are playing catchup in building their
own online stores. ‘Competitor myopia’ – focusing on
current competitors rather than latent ones – has the very
real potential of rendering some businesses and even whole
industries extinct.2 This is exactly what a competitor analysis
attempts to avoid.
The term ‘competition’ defies definition because the view
of competition held by many different groups (e.g.
economists, government officials and businesspeople)
varies. Most firms define competition in crude, simplistic
and unrealistic terms; some firms fail to identify the true
sources of competition; others underestimate the
capabilities and reactions of their competitors.3 When the
business climate is stable, a shallow outlook towards the
competition might work over the short term, but in an everchanging business environment, marketing strategies must
be competitively oriented. A competitor analysis starts by
identifying current as well as potential competitors. There
are two very different ways of identifying current
competitors: the customer-based approach and the
strategic-group approach.4
2.1 Approaches to identifying competitors
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LO2
The first approach to identifying potential competitors
examines the perspective of the potential customer who
must make choices among the products, brands or services
of competing firms. The customer-based approach,
sometimes also referred to as a market perspective of
competition,5 groups competitors together according to the
degree to which they compete for a buyer’s choice. The
second approach, on the other hand, attempts to place
competitors in strategic groups on the basis of their
competitive strategy.
READER 19 >> Is cycling the new golf?
The notion of competition can be implicit in a number of different contexts,
one of which is the business of sport. The trendy (and sometimes garish)
outfits of spandex-clad cyclists, compared to the traditional and conservative
values typically associated with golfers, seem to suggest that these two sports
have totally different target markets. However, arguably the fastest-growing
sport in South Africa, cycling has taken the nation by storm and many believe
it will usurp the prized position long-held by golf as the corporate sport of
choice. Conservative estimates put the value of the cycling-as-sport industry in
South Africa at R600m. But Stephen Reardon, CEO of More Cycle, which
houses Cycle Lab, thinks this figure is around R1bn.
‘The year-on-year growth of this industry is certainly in double-digit figures,
while we’ve seen the numbers of registered golfers remain relatively static with
participation trends flat lining,’ Reardon says. ‘Our general view is that cycling
offers double the opportunity that golf does, if you look at the participants and
what they are spending.’
SOURCE: Adapted from Barry, H. 2014. Cycling is the new golf. Money Web, 17 January 2014.
http://www.moneyweb.co.za/moneyweb-business-of-sport/cycling-is-the-new-golf (Accessed on 2 August
2014)
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Once competitors have been identified, the analyst must try
to understand both the nature of the competitors and their
strategies. Particularly important is a critical analysis of the
strengths and weaknesses of each competitor or strategic
group of competitors.
2.1.1 Using a customer-based approach to identify
competitors
LO3
The essence of customer-based approaches5 is that they give
full recognition to the broader range of products or services
that are capable of satisfying customers’ needs. Customerbased approaches to identifying competitors regard all firms
or organisations that satisfy the same customer needs as
competitors. Using this approach, a consumer who buys a
motor vehicle buys private transport, and all firms that
satisfy the need for privately-owned transport are
competitors. In other words, firms that market bicycles,
scooters and motor bikes are, therefore, regarded as
competitors, not just other motor vehicle manufacturers. By
contrast, firms operating in the public-transport sector must
realise that customers who need transport will consider
railways, airlines, bus companies and cars as possible
options to satisfy their needs. The definition of competition
according to the customer-based approaches to competitor
identification is much broader than when using the
strategic-group approach to identify competitors – it allows
one to distinguish between direct competitors and indirect
competitors. In most instances, primary or direct
competitors are quite visible and easily identified. In the
case of a consumer who buys motor vehicles, it would
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include other current and potential motor vehicle
manufacturers. Therefore, everyone marketing other forms
of private transport can be considered as indirect
competitors.
EXAMPLE >> For instance, Coca-Cola competes with Pepsi and with other
cola brands, such as Virgin Cola, and some private labels marketed by large
retailers. Nedbank competes with ABSA, Standard Bank, First National Bank and
other major banks. The SABC competes with etv and M-Net. It is important to
cast the proverbial net wider to include in the analysis more than the primary
(direct) and conventional competitors. Hotels, for instance, never thought twenty
years ago that small bed-and-breakfast establishments in suburban
neighbourhoods would present a threat to them. The manufacturers of cameras,
such as Canon and Kodak, never thought that one day they would compete with
cellphone manufacturers.
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In many markets, however, the nature of competition is
changing because consumer needs and requirements are
changing (see the section on buying behaviour and
technology). Colas are no longer as dominant in the
beverages industry as they used to be, as more and more
people switch to bottled water and fruit juices. The need for
banks to have extensive distribution (branch) networks is
diminishing as more and more people are using ATMs, the
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Internet and cellphones to conduct their banking business.
Because some of the new competitors are small, or appear to
be very different, they may not appear to be significant – but
that does not make them less dangerous. Following a
conceptual basis for identifying competitors using a
customer-based approach, a distinction can be drawn
between two approaches, namely those based on customer
choices and those based on product-use associations.
Customer choices
One approach to identify competitor sets is to consider
competitors from the perspective of the choices customers
make. A Nescafé buyer, for example, could be asked what
brand of coffee (or refreshment) they would have purchased
had Nescafé not been available. A buyer for a nursing-home
meal service could be asked what would be substituted for
rice if the price of rice quadrupled. Answers to questions
such as these can bring new insights into which products
and brands make up the consumer’s evoked set.
Product-use associations
Another approach that provides insight into competition is
to analyse the consumers’ specific use contexts or
applications associated with certain products. Product users
could be asked to identify what they use products for, or
when, and in what situations they use them. Some people
use Jik to remove mould from windows and shower doors,
for example – not the manufacturer’s intended use of Jik.
Others use Disprin to lower blood pressure – not the
manufacturer’s intended use of Disprin. For each use
context, respondents would be asked to name all the
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products that are appropriate. Then for each product the
respondents would identify appropriate use contexts so that
the list of use contexts would be more complete. Another
group of respondents would then be asked to indicate how
appropriate each product is for each context.
A group of consumers could be asked about the use of
Vienna sausages. Some may use them as a snack for
children; others may use them for making hot dogs; some
may use them as a cocktail snack; and yet others may braai
them. In all of these areas of use, a firm such as Enterprise
has to compete with different competitors. In the case of a
snack food for children, Enterprise would be competing with
potato chips; in the case of hot dogs, it would be competing
with the manufacturers of meat patties; in the case of a
cocktail snack, the competition could be olives, feta cheese
and savoury biscuits; and when it comes to the roaring braai
fire, the competition is the local butchery.
Once different uses have been identified, products would
be clustered on the basis of the similarities of use they share
with other products also considered appropriate for a
specific setting or occasion – for example, a braai. Each of
the products in a cluster would compete primarily with
products similarly perceived by consumers.
READER 20 >> PharmaShop24
The PharmaShop24 concept and design can be found all over Europe, Japan, USA and now in South
Africa. The South African team has been actively modifying and adapting this concept since early 2012.
This is not a typical vending machine. It is specially designed to dispense health care products, and your
daily medical essentials from A-Z at a simple push of a button. The local PharmaShop24 team has vast
experience, directly and indirectly within the pharmaceutical industry. They have tailored a sustainable,
self-funding solution to recapture the convenience market. This all happens while offering customers a
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discreet 24/7 shopping experience. They want retail stores at garages to enjoy a 24-hour, 7 day a week
sales opportunity. Customers must realize that healthcare is available even when the pharmacy is
closed.
There are no competitors on the market that can offer the value or service
that PharmaShop24 provides. The traditional vending machine does not
compete with PharmaShop24 in that they do not have the technological
capability to provide real time interaction with the providers, advertisers, or
customers.
Source: Company profile: Pharmashop24. Available from http://www.pharmashop24.co.za/companyprofile (Accessed on July 31 July 2014) Reprinted by permission of Pharmashop24 (Pty) Ltd.
Both the customer-choice and product-use approaches
suggest a conceptual basis for identifying competitors.
These approaches can be utilised by managers even when
marketing research is not available. The concept of
alternatives from which consumers can choose and the
concept of appropriateness for a product-use context can be
powerful tools in helping to understand the competitive
environment.
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2.1.2 Using the strategic-group approach to
LO4
identify competitors
With this approach, sometimes also referred to as the
industry concept of competition,6 almost all competition
and competitive activity must be seen in the context of a
particular industry, such as the oil industry, the
pharmaceutical industry or the beverage industry. The point
of departure is that all firms that exist in the same industry
are de facto competitors.7 An industry is a group of firms that
offer a product or class of products that are close substitutes
for each other. Industries are classified according to the
number of sellers; the degree of product differentiation; the
presence or absence of entry, mobility and exit barriers; the
cost structure; the degree of vertical integration; and the
degree of globalisation. From an industry point of view,
Pepsi might see its competition as Coca-Cola and other softdrink manufactures. From a market point of view, however,
the customer really wants a product that is ‘thirst
quenching’ – a need that can be satisfied by bottled water,
energy drinks, fruit juice, iced tea or other forms of liquid.
When analysing an industry, it is important to realise that
there are different groups of firms within an industry and
that firms are fairly homogeneous within groups, along a set
of strategic attributes, and fairly heterogeneous compared
with other groups.8 The strategic-group concept is based on
the idea that the strategic diversity and complexity of an
industry can be simplified by classifying firms into different
strategic groups. A group of firms that follow the same
strategy in a given target market is called a strategic group. A
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strategic group is a group of firms that:
•
•
•
Over time pursue similar competitive strategies (for
example, the use of the same distribution channel, the
same type of communication strategies or the same price
and quality position)
Have similar characteristics (e.g. size, aggressiveness)
Have similar assets and competencies (such as brand
associations, logistics capability, global presence or
research and development).
The strategic-group method is used with the hope that the
firms classified into the strategic group will essentially react
to the same environmental changes owing to their
similarities.
>>Strategy
Historically, there have been three strategic groups in
the South African clothing industry. One strategic
group consists of very large diversified, branded firms,
such as Foschini and Truworths. They all distribute
their products using mass merchandisers and enjoy
economies of scale. At the other extreme is a second
strategic group that consists of highly focused, ultrapremium, private-label producers (for example, Jenni
Button), and includes boutiques that market exclusive
garments for the higher-income group. Their suppliers
will not enter distribution channels such as mass
merchandisers and supermarkets. The third strategic
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group consists of basic producers targeting the lower
middle-income and low-income groups. They include
retailers such as Pep Stores and Mr Price. Similarly in
the major appliance industry, General Electric and
Whirlpool belong to the same strategic group. Each
produces a full line of medium-price appliances
supported by good service. In contrast, Bosch and
Miele belong to a different strategic group. They
produce a narrower line of higher-quality appliances,
offer a higher level of service and charge a premium
price.
Each strategic group has mobility barriers that inhibit or
prevent businesses from moving from one strategic group to
another. Each of the strategic clothing groups discussed in
the strategy reader above, is protected by entry barriers. The
ultra-premium group (i.e. boutiques) has the brand
reputation, product and manufacturing knowledge needed
to target the upmarket segment, access to the influential
opinion leaders and retailers, and a local customer base and
close relationships with customers. For Pep Stores and even
the likes of Woolworths to start competing with boutiques
would take a significant investment of resources.
>> Strategy
Consider the personal computer and server markets.
Dell and a few others have marketed computers
directly to consumers – first by catalogues and
telephone, and then via the Internet. They developed a
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host of assets and competencies to support their direct
channels, including an impressive product-support
system. Competitors such as Compaq, Lenovo and HP
(which have used indirect channels involving retailers
and systems firms), have found it very difficult to shift
strategies. Not only is the development of assets and
competencies costly and difficult, but their links with
their existing channels create significant barriers to
change.
When Virgin Mobile entered the cellular phone operator
market it had to ask: what is our strategic group? This is an
important question because the height of the entry barriers
differs for each group. The entry barriers to the cellular
network industry are much higher than those of the video
rental market, for instance. If a firm successfully enters a
group, the members of that group become its key
competitors.
Conceptualising strategic groups can make the process of
competitor analysis more manageable. Most industries
contain many more competitors than can be analysed
individually. Often it is simply not feasible to consider
dozens of competitors, to say nothing of hundreds (such as
bed-and-breakfast establishments). Reducing this set of
potential competitors to a small number of strategic groups
makes the analysis more focused, feasible and more usable.
For example, in the wine industry, a competitor analysis by a
firm like Distell (owners of the Nederburg brand) might
examine three strategic groups: boxed wines, popular wines
and premium wines. Analysing strategic groups rather than
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individual competitors (or brands) should not lead to a loss
of insight because firms in a strategic group are affected by
and react to industry developments and environmental
influences in very similar ways. Therefore, the concept of
strategic groups can be helpful when anticipating the future
strategies of competitors.
READER 21 >> Battle of the tablets
There hasn’t been this much fuss about tablets since Moses walked up a
mountainside. On Monday Microsoft took the wraps off Surface, a product line
it hopes will help it win market share from Apple’s iPad, which remains king of
the tablets. If it’s priced right, a tablet war is in the offing. It had all the
hallmarks of an Apple keynote. No-one knew exactly what Microsoft would be
announcing in Los Angeles, but the excitement among gadget junkies about a
potentially game-changing product from the US software giant was palpable.
What Microsoft CEO Steve Ballmer announced in the end was a new line of
tablets called Surface that will run the upcoming Windows 8 Pro and Windows
RT operating systems. Ballmer was drawing a line in the sand in the company’s
protracted war with Apple. The subtext was clear: Microsoft has had enough of
the iPad’s dominance and is prepared to do something it hasn’t done before –
build its own hardware running Windows, potentially risking the ire of its
partners in the PC industry - in an effort to eat into Apple’s market share.
Still, outside PC peripherals and the Xbox gaming console, Microsoft’s
ventures into the hardware market haven’t exactly flourished. Its last big
attempt to tackle Apple head-on at its own game - by developing the Zune
MP3 player to take on the iPod - failed. It’s tempting to suggest it’s again
coming to the market too late, taking on a product in the iPad that has
established its dominance. But that’s the wrong call. Tablets are not yet
ubiquitous and business customers are more likely to embrace Windowspowered tablets simply because they’ll play nicely with their IT systems and
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allow more granular control. And with Microsoft pushing Metro across all its
consumer-facing products it’s building a powerful proposition that plays to its
strengths in enterprise IT. If it prices the Surface tablets right, then Apple has
a fight on its hands.
SOURCE: McLeod, D. 2012. Battle of the tablets. Financial Mail, 22 June, p. 16
Analysing strategic groupings and their competitive
behaviour can help refine strategic investment decisionmaking. Instead of considering which industries to invest in,
the decision can focus on which strategic group can be
considered for investment. Therefore, the current and future
profitability of each strategic group must be analysed.
Investing in attractive strategic groups in which a firm’s
existing assets and competencies can be best utilised to
create a competitive advantage should be a strategic
objective (see Reader 21 ‘Battle of the tablets’).
3. Defining the competitive arena
After the identification of firms within an industry, the next
step is to develop descriptive information on the industry
and its members. It is important to examine industry
structure beyond domestic market boundaries, since
international industry developments often affect regional,
national and international markets.9 It is possible to
distinguish between four industry structure types, namely a
monopolistic situation, pure competition, an oligopoly, and
monopolistic competition. After considering these four
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industry structures, one can then proceed to analyse the
competitive structure of an industry.
3.1 The four industry structures
LO5
These four basic models of competition are based mainly on
the number of competitors and the nature of the products
produced. Table 4.1 summarises the characteristics of the
four basic models and the key task of the marketing
manager within each form of competition. The type of
competition has a considerable effect on a firm’s pricing
strategies and ability to set a target price (see Chapter 13).
Table 4.1 Types of economic competition
At one extreme of economic competition is a monopoly, in
which one firm controls the output and price of a product
for which there are no close substitutes. In other words, the
firm is the industry, as there are no direct competitors.
Parastatals such as the Ports Authority (managing South
Africa’s harbours), Eskom (electricity producer) and Telkom
(fixed telephone lines) are examples of the most common
forms of regulated monopoly in South Africa.
Telkom’s competitive situation is slowly changing,
however. Some of South Africa’s telecommunication
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operators are gaining traction in the market in competition
to Telkom SA, using wireless technologies such as CDMA
and WiMAX to provide alternatives to Telkom’s copper
access network. In addition, the government has created
Broadband InfraCo, a national infrastructure firm to provide
cheap backbone network capacity to service providers. The
major mobile network operators, Vodacom and MTN, are
moving into the fixed-line sector under a new converged,
service-neutral licensing regime. In May 2014 Vodacom, the
country’s largest cellular network, acquired Neotel (the
second-largest fixed-line player), which has put the merged
firm in a strong position to offer converged services. The
combination of Neotel and Vodacom’s networks would
improve overall network availability and cut the cost of
serving customers. The acquisition of Neotel will help
Vodacom to innovate and integrate new solutions to a
variety of customer segments. A similar share of network
between MTN and Telkom may be concluded soon.10
Not only have these activities signalled the end of the
monopolised telecommunications industry, they have also
ensured a more competitive environment. The arrival of
Seacom as the second international submarine fibre optic
cable in South Africa in 2009, for instance brought down the
cost of international bandwidth dramatically. Previously,
Telkom had been monopolising access to the only major
cable serving the country, SAT-3/WASC/SAFE.
A few private-sector firms, such as South African
Breweries (SAB), have a virtual monopoly – in this case, in
the beer market. It must be pointed out, however, that SAB is
not protected by any law. It is thus an economic monopoly.
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Often a patent right can give a firm monopoly power for a
time. Xerox, for example, held the patent on the dry-paper
copying process for many years. Not until the patent expired
and competitors entered the market did dry-paper copiers
fall significantly in price. In a regulated monopoly market
the monopoly firm or organisation often charges high
prices, does not spend much money on advertising, and its
service delivery is often poor. The National Ports Authority,
for instance, has been described as ‘topping the inefficiency
list’ in South Africa, yet it made a profit after taxation of R1,9
billion in 2013 and has been described as Transnet’s cash
cow.11
At the other extreme of the competitive spectrum is pure
competition. A purely competitive market is characterised
by a large number of sellers marketing a fairly standardised
product (difficult to differentiate, such as commodity
markets) to a group of buyers who are well informed about
the market. Farmers selling wheat to food manufacturers,
such as Bokomo, is an example. New competitors can easily
enter the market (low entry barriers), but have to sell their
wares at the prevailing market price. In a purely competitive
market characterised by no or poor differentiation, it would
not make sense for one firm to raise the price of a product,
because a buyer would simply get the same product at the
prevailing market price from a competitor. Because of the
absence of a sustainable competitive advantage, firms
trading in this kind of market condition (pure competition)
often do not even advertise their product(s). A purely
competitive market seldom exists in the real world.
However, some industries closely mirror the model – most
notably, agricultural markets for wheat, cotton, soybeans,
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salt and maize. Examples of pure competition can be found
on the Internet. Advances in web technology have made
markets more competitive. It has reduced barriers to entry
for firms wanting to compete with well-established
businesses – for example specialist toy retailers such as Toy
Zone are better able to battle for market share with the
dominant retailers such as ToysRUs and Reggies. One of the
most important aspects of the Internet is the ability of
consumers to find information about prices for many goods
and services. There are several price comparison sites on the
Internet covering everything from digital cameras to
package holidays, car insurance to CDs and jewellery.12
When a relatively small number of firms dominate the
market for goods or a service, the industry is an oligopoly. In
South Africa, airlines (South African Airways, British
Airways/ Kulula.com, Mango); private healthcare providers
(Medi-Clinic, Netcare); and cellular phone operators
(Vodacom, MTN, Cell C, Virgin Mobile) compete in
oligopolistic markets. Oligopolies can also exist at a lower
competitive level. The close relationship among so few
competing firms can often lead to collusion and price fixing,
which are illegal. Rather than fixing prices, some industries
simply follow a price leader. The leader is typically the
dominant firm in terms of financial resources, assets, market
share or geographic coverage. Marketing managers do not
have a lot of pricing flexibility in an oligopoly market. They
must be alert to price changes and quickly match price
decreases or lose a significant amount of market share. For
instance, when Cell-C offered their clients an ‘all day flat
rate option’ their competitors, Vodacom and MTN, quickly
followed suit with similar offers. To further secure a position
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in this type of market, marketing managers should
emphasise their competitive advantage – whether it is
service, a strong brand, product quality, or any other nonprice form of differentiation. If they are able to establish
some sort of ascendancy over competitors on some attribute
and succeed in getting significant numbers of customers to
prefer their product, they can possibly afford to charge a
small price premium – as British Airways has done to some
extent in the domestic airline market. Telkom’s changing
competition (outlined above) means that it is also moving
into an oligopoly-type situation.
Monopolistic competition refers to a situation in which a
relatively large number of suppliers offer similar, but not
identical, products. Examples include fridges, televisions
and motor vehicles. Each firm has a comparatively small
percentage of the total market, so each has limited control
over market price. As competitive pressures increase, input
costs rise and available resources become scarcer and most
firms then find that they need to work harder to maintain
their profits and market share regardless of the form of the
competitive market. Recently, the holding company of 7Eleven went bankrupt because it could not withstand the
competition from competitors such as Spar and spaza
shops.
Firms in monopolistic competition industries or markets
attempt to differentiate their products and services by using
tactics such as brand names, trademarks, packaging,
advertising or special product features (see Reader 22 ‘Sony
tablet takes aim at Apple iPad’). With monopolistic
competition, consumers tend to prefer the products of
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specific firms or brands and will be prepared to pay a higher
price (a price premium) to get it – within reason. In other
words, they tend to think, ‘I like British Airways because its
service is better than that of South African Airways. But if the
price goes up too much, I know British Airways is not that
much better, so I’ll switch to something else if I have to.’ So
the seller has some control over price, but only within a
limited range. If the marketing manager raises prices too
high, the firm could lose some of its market share to
competitors.
Smaller firms can often survive in highly competitive
markets by generating products of exceptional quality or by
offering products and services that fulfil distinct needs.
Mercedes-Benz South Africa, for example, is a relatively
small firm. Yet it is highly successful because of its quality,
good service and overall effective marketing focused on
satisfying the needs of a specific market segment. The
Mercedes-Benz example illustrates that, with a good
marketing mix, smaller firms can still compete effectively
against the giants. Regardless of the size of the firm, the
marketing mix of product, distribution, marketing
communication and price represents management’s tools of
competition. A competitive situation is seldom static,
however. Besides competition from existing competitors,
there is always the threat of new competitors entering the
market or the emergence of substitute products.
EXAMPLE >> Mercedes-Benz developed a unique product range in order
to compete. Woolworths has used product quality to gain and hold market share
in a very competitive food retail market. Coca-Cola’s competitive advantage is its
highly effective distribution system. Firms like Mr Price and Tempest Car Hire use
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price as a primary means of competition. Some firms, like SAB and Toyota, are
superior competitors in every aspect of their marketing mix. They have excellent
research staff who enable them to bring out the right products, an efficient
distribution system involving hundreds of outlets or dealers, aggressive pricing
and a very large marketing communication budget.
Poor performance often draws new competitors. We have
already referred to the emergence of so many courier firms
in South Africa. It did not take minibus taxi owners long to
spot the inability of many public and even privately-owned
bus firms to satisfy the needs of urban commuters for a
flexible, reliable and affordable transport service. Although
SAB controls about 98 per cent of the beer market in South
Africa, it realises very well that it faces strong competition
from alternative products, such as wine, soft drinks, fruit
juices and bottled water. The marketers of sugar face
competition from artificial sweeteners, such as Canderel
and Sweetex. Airlines and hotels realise, we hope, that they
face competition from such unexpected sources as videoconferencing.
READER 22 >> Sony tablet takes aim at Apple iPad
Sony is betting its tablet computers will rival Apple’s iPad by luring buyers with
music and movies, even as the Japanese company arrives more than a year
late in the booming market for such devices. Since the iPad entered the
market there have been about 100 rival versions offered from a host of
makers, but few have captured market share.
‘Yes, yes, Apple makes an iPad, but does it make a movie?’ Sony CEO
Howard Stringer said in a presentation at Berlin’s annual consumer electronics
fair on Wednesday. ‘We will prove that it’s not who makes the tablet first who
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counts but who makes it better.’
Sony, which is reeling from three successive years of losses without a hit
product, is matching the iPad’s price in Japan and the US. Mr Stringer needs
to differentiate the device from those of its rivals by adding the ability to
download PlayStation Suite games, movies and music from its subscription
services.
‘The tablet has to be significantly better than the iPad for consumers to
want to buy it at that price point,’ says Alexander Peterc, an analyst at Exane
BNP Paribas. ‘Sony’s big advantage is that they have the content. If they can
make it easy to use and hassle-free, they have half a vote from me.’
Neil Mawston, an analyst at Strategy Analytics, says the Sony tablets will
need to make these content services as easy to use as Apple’s iTunes music,
film, television and application offerings. There was also concern at the
shortage of applications (apps). Apple has more than 100 000 while Sony has
just a few hundred. Worldwide sales of tablets are set to triple by value to
$30,6bn this year, according to Strategy Analytics estimates. Apple will
probably dominate with a share of 73 per cent, compared with 88 per cent
last year.
‘We will aim to win the Number 1 share in the Android-based tablet
market in 2012,’ Akihiro Matsubara, a director at Sony’s marketing unit, said
in Tokyo.
SOURCE: Kjetland, R. 2011. Sony tablet takes aim at Apple iPad. Business Day, 2 September 2011
4. The competitive structure of an
industry
LO6
Different industries have different structures, which results
in very different rules of the game when it comes to
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competitive behaviour. The competitive structure of an
industry and the critical rules of the game set by this
structure can be explained by using Michael Porter’s model
of competitive forces in an industry.13 The five forces are:
•
•
•
•
•
The threat of entry from new competitors
The threat of substitute products
The bargaining power of buyers
The bargaining power of suppliers
The rivalry between the existing direct competitors.
Each of these five forces identified by Porter consists of a
number of elements that combine to determine the strength
of each force and its effect on the degree of competition.
These competitive forces are discussed next.
4.1 Threat of new entrants
A segment’s attractiveness varies with the height of its entry
and exit barriers. The most attractive segment is one in
which entry barriers are high (provided you have adequate
resources) and the exit barriers are low. This means that few
new firms can enter the industry because it is so expensive
(high entry barriers), and firms that perform poorly can
easily exit (low exit barriers). When both entry and exit
barriers are high, profit potential is high, but competing
firms face more risk because the firms that perform poorly
stay in and fight it out. The South African cellphone industry
is an example. The barriers to entry – such as capital
expenditure, infrastructure, retail distribution network – are
high, but those operators that are ‘in’ (Vodacom and MTN)
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are very profitable. Those that arrived later (Cell C and
Virgin) are struggling, but still fighting.
When both entry and exit barriers are low, firms easily enter
and leave the industry, and the returns are stable, but low.
Opening a video shop does not require much investment
(low entry barriers) and to withdraw is relatively easy (low
exit barriers). The worst case is when entry barriers are low
and exit barriers are high. Then competing firms enter
during good times, but find it hard to leave during bad
times. The result is chronic overcapacity and poor earnings
(profits) for everyone in the industry. The wine industry
faces overcapacity, and a firm like Distell has admitted that
sales of its brands such as Chateau Libertas and Graça have
been harmed by the oversupply. In the investment banking
market, for instance, there are about fifty firms offering
investment banking services in addition to the competition
with global banks such as JP Morgan and Deutsche Bank.
Investec has warned that there were too many investment
banks competing for a shrinking pool of business in South
Africa, and competitors were slashing fees to stay afloat.
There is overcapacity in the market at every level and this is
taking its toll, says Investec.14 Bank executives acknowledge
the threat posed by nontraditional competitors, such as
retailers and mobile service providers. With revolutionary
technology that lowers barriers to entry, and increased
customer migration to electronic products, innovative
partnerships between different sectors are also penetrating
the market. Examples include partnerships between banks
and retailers and banks and mobile service providers.
Easy-to-enter markets soon become overcrowded, which
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harms the future profit prospects for everyone competing in
the industry. One reason is the increased power handed to
customers, who can wring concessions from existing
suppliers by threatening to go to a competitor or help a new
competitor to enter the market. Once the new entrants have
established themselves, they frequently go on to assault the
entire market and intensify the level of competition.
The seriousness of the threat of entry depends on the
height of the entry barriers that impose disadvantages on
prospective entrants and depress their expectations of
profitability. These barriers are created by the following
factors:15
•
Factor cost advantages for incumbents are created by
lower labour or capital costs, preferred access to raw
materials, favourable locations or proprietary
technology. Any large international grocery retailer that
wishes to compete in South Africa with the likes of Pick n
Pay, Shoprite Checkers and Spar will find it difficult
because the incumbents have taken all the best available
retail sites. Smaller airlines in South Africa, such as
British Airways and Mango, have to make do with
inferior landing facilities at South African airports
compared with those of South African Airways, making it
difficult for them to compete effectively.
• Economies of scale are a deterrent if incumbents force
the prospective entrant to spend heavily on facilities,
advertising, sales-force coverage, distribution, and so
forth in order to gain cost parity with the incumbents, or
to come in at a smaller scale or to suffer a cost
disadvantage. The aircraft engine business has very high
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•
•
barriers to entry, which severely limits the number of
possible competitors in the industry. Concorde,
competing with regular airlines, such as British Airways
and United Airlines, faced the disadvantage of low
economies of scale, which eventually contributed to its
demise.
Effective differentiation and high switching costs limit
the extent of direct competition, but they also deter new
entrants from entering the industry. The opposite is also
true. Few bottlers of mineral water have succeeded in
effectively differentiating their products and brands, and
it is easy for consumers to switch brands. As a result, it is
a highly competitive market.
Channel crowding. Most distribution channels have
limited capacity, and channel members, such as retailers
and wholesalers, often restrict the number of product
lines they will handle. Computer retailers have space for
about five manufacturers at a time. Each new line of
computers creates additional fixed costs for the retailer,
ranging from training staff, to the allocation of shelf
space, additional spare parts management, and so forth.
To convince distribution channel members to carry new
products, marketers often have to pay substantially
larger margins to offset the retailers’ extra costs.
Sometimes the competing incumbents have blocked
potential new entrants through long-run or exclusive
distribution arrangements with retailers, forcing the
prospective new entrant to face the cost of establishing a
completely new distribution channel.
One must never underestimate the threat of new
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competitors. Nestlé, with it Nespresso capsules learnt it the
hard way, as they no longer have a monopoly on those
colorful pods it sells for its fancy coffee machines. Nestlé has
tried to maintain its grip on the Nespresso capsule market
by means of patents and legal action against some copycat
rivals. It has also added small hooks inside its machines,
which make some of the generic pods stick, rendering them
incompatible.16 Despite these efforts many companies,
chasing this highly-profitable market, entered the coffee
capsule segment in 2013, after Nestlé (the world’s biggest
food and drinks company), lost its patent covering the
Nespresso coffee system. 17
4.2 Threat of substitute products
A segment’s degree of attractiveness is influenced by
whether there are actual or potential substitutes for the
product. Substitute products place a limit on prices and,
therefore, on the profits that competing firms in a segment
can earn. For example, tea and coffee are fairly close
substitutes to each other. Raising the price of coffee,
therefore, could make tea more attractive. Alert firms
monitor the price trends of substitutes closely. If technology
advances are imminent or competition increases in these
substitute industries, prices and profits in the segment are
likely to fall. The South African telecommunications
industry is an example. The South African government has
tried for years to find a competitor for Telkom’s fixed-line
telephone business. One reason is that there are so many
substitute products that consumers can use for
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communication purposes these days (such as cellular
phones,
SMSs
and
e-mails)
that
fixed-line
telecommunications have become an unattractive option
for many potential new entrants. With the arrival of Neotel
on the scene, the situation may change.
READER 23 >> Coffee to go: The world’s first
disposable coffee machine
Coffee fans get can their fix anywhere thanks to the world’s first disposable
coffee machine. The innovative product works like a teabag for coffee and
promises to brew a quality cup just by adding hot water to the bag. The water
mixes with ground coffee then drips through a special filter into another
chamber, from which is can be poured into cups.
SOURCE: Grower’s Cup ® © 2008-2014 Coffeebrewer Nordic A/S
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Designer Ulrik Rasmussen came up with the idea from studying teabags
after running out of coffee filters for his home coffee machine. He has spent
nine years developing the product. It all started one morning when he went to
make himself a cup of coffee and realised he had run out of filters for his
machine. ‘I needed my coffee fix and I was getting annoyed that it was so
difficult to make a decent cup of coffee. ‘As I slammed the kitchen drawer
shut I noticed some tea bags and I started thinking about why there wasn’t a
similar product for coffee. I cut up a few tea bags and put coffee grounds
inside them and found there was some potential for a similar product so I
started doing research into it.’
SOURCE: Webb, S. 2014. Coffee wars: Tesco launches espresso shot pods to rival Nespresso luxury
coffee capsules endorsed by George Clooney. Daily Mail, Available from http://www.dailymail.co.uk/
(Accessed in June 2014)
Consider the impact that a substitute such as facsimile
machines has had on the revenue of the Post Office. The
ability of facsimile machines to meet buyers’ needs for
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immediate delivery of documents had a severe impact on
the Post Office. The initial impediments to buyers using
these machines fell fast, the prices dropped quickly, and
these days there is a huge network of facsimile machines on
the receiving end, which, in turn, is threatened by e-mail
devices that can deliver scanned documents.
A substitute product will have a significant impact on the
competitive situation in a market if it offers additional
benefits that the consumer perceives and values. These
include the following:
•
Performance benefits such as saving time, improving
output or providing new functions. The electronic cash
registers used by large retailers, such as supermarkets,
cost more than their mechanical forerunners, but
provide extensive benefits, such as online transactions,
data that can be used to control inventory costs and
improved procurement.
• Security benefits that result in improved safety,
resistance to burglary or invulnerability to fire damage.
The opposite is also true: security concerns about
providing financial information online (such as credit
card numbers), have severely limited the use of the
Internet as a substitute medium for shopping and
banking.
• Availability benefits gained from the assurance of
immediate, reliable delivery, which permits lower
inventory levels.
• Flexibility benefits that mean the product can be used
in a wider variety of situations. Many South African
consumers have switched from landline telephones to
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cellphones because of the superior flexibility offered by
the latter.
The incentive to switch varies for different consumers, and
depends on how they use and derive value from their
present products. The economic value of a new superminicomputer will depend on whether it is substituting a
mini- or micro-computer, and on whether it is used for a
production-line control, distributed processing or energysaving applications. Thus, whether or not a substitute
product enters a market is a question that can be resolved
only within a distinct segment of consumers who have
similar needs or requirements.
The availability of substitutes depresses the profit
prospects of the firms in a market when there is a significant
economic incentive for consumers to switch and the costs of
switching are low. Consumers’ switching from CD’s to
storing data or music on flash discs is an example. This
threat to profitability is increased if the rivalry among the
firms offering the substitute is intense, and leads to rapid
declines in the price of the substitute or improvements in its
relative performance.
4.3 Threat of buyers’ growing bargaining power
A segment is unattractive if the buyers in that market have
strong or growing bargaining power. Often buyers will try to
force prices down, demand more quality or services and set
competitors off against each other, which reduces seller
profitability. Buyers’ bargaining power grows when they
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become more concentrated or organised; when the product
represents a significant portion of the buyers’ costs; when
the product is undifferentiated; when the buyers’ switching
costs are low; when buyers are price-sensitive because of
low profits; or when buyers can integrate upstream. To
protect themselves, sellers may select buyers who have the
least power to negotiate or switch suppliers. A better defence
consists of developing superior offers that strong buyers
cannot refuse. Financial institutions such as Liberty, Old
Mutual and Sanlam face this type of situation in the
business-to-business market when they compete to
administer the pension funds of large firms, the government
and semi-government corporations (such as Eskom). The
buyers all have significant bargaining power when dealing
with these financial institutions.
The ability of large suppliers to withstand bargaining
efforts by their customers (and potential new buyers)
depends on:
•
Their size in relation to that of the customers. Large
suppliers are less likely to succumb to pressure from
smaller buyers, especially in a fragmented market. This
situation is especially noticeable in the advantages that
large textile manufacturers have in relation to their
small, dispersed customer base. Similarly, small video
shops are increasingly losing out to large convenience
chains.
• The reliance of the customer on the supplier’s product
– either because the customer cannot get the equivalent
quality elsewhere, or is contracted to the supplier to the
extent that the cost of switching is much greater than any
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•
benefits a new supplier can promise. An example of the
latter is when large firms consider switching banks. Will
the advantage of lower transaction costs or higher daily
interest rates by one bank promised to a firm such as
Pick n Pay be sufficient to make the switch to a
competing bank worthwhile?
The credibility of their threats to integrate forward in
their value chain and sell directly to the end customer.
An example would be if SAB threatened to open its own
bars. This threat will blunt aggressive attempts by buyers
to get better prices from manufacturers or suppliers.
Motor vehicle manufacturers can issue a similar threat to
their dealerships, or airlines can set up their own travel
agencies to sell tickets directly to large corporate firms.
4.4 Threat of suppliers’ growing bargaining power
A segment is unattractive if the firm’s suppliers are able to
raise prices or reduce the quantity supplied at will. Suppliers
tend to be powerful when they are concentrated or well
organised, when there are few substitutes, when the
supplied product is an important input to their production
process, when the costs of switching suppliers are high and
when the suppliers can integrate downstream. The best
defense mechanisms are to build win-win relations with
suppliers or use multiple sources of supply. A hypothetical
example could be users of sugar, such as soft-drink
manufacturers (e.g. Coca-Cola) and confectionery
manufacturers (e.g. Cadbury and Nestlé). If the producers of
sugar (for example, Huletts) become fewer and fewer or
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organise themselves into a single selling unit, they (the sugar
producers) will increase their bargaining power, perhaps to
such an extent that potential entrants would avoid the
market. It is for this reason that Coca-Cola has a stated
policy that it is never reliant on a single supplier for any of its
raw materials.
4.5 Threat of intense segment rivalry
A segment is unattractive if it already contains many, strong
or aggressive competitors. It is even more unattractive if the
segment is not growing or declining, if fixed costs are high, if
exit barriers are high or if competitors have high stakes in
staying in the segment. These conditions will lead to
frequent price wars, advertising battles and new-product
introductions, which will make it expensive to compete. The
carbonated soft-drinks market is such a market. The sales of
carbonated soft drinks in South Africa and worldwide have
been declining as more and more consumers adopt
healthier lifestyles. Also, the industry is dominated by one or
two very dominant competitors globally (Coca-Cola and
Pepsi) and in South Africa (Coca-Cola). Any firm wanting to
compete with Coca-Cola and its brands (which include
Fanta, Sprite and Stoney Ginger Beer) must know that it is
taking on a formidable competitor – as Pepsi found out
when it first tried to enter the South African market.
As seen in the discussion till date, the competitive
structure of an industry and the critical rules of the game set
by this structure can be explained by using Porter’s model of
competitive forces in an industry. As shown, these forces are
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the threat of entry from new competitors, the threat of
substitute products, the bargaining power of buyers and
supplies and the rivalry between the existing direct
competitors. The intensity of rivalry between existing
competitors in the industry therefore depends on the five
factors. The five competitive forces also highlight the
existence of vertical and horizontal forms of competition.
The intensity of vertical competition is related, in part, to the
bargaining power of suppliers and buyers. The location
(level) of a firm in its value chain and the extent of its control
over the distribution channel, have a major influence on the
firm’s marketing strategy. Indeed, a strategic option may be
to take action to change the impact of competitive forces on
a firm, for example through collaboration and alliance,
rather than accepting the existing situation.18
Relations between customers and sellers sometimes
range from tight, just-in-time manufacturing systems – such
as in the motor industry, where suppliers of motor vehicle
parts almost become extensions of the motor vehicle
assembling factory – to mass-market encounters. The ability
of motor vehicle manufacturers to force down prices by
playing suppliers off against each other is legendary – to the
detriment of the suppliers’ profitability. Pharmaceutical
firms marketing a range of medicines are not as vulnerable
to bargaining pressure because their end customers are
often not price-sensitive, but they still face aggressive
retailers, such as Clicks and Dis-Chem, who control access
to the shelves and extract sizeable marketing
communications allowances, quantity discounts and other
charges for the privilege of having their products on their
shelves. The extent of customer power in these and other
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situations depends on the credibility of their bargaining
leverage and their customers’ sensitivity to price.
Bargaining leverage is enhanced by the following
scenarios:
• When there are few customers making large-volume
purchases. A firm making television documentaries in
South Africa can sell them to only one of three potential
buyers (the SABC, M-Net or etv). Consequently, the
supplying firm becomes dependent on one or only a few
customers, and faces considerable excess capacity if the
relationship is severed. This is also the plight of privatelabel suppliers to large retailers, such as Woolworths.
• When there are few constraints on customers to make a
switch from one supplier to another. This will be the case
when there is little differentiation, the costs of switching
are low or there is a cost-effective substitute. If that is the
case, loyalty is virtually non-existent, and price becomes
the only issue of concern. Whether a large organisation,
such as a university or a municipality, buys its stationery
from firm A or firm B will in all probability depend on
their prices. One stationery seller is not likely to be
differentiated from the next – they both sell the same
products – and it will be easy to switch if ‘the price is
right’.
• When a buyer makes realistic threats to manufacture the
product themselves rather than buy it. This threat (the
so-called ‘make-or-buy’ decision) can and will be used
to wring concessions on prices and terms under the
guise of making the ‘make’ alternative more attractive
than continuing to ‘buy’. In the United States, this threat
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•
•
continually hangs over the beverage can manufacturers
– more than 25 per cent of all cans are made by the
breweries and soft-drink firms themselves. Similarly,
large firms whose employees need to travel frequently
often contemplate bypassing travel agencies and set up
their own travel offices. Some large-liability insurance
customers are protesting against the high premiums
demanded by insurance firms by self-insuring and
spreading the risk among their many operating units.
When a customer is knowledgeable enough to know
their suppliers’ costs, or have learnt that the supplier
badly needs their business to be able to utilise expensive
excess capacity. For example, a major newspaper printer
whose printing presses are idle for long periods may
offer the management of a new magazine bargaining
power to negotiate a very good price to print the
magazine for them.
During periods of high price sensitivity. Price sensitivity
refers to how important lower prices are to the customer,
and hence the intensity of their demands for price
concessions. Price sensitivity is heightened when:
> The product or service has little influence on the
performance or quality of the end product
> The cost of the product is a significant proportion of
the customer’s total costs
> The customer is suffering poor profitability, and
looks to the supplier for help. When survival is at
stake the pressure for concessions can be intense.
When these factors describe buyers who perceive little
differentiation among the competing suppliers, the pressure
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on the demand for lower prices is further intensified.
5. Analysing key competitors
LO7
A key competitor is any firm targeting the same market
segment as the firm conducting the analysis. The objective
of a key competitor analysis is to be able to predict key
competitors’ potential actions, especially those taken in
response to the actions of the local business.
EXAMPLE >> In the video-game-console business, the strategies of
Microsoft and Sony, which are attempting to dominate next-generation systems,
are largely predictable – based on each company’s tangible and intangible assets
and current market position. For Sony, which has valuable businesses in
consumer electronics and in audio and video content, it is important to establish
the PlayStation as the living-room hub, so that any cannibalization of the
company’s consumer electronics businesses comes from within. The PlayStation,
which plays only Blu-ray disks, is thus one of the company’s most important
vehicles in driving demand for Blu-ray gaming, video, and audio content.
Microsoft on the other hand has limited hardware and content businesses but
dominates personal computers and network software. Establishing the Xbox as
the living-room hub would therefore help to protect and extend its software
businesses. For Microsoft, it is crucial that the ‘digital living room’ of the future
should run on Microsoft software. If an Apple product became the hub of future
‘iHome’ living rooms, Microsoft’s software business might suffer. Sony and
Microsoft therefore have different motives for fighting this console battle. Yet the
current market positions (existing businesses and economies of scope), tangible
assets (patents, cash), and intangible assets (knowledge, brands) of both
companies suggest that they will compete aggressively to win. It was predictable
that they would produce consoles which, so far, have been far superior
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technologically to previous systems and interconnect seamlessly with the Internet,
computers, and a wide variety of consumer electronics devices. It was also
predictable that both companies would price their consoles below cost to
establish an installed base in the world’s living rooms quickly. The competition to
win exclusive access to the best third-party developers’ games, as well as
consumer mind-share, will also probably continue to be waged more aggressively
than it was in previous console generations. For Microsoft and Sony, the resourcebased view of strategy helps us to understand that this battle is about far more
than dominance in the video game industry and thus to identify the aggressive
strategies both are likely to follow. Nintendo, in contrast, is largely a pure-play
video game company and thus an asymmetric competitor to Microsoft and Sony.
The resource-based view of strategy explains why Nintendo’s latest console, the
Wii, focuses primarily on the game-playing experience and isn’t positioned as a
digital hub for living rooms. The Wii’s most innovative feature is therefore a new,
easy-to-use controller appealing to new and hardcore gamers alike. The Wii has
few of the expensive digital-hub features built into the rival consoles and thus
made its debut with a lower retail price. 19
Today, competition is not only rife in most industries, but
intensifying every year. Many US, European and Japanese
firms are bringing cheaper goods to global markets by
setting up production facilities in lower-cost countries, such
as China, Malaysia and South Africa. Many of these are in
the motor vehicle and related industries, of which
Volkswagen’s assembly plant in Uitenhage is an example.
These developments explain the importance of ‘competitive
intelligence systems’. Because markets have become so
competitive, understanding customers only is no longer
enough.
The competitive environment is also an important
consideration given the need to provide superior value to
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target customers. However, competition in the online world
is incredibly intense. It is not unusual for a firm to develop a
clear business plan only to have new competition emerge
prior to the launch date. Hence it is critical that existing and
emerging competitors are understood and constantly
monitored. Competitors must be evaluated in both the
online and offline environments. The online environment is
distinctive in two respects. First, the degree of competitive
intensity is different from the offline world (specifically, in
terms of the number of new competitors that are emerging
both within the product category and across product
categories). Second, it is much easier to analyse competitors
given the emergence of Internet sources. Successful firms
place a strong emphasis on understanding their
competitors. General Electric, for instance, once ran an
exercise for its managers called ‘destroyyourbusiness.com’,
which forced managers to think about where they were most
vulnerable to new-economy competitors.20
Partnerships between banks and non-financial
institutions (e.g. retailers, telecom companies and thirdparty platform providers) will be more prevalent in the
future as banks attempt to broaden their distribution and
reach unbanked segments of the market. South African
banks wanting to expand into Africa might also have to
consider partnering with local banks in those markets, as
local businesses often enjoy advantages in terms of doing
business in Africa’s complex environment. As a result, it is
important to consider local banks, not only as competitors
but also as potential business partners.21
To summarise, a competitor analysis is conducted for the
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firms directly competing with each other (i.e. current
competitors) and for other firms that management may
consider important in strategy analysis (i.e. potential
competitors).
6. Understanding current competitors
LO8
It is important to have an understanding of current
competitors. Aspects to consider include size, growth and
profitability; image and positioning strategy; competitor
objectives and commitment; current and past strategies of
competitors; competitive culture; cost structures; and exit
barriers.
6.1 Size, growth and profitability
An understanding of current competitors should start with a
thorough analysis and understanding of their broad-based
business strategy. Coca-Cola, for instance, wants to offer a
‘total beverage solution’. What does this say about CocaCola’s business strategy? It says it is not going to market only
carbonated soft drinks any more. It also means that CocaCola will from now on add non-carbonated drinks, such as
mineral water, nutritional beverages, such as Vitingo, and
energy drinks, such as Play, to its product mix. The idea is
that no matter what a consumer wants to drink, there must
be a Coca-Cola product available. The level and growth of
sales and market share provide indicators of the success of
the business strategy. Obviously, the maintenance of a
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strong market position or the achievement of rapid growth
usually reflects a strong competitor (or strategic group) and
a successful strategy. By contrast, a deteriorating market
position can signal financial or organisational strains that
may affect the interest and ability of the business to
compete.
Besides size and growth, the profitability of competitors
needs to be assessed. A profitable business will generally
have access to capital for investment unless it has been
designated by the parent to be ‘milked’ (being milked means
the cash that the product or business unit generates is used
elsewhere in the business, but the unit receives no or limited
resources itself – see Chapter 14). A business that has lost
money over an extended time period or has experienced a
recent sharp decrease in profitability may find it difficult to
gain access to capital either externally or internally, which
will weaken its competitive capabilities.
6.2 Image and positioning strategy
Often the cornerstone of a business strategy is a mental
association consumers have of a product or brand, such as
being the most economical dishwasher, the most durable
lawnmower, the smallest cellphone or the most effective
toothpaste. Mr Price has clear value for money positioning,
for instance. In order to develop the firm’s positioning in
relation to alternatives, marketers need to study the
positioning of competing firms and products. Besides formal
research, the promotion and advertising, and packaging and
pricing of competing firms will provide clues on their market
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positioning (see Chapter 7).
When British Airways launched its no-frills airline,
Kulula.com, it was careful about its positioning. Kulula is
isiZulu for ‘it’s easy’, which is the key focus of Kulula.com.
‘The whole concept of Kulula.com is a departure from the
norm in South Africa’s airline industry’, said Gidon Novick,
CEO of Kulula.com. ‘To reinforce the fun, easy aspects of the
new airline, we have opted for a young, modern look and
feel throughout our marketing campaign. The campaign
embodies the idea [that] ‘anyone can fly’ and brings in
elements of ordinary people becoming superheroes who can
fly’, he says. The successful positioning of Kulula.com has
contributed significantly to its financial success and
contributed to South African Airways’ financial woes in the
local market.22
6.3 Competitor objectives and commitment
The firm needs to know the relative importance that a
competitor places on current profitability, market share
growth, cash flow, technological leadership, service
leadership and other objectives. Knowing a competitor’s
mix of objectives reveals whether the competitor is satisfied
with its current situation and how it might react to different
competitive systems. For example, a firm that pursues lowcost leadership will react much more strongly to a
competitor’s cost-reducing manufacturing breakthrough
than to the same competitor’s increased advertising
expenditure. A firm should also monitor its competitors’
objectives for clues on which market segments they are
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likely to target. If a firm finds that a competitor is targeting a
new segment, this may offer a new opportunity. If it finds
that competitors plan new moves into segments now served
by the firm, it will be forewarned and hopefully forearmed.23
To illustrate, Woolworths is increasingly competing with
the bigger supermarkets, particularly targeting both higher
and middle-income LSM groups. It has made it clear that it
will open more outlets, will increase its product range and
continue to add more branded products.24 A statement of
this nature would provide a clear indication to competing
firms, such as Pick n Pay and Checkers, as to the areas in
which they would experience competition from
Woolworths.
Firms in an industry often differ in the importance they
attach to short-term and long-term profits. Most South
African firms operate on a short-run profit-maximisation
model, largely because their current performance is judged
by shareholders and market analysts, who may lose
confidence in the firm, sell their shares and cause the firm’s
cost of capital to rise if they do not perform well over the
short term. Japanese firms, on the other hand, take a longterm view. They use what is called a market-sharemaximisation model. This means that Japanese firms
receive much of their funds from banks at a lower interest
rate, and in the past the banks have readily accepted lower
profits. Clicks, for instance, in its first year of competing in
the pharmaceutical market with its in-house pharmacies,
made a loss of R38 million, but the firm took the long-term
view that profitability would return.
Another model or school of thought is that each
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competitor pursues some mix of different objectives. The
particular mix will depend on a given set of circumstances,
such as improving cash flow, market-share growth,
technological leadership or service leadership. Knowing the
importance each competitor attaches to different objectives
will help the firm anticipate their reactions. Many factors
shape a competitor’s objectives, including its size, history,
current management and financial situation. If the
competitor is a division of a larger firm, it is important to
know whether the parent firm is running it for growth or
milking it. Finally, a firm must monitor its competitors’
expansion plans. In the computer industry, Dell – which is a
strong force in selling personal computers to individual
users – is also pursuing commercial and industrial buyers,
and selling servers. Other incumbents may, therefore, wish
to set up mobility barriers to Dell’s expansion into ‘their’
markets.25
6.4 The current and past strategies of
competitors
Knowledge of current strategies and past strategies also
helps one anticipate and understand how competitors
behave. Mercedes-Benz has consistently targeted only the
top end of the passenger vehicle market. Surprisingly, the
firm decided in the 1990s to add the Honda Ballade to its
product mix in a classic example of a downward stretch,
which was inconsistent with its previous strategy. This
decision has since been rescinded. Competitors can,
therefore, expect Mercedes-Benz to continue with its niche
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strategy of the past.
6.5 Competitor culture
Just as current and past strategies are helpful in
understanding competitive behaviour, so is knowledge of
competitors’ culture. Nando’s organisational culture is
epitomised by its advertising strategy of humour and a
daredevil, ‘no-holy-cows’ approach. Competitors of
Nando’s, such as KFC, know exactly what to expect of
Nando’s – anything!
6.6 Cost structure
Each industry has a certain cost burden that shapes much of
its strategic conduct. For example, steelmaking requires
heavy manufacturing and raw-material expenditure,
whereas toy manufacturing relies heavily on expensive
distribution, and other marketing costs are considerable.
Firms will continually try to reduce these costs. The steel
firm with the most cost-efficient factory, for instance, will
have a great advantage over other steel firms. Another
example is Nampak’s decision to invest in a new
manufacturing plant in Kliprivier at ‘considerable cost’ to
make the Cuddlers nappy brand locally rather than
importing it. The firm believes that by manufacturing
locally, it can be priced more competitively against the
major international brands, such as Huggies and Pampers.26
Also, cost structures change over time. When Cell C
launched its bid to become South Africa’s third cellular
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phone operator, it estimated its set-up cost at R4,5 billion.
The actual cost turned out to be R2,5 billion.27
READER 24 >> Priced to go
Despite tough business conditions in 2014 retailer Mr Price has increased its
profits by 23%. Why has this ‘cheap and chic’ retailer’s budget-conscious
offerings competed so effectively with well-entrenched competitors such as
Foschini and Truworths? Mr Price began as a small chain of factory shops, an
image that management decided to change to a trendy, value outlet. Though
the directors are loath to admit it, the factory shop reputation sticks in the
minds of some shoppers. Value retailing has taken time to catch on in South
Africa’. The distinction between factory shops and value retailing may seem a
fine line. But when a group image is at stake, it’s important. ‘It has taken time
to persuade people that lower prices don’t always mean poor quality.’ Until
recently, some upmarket shopping malls wouldn’t accommodate Mr Price
outlets. This attitude has changed as poor trading conditions have forced
many established competitors to close or downsize. Mall managers, seeing Mr
Price was thriving even in this trading climate, invited the chain to open
outlets. Walk into a Mr Price outlet, and the difference between it and a
clothing chain with more luxurious branding and decoration is immediately
apparent. Mr Price’s fittings are clearly cheaper, its price signs bolder.
Assistants are informally dressed, in keeping with the chain’s weekend gear
range. And the shop’s in-house radio fits this atmosphere. ‘We are able to
supply competitively priced goods because of the group’s low-cost structure.
We don’t have a luxurious head office; the stores have inexpensive fittings.’
But Mr Price is still a volume business. With sales of about R11 300/m², it
beats most. Moreover, the chain needs fewer sales assistants per R100 000
worth of sales than many competitors.
SOURCE: Adapted from: Moorda, Z. 2014. Mr Price bucks retail sector gloom. Business Day, 18
November, p. 11; Joubert, M. 2000. Priced to go. Financial Mail, 4 February 2000, pp. 48–49
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Knowing the cost structure of firms in an industry provides
clues on competing firms’ future pricing options and staying
power. When challenged on pricing by cheaper competitors
in the past, South African Airways has often responded with
an attitude of: ‘We know what it costs to operate an airline in
South Africa. We know cheaper fares are not sustainable
over the long term. We will wait till the storm blows over.’
6.7 Exit barriers
Exit barriers are an important consideration for a firm
wanting to withdraw from a market. Firms often face exit
barriers, which include legal or moral obligations to
customers and creditors; employee-related expenditure,
such as contract payments and severance packages;
government restrictions; low asset salvage values due to
over-specialisation or obsolescence; lack of alternative
opportunities; high vertical integration; and emotional
barriers – which all make it difficult for a firm to withdraw
from a market. Many firms stay in a very competitive
industry as long as they cover their variable costs and some
(and hopefully later all) of their fixed costs. Their continued
presence, however, dampens profits for everyone. When
General Motors (GM) disinvested from South Africa in 1986
by selling its operations to the then local management team
to become Delta Motor Corporation, GM had $800 million of
debt to settle after six years of losses – a considerable exit
barrier even in today’s money. Knowing that these factors
have an impact on competing firms helps one to understand
their competitive activities.
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7. Understanding potential competitors
LO9
In addition to current competitors, it is important to
consider potential market entrants, such as firms that might
engage in the following:28
•
•
•
Market expansion: perhaps the most obvious source of
potential competitors is firms operating in other
geographic regions or other countries entering the firm’s
market. Examples are Tata (Indian), Renault and
Peugeot (both French) entering the South African motorvehicle market. A Botswana grocery retailer called
Choppies (who has 67 stores throughout Botswana) has
recently entered the South African retail market and
already has 23 store dotted around the country –
competing with stores such as Checkers and Shoprite
USave.
Product expansion occurs when firms add new products
to their existing product line. Oros, an orange-squash
drink, used to be available only in relatively large bottles
in a syrup form that needed to be mixed with water at
home. Now Oros has launched the Oros Dinky, a readyto-drink version, packaged in a plastic pouch with a
straw, to compete directly with Coca-Cola’s Bibo.
Integration can consist of vertical, forward, and
backward integration strategies – all sources of potential
competition. General Motors bought dozens of
manufacturers of components during its formative years
(backward integration). Major users of cans, such as
tinned soup manufacturer Campbell Soup, have
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integrated backwards – manufacturing their own cans
and other containers, thereby making life difficult for
many can manufacturers. Vertical integration can,
however, create certain disadvantages, such as high
costs in certain parts of the value chain and a degree of
inflexibility (in this example, because they can only use
their own cans).
• The export of assets or competencies can occur when a
current small competitor with critical strategic
weaknesses can turn into a major entrant if it is
purchased by another firm that can reduce or eliminate
those weaknesses. Predicting such moves can be
difficult, but sometimes an analysis of a competitor’s
strengths and weaknesses may suggest some possible
synergistic mergers. Clicks entered the pharmaceutical
market by opening pharmacies in its current retail
outlets in the hope that its retail competencies and
current health-and-beauty product ranges’ synergy with
pharmaceutical products – as well as its higher buying
power – will allow it to compete effectively with
independent pharmacies.
• Retaliatory or defensive strategies can be used by firms
that are threatened by a potential or actual move into
their market. For example, Microsoft has made several
moves (including into the Internet space) in part to
protect its dominant software position. CD Warehouse
and Musica reacted to the increased competition from
the Internet (where songs can be downloaded) by
discounting the most popular 20 CDs to ‘encourage
music fans to return to the CD as a music-listening
format’.
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7.1 Entry barriers
Entry barriers are an important consideration when
analysing potential competitors. Industries differ greatly in
respect of ease of entry. It is easy to open a new restaurant,
but difficult to enter the aircraft industry. Major entry
barriers include high capital requirements, high economies
of scale requirements, patents and licensing requirements,
scarce locations, raw materials, difficulty in getting access to
intermediaries and reputational requirements.
Several overseas beer brewers have eyed the South
African beer market over the years (including the world’s
largest brewer, Anheuser-Busch), but have decided not to
take on South African Breweries, mainly because of the high
barriers to entry and particularly the investment required to
match SAB’s formidable distribution network. Pepsi is again
entering the South African market, but is finding the going
tough against Coca-Cola’s well-established market position.
When satellite network Top TV entered the television
market to challenge DStv they knew that they needed deep
pockets to overcome the entry barriers – R1,2 billion to be
exact.
8. Evaluating competitors’ strengths and
LO10
weaknesses
A precise understanding of a competitor’s strengths and
weaknesses is an important prerequisite for developing a
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strategy to compete against it. The critical question is what
can our competitors do? Firms normally learn about their
competitors’ strengths and weaknesses through secondary
data, personal experience and word-of-mouth. They can
also conduct primary marketing research with customers,
suppliers and dealers. An alternative is to benchmark
themselves against other firms, comparing their own
products and processes with those of competitors or leading
firms in other industries to find ways to improve quality and
performance. Benchmarking has become a powerful tool for
increasing a firm’s competitiveness.29 In essence, the
objective will be to overcome competitors’ strengths and
exploit their weaknesses. When benchmarking, firms should
also review competitors’ websites, identifying not only best
practices, but also worst practices (to be avoided at all costs)
and ‘next practices’. Next practices refers to a firm looking
beyond its industry sector at what leading Internet firms,
such as Amazon (www.amazon.com), are doing. For
instance, a firm in the financial services industry could look
at what portal sites are providing and see if there are any
lessons to be learnt on ways to make information provision
easier. When undertaking scanning of competitor websites,
the key differences that should be watched out for are new
approaches from existing competitors and new firms
starting on the Internet. It is also important to be alert to
new technologies, design techniques and customer support
on their websites, which may give a competitive advantage.30
When TopTV launched it knew that DStv had a lot of capital
and a strong brand which will make it a formidable
competitor. Based on the analysis of current and potential
competitors, discussed in the previous sections,
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management needs to decide to what extent elements of
information are worth pursuing. One approach that may be
used to structure and focus this component of a competitor
analysis is that of comparing the firm with its key
competitors on the key success factors (KSFs) in the
industry. A KSF analysis can be performed using a threestep process.31
8.1 Step 1: Identify key success factors in the
industry
KSFs can be defined as those characteristics or conditions in
a particular industry that have a significant impact on the
performance of the firm in that industry (see the section
‘Defining the competitive arena’, p. 118). For individual
firms these success factors translate into particular assets,
skills or competencies required in order to succeed in the
industry. The better the ‘fit’ between the firm’s unique
competencies (strengths relative to weaknesses) and the
success requirements of the industry, the more successful
the firm is likely to be. It is important to restrict the number
of KSFs to about six to eight, or else the analysis becomes too
complicated. The identification is a matter of managerial
judgement, but answers to the following questions may
guide the identification of KSFs:32
•
•
Why are successful competitors successful and
unsuccessful competitors unsuccessful?
What are the most important motivators of customers’
choices? What do customers consider as important?
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•
•
Which phase(s) in the production process and supply
chain creates the highest added value? The activities that
contribute to the highest added value are most likely to
be key factors that determine success.
What are the entry barriers in the industry and between
segments in the market? The factors that make it difficult
for a competitor to enter a market or segment are typical
KSFs.
Competitors’ sources of success may be functional (e.g.
financial strength or flexible production) or more generic
(e.g. the ability to respond quickly to customer needs, the
quality of innovativeness or the ability to provide after-sales
service). Since these factors are critical for success, they
should be used to compare the firm with its competitors (see
Reader 25 ‘Mugg & Bean – no mug in dealing with the
competition’, below).
READER 25 >> Mugg & Bean – no mug in dealing with
the competition
The light meals and coffee shop brand, Mugg & Bean, was recently awarded
the best place to ‘grab a cup of coffee’ at The Times and Sowetan 2009
Retail Awards. This was the pinnacle of the career of veteran restaurateur and
CEO of Mugg & Bean Franchising, Ben Filmalter. The award follows the steady,
if not stellar, growth of the Mugg & Bean brand since the opening of its first
branch at the Victoria and Alfred Waterfront shopping centre in Cape Town in
1996.
Competition has always been intense in the coffee-shop market due to low
barriers to entry. These difficult trading conditions have been compounded in
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recent years by the entry into the South African market by such international
giants as Starbucks, and the pressure that the recession has put on
discretionary consumer spending. However, Mugg & Bean’s carefully defined
focus on a particular niche market (the firm’s website – www.themugg.com –
describes the business as a ‘coffee-themed restaurant franchise focused
mainly on the shopping market’) has allowed the business to expand to more
than 100 locations in South Africa, as well as internationally.
In addition, Filmalter further explains why Mugg & Bean has been able to
grow, despite the tough economic climate and competitive environment: ‘We
have reviewed the value proposition of every dish on the new menu and ensure
that it complies with our ethos of generosity. We offer more beautiful food,
more plentiful plates, more fresh products and a friendlier atmosphere. This is
our secret to rising out of the current challenging economy.
‘The reason for the brand’s world-class success is because of the cutabove quality and extraordinary value for money. We are always more generous
with our portions, offer high-quality food and have outstanding signature
dishes and baked items. We have meaning in consumers’ lives and will
continue during these difficult times to meet the needs of our consumers.’
SOURCES: The Times and Sowetan Expanded 2009 Retail Awards proves sector is highly competitive.
Media update online newsletter, http://mediaupdate.co.za/, 9 October 2009; Roberts, C. 2001.
Coffee Break. Hotel and Restaurant Magazine online, May 2009
In Table 4.2, the KSFs identified following the above
guidelines are listed in the left-hand column. Next it is
critical to decide on a relative importance score (relative to
each competitor) for each of the KSFs. To do this, weights
must be allocated to each KSF to reflect its importance. The
different weights allocated to the KSFs must add up to 1. For
example – as indicated in Table 4.2 – it may be that product
quality, financial strength and the skills and expertise of staff
are the most important KSFs for competitive success within
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this hypothetical sector, and innovativeness, technical
assistance to customers and extensive distribution networks
are relatively unimportant.
8.2 Step 2: Rate the firm and competitors on
each KSF
After weights have been assigned, the marketer must rate
the firm and decide on the most threatening competitors on
each of the KSFs. This may be on a scale ranging from 1
(very poor) to 5 (very good). As shown in Table 4.2, the
marketer can decide which competitors to include in this
exercise. In the hypothetical illustration in Table 4.2, three
current competitors are included and two future
competitors, based on the discussion about benchmarking
above. Once the rating is completed, one needs to multiply
the rating of each KSF by the weight allocated to it in order
to calculate a score for each firm/competitor and each KSF.
By adding all the KSF scores for each competitor into a total,
one can determine their positions of competitive strength
and compare them with each other. From Table 4.2, it is
evident that Current Competitor 2 is the market leader,
followed by Future Competitor 2, which is ahead of us,
Competitor 1, Competitor 3 and Future Competitor 1.
Table 4.2 Weighted competition strength assessment
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Note: Rating scale = 1 (very poor) to 5 (very good)
8.3 Step 3: Consider the implications for
competitive strategy
When one considers Table 4.2, it is evident that this kind of
assessment indicates the relative importance of KSFs and
the relative strength of each competitor on the basis of these
factors. The competitive profiles can now be used to identify
possible competitive strategies based on each KSF in
relation to those of the competitors. It sometimes also helps
to establish the competitive position of a firm in a target
market on the basis of its own strengths and weaknesses, as
follows:33
•
Dominant: The dominant firm, to some extent at least,
controls the behaviour of other competitors and has a
wide choice of strategic options. In the South African
motor vehicle industry Toyota may be an example in
terms of pricing of motor vehicles in South Africa.
Similar examples include South African Breweries, CocaCola and South African Airways.
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Strong: This firm can take independent action without
endangering its long-term position, and can maintain its
long-term position regardless of competitors’ actions. In
the South African motor vehicle industry, Volkswagen is
an example. In the airline industry, British Airways is an
example of a strong firm that can make independent
decisions without compromising its long-term
prospects.
• Favourable: This firm has an exploitable strength and a
more-than-average opportunity to improve its position.
In the South African motor vehicle industry, Nissan is an
example. In the airline industry, Kulula.com is a good
example of a firm that can improve its position in the
near future.
• Tenable: This firm performs at a sufficiently satisfactory
level to warrant continuing in business, but is kept back
by the dominant firm and has a less-than-average
opportunity to improve its position. In the South African
motor vehicle industry, General Motors may be an
example of a firm that can improve its position in the
near future. Cell-C is an example in the
telecommunications industry.
• Weak: This firm’s performance is unsatisfactory, but
there is scope for improvement. The firm must change or
else exit the industry. In the South African motor vehicle
industry, Volvo may be an example. In the airline
industry, Nationwide Airlines and 1Time were unable to
improve its competitive situation and had to close down.
Mango is a relatively weak competitor in the South
African airline industry.
• Non-viable: This firm has unsatisfactory performance
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•
and there is no opportunity for improvement. 1Time
faced this situation in the South African airline industry.
The advertising agency The Grey Group recently closed
its doors after five years of decline.
9. Anticipating competitors’ actions
LO11
The information obtained during the steps of a competitor
analysis, outlined above, should be helpful in estimating
future trends – although possible strategy shifts by
competitors may occur. A major objective of competitor
analysis is to predict competitors’ responses to market and
competitive changes. This is done by first considering the
likely reaction patterns of competitors because these will
influence direct rivalry among competitors.
9.1 Likely reaction patterns of competitors
How a competitor in an industry or market reacts to a
competitive threat will be determined by, among others, its
business philosophy, its organisational culture and the
values it subscribes to. According to Kotler,34 most
competitors’ reactions to competition, based on their
reaction profile, fall into one of four categories:
•
The laid-back competitor is one that does not react
quickly or strongly to a rival’s move. On past occasions,
Gillette (manufacturer of toiletries, such as shaving
equipment) and Heinz (manufacturer of tinned food
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products, among others) reacted slowly to competitive
attacks. There are various reasons for a slow response:
laid-back competitors may feel their customers are
sufficiently loyal and that they need not worry; the
competitor may be milking the business prior to its
closure (see Chapter 14); they may be slow in noticing
the move; or they may lack the financial resources to
react. Rivals must try to assess the reasons for the laidback behaviour of its competitors. Despite its size and
dominance SA Breweries are cognisant of competitor
activity and the Managing Director Norman Adami says
its does not want to fall into the ‘bigness’ trap.35
• The selective competitor is one that reacts only to certain
types of attacks. Selective competitors may, for instance,
respond only to price cuts, but not to promotions.
Knowing what a key competitor reacts to gives its rivals a
clue as to the most feasible lines of attack. When Pick n
Pay launched its Mini-Market chain, Whitey Basson,
CEO of Shoprite said that ‘… [the Shoprite] group will not
be going into direct competition with Spar and Pick n
Pay, but Shoprite will continue to compete with them on
price’.36
• The tiger competitor is one that reacts swiftly and
strongly to any competitive threat. In the United States,
Procter & Gamble (P & G) does not let a new detergent
come onto the market easily. Lever Brothers found this
out during its first foray into the so-called ‘ultra’
detergent market. Ultras are more concentrated
detergents marketed in smaller bottles. Retailers like the
smaller bottles because they take up less shelf space. But
when Lever Brothers introduced its ultra-versions of
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•
Wisk and Surf, it couldn’t get shelf space for long. P & G
vastly outspent Lever on advertising to support its own
brands to counteract Lever Brothers’ entry into this
market. Unilever has enjoyed market dominance in the
South African detergent market with brands such as
Omo. Surf and Skip. Now Proctor and Gamble is
challenging Unilever by introducing Ariel detergent,
supported by a R1,6 billion Rand budget. Justin Aspey,
Vice-President of Unilever for brand building says ‘…
Unilever will increase its adverting spending…’ in
response.37
The stochastic competitor is one that does not exhibit a
predictable reaction pattern. There is no way of
predicting the competitor’s action on the basis of its
economic situation, history – or anything else. Many
small businesses are stochastic competitors, competing
on various fronts when they can afford it. An example of
a stochastic competitor is Facebook that did not respond
to competitors such as WeChat and Twitter but was
prepared to pay a staggering $19 billion American dollars
for a competitor that has only 55 employees – WhatsApp.
The idea apparently, was only to get ‘… the mobile
competition out of the way’.38
Based on competitors’ capability to respond, the following
equation can be of value:39
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>>Technology in action
M-Pesa mobile money to be
relaunched
Vodacom will tempt fate with the relaunch of its MPesa mobile money service, this time promising an
improved product armed with more features. This is a
bid to revive the service, which has not seen a similar
uptake locally compared with other African countries.
On offer this time is a partnership with Visa and Bidvest
Bank to launch a debit card for withdrawals and
deposits at approximately 27 000 ATMs. The
telecommunications giant has also bolstered its
distribution network, with 8 000 agents at both informal
outlets and at major retail partners, to enable users to
pay for goods, buy airtime and top up their M-Pesa
wallets. The revamped M-Pesa enables a mobile wallet
on a cellphone and users can then transfer money from
a bank’s Internet banking account to an M-Pesa wallet.
Part of the revamp was to make registration for the MPesa simple. Initially, customers would have to present
their identity document at limited outlets, but now
customers could self-register using a cellphone. This
marks an exciting development story for M-Pesa’s
journey. According to Herman Singh, managing
executive of mobile commerce at Vodacom, they had to
launch a product that appeals to everyone …which they
believe is going to be a super product. M-Pesa was first
launched in Kenya in 2007 and the service is now used
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by more than 18 million people across 13 countries for
banking and money-transfer services using mobile
phones.
SOURCE: Adapted from Maklaka, R. 2014. M-Pesa mobile money to be relaunched. The Citizen, 4
August 2014, p. 22
Competitors may continue to pursue future strategies in the
direction that they have pursued in the past, particularly if
no major external influences necessitate changing their
strategies. Nevertheless, to assume that an existing strategy
will continue is not wise. Competitors’ current actions may
signal probable future threats. The issue of how a
competitor is likely to respond in the future has three
components:40
•
•
•
How is the competitor likely to respond to general
changes taking place in the external environment and
particularly to changes in the market?
How is the competitor likely to respond to competitive
moves that competitors might make?
How likely is it that the competitor will initiate an
aggressive move, and what form might this take?
Building a brand is particularly difficult when the market is
dominated by two super-brands, sharing more than 90 per
cent of the market. That’s what Sony had to face when it
launched its PlayStation against Nintendo and Sega in 1995.
So it was forced to approach the market differently. The
secret was segmentation and targeting. PlayStation decided
to upgrade to an older age group of teenagers and young
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adults by making PlayStation socially acceptable to them.
Since 1995, Sony has sold millions of consoles, becoming the
dominant computer game, and the PlayStation now
accounts for 30 per cent of Sony Corp’s profits.41 In South
Africa’s telecommunications market Vodacom and MTN
have a combined market share of 85 per cent – and Cell-C
only 13 per cent. Cell-C’s strategy in the future will be to
focus of the demand for data capacity rather than on ‘voice’
demand.42
>>Technology in action
VoIP
An interesting development in the telecommunications
market is the rapid growth in the use of Internet calling.
The technology is called ‘voice over Internet protocol’
(VoIP). Improved technology solutions have led to a
robust VoIP market in recent years, and this growth is
continuing despite the economic downturn because
VoIP offers a cheaper alternative. Although security
and reliability concerns still need to be resolved,
consumers and businesses alike are turning to VoIP in
an effort to save costs. Japan, China and the United
States continue to be some of the world’s hottest
markets for VoIP telephony. Over the last couple years,
Europe has also become a prime innovator in VoIP
services, whether stand-alone, bundled as a triple play
offer, or through fixed-mobile convergence packages.
With its relatively well-developed and diverse
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infrastructure, South Africa is taking a regional lead
role in the convergence of telecommunications and
information technologies with the media and
entertainment sector, promising reductions in
telecommunication costs and better availability of
information and services. The legalisation of VoIP
telephony in 2005 marked the beginning of a
fundamental change in the country’s telecoms
landscape. Billions of dollars are being invested in IPbased next-generation networks (NGN) capable of
delivering converged services more efficiently. Telecom
carriers and ISPs are moving into delivering audio and
video content over their networks, while, in turn, the
traditional electronic media carriers are discovering the
potential of their infrastructure for telecommunications
service delivery. Digital media and social media have
reached a level of development to foster an associated
advertising and marketing industry. Online advertising
in South Africa continues to grow at one the fastest
rates among countries in the English-speaking world,
and the country has as many Twitter users as Spain as
well as the largest LinkedIn user base in Africa.
SOURCE: South Africa - Convergence - VoIP, NGN & Digital Media. 2010. Paul Budde
Communication Pty Ltd (Budde Comm). Available: http://www.budde.com.au (accessed 16 July
2010)
10. Direct rivalry among competitors
LO12
In some markets the direct rivals co-exist comfortably and
appear content with their respective market shares. Other
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markets are constantly on a war footing as the competitors
look for a temporary edge with price cuts, promotional
deals, advertising blitzes and aggressive spending on new
product development.
Others in the market have to match these moves to
protect their position, and a wave of price cutting sometimes
escalates to the point where everyone suffers damage to
their profits. In its eagerness to fill seats to cover fixed costs,
the airline industry worldwide has a long history of behaving
in this way, despite experience that tells airline operators
that cut-price market expansion is short-lived and erodes
profits while leaving market shares unchanged.
EXAMPLE >> A classic example of direct rivalry is the global battle
between Unilever and Procter & Gamble in the haircare market. When Procter &
Gamble launched the shampoo and hair-conditioner brand, Pantene, to compete
with Unilever’s Organics, Unilever had spent more than R11,8 million on
advertising for Organics hair products, while Procter & Gamble spent more than
R1 million in just two months to advertise Pantene. Although retailers are tightlipped about the happenings, industry insiders say the two firms even compete
over shelf-space in shops like Clicks and Pick n Pay. Consumers have also gained
from loyalty offers, such as buy-one-get-one-free and coupon discounts. Industry
expert, Elvin Nadas, says consumers are benefiting from the shampoo war
because the rivals are forced to use innovations and bring their international
expertise to South Africa: ‘Although there are other players in the industry, the
competition between the two is interesting because it involves leading
international firms with a lot of money to back their aggressive strategies.’43
>>Strategy
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Rumours are rife that FNB is preparing to launch a
mobile virtual network operator (MVNO) in South
Africa in partnership with mobile operator Cell C. The
move seems likely, given Cell C’s desire to offer MVNO
service and FNB’s numerous existing plays in the
mobile space. MVNO’s – where third parties use an
existing mobile operator’s infrastructure to sell their
own mobile products and services – have proven both
popular and successful in Asia, Europe and the US, but
to date have achieved little attraction in the South
Africa market. The country’s largest mobile operators
(MTN and Vodacom) have been reluctant to offer
MVNO facilities after South Africa’s first MVNO, Virgin
Mobile, achieved limited success in 2006. However,
Cell C, which has faced an uphill battle winning market
share from South Africa’s two biggest networks, had
indicated its willingness to provide MVNO services and
has previously said it was always looking to create
partnerships with high profile brands. Cell C currently
provides the infrastructure for Virgin Mobile and will
be doing likewise for Mr Price’s planned mobile play,
Mr Price Mobile, announced in August 2014. That will
bring South Africa’s MVNO tally to two, but there’s no
reason to think that Cell C isn’t actively pursuing other
suitors. Virgin Mobile in turn powers Red Bull Mobile,
the energy-branded mobile service that is offered
under a brand licensee agreement. Cell C is the only
operator that’s demonstrated an appetite for such
MVNO arrangements.44
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The prevailing situation in the case of direct rivalry depends
on what is known as the industry’s ‘competitive
equilibrium’. The following factors may have an impact on
the competitive equilibrium in a market and determine
whether the direct rivals are in a state of war, peace or
perhaps observing an uneasy truce.45
•
•
If competitors are nearly identical and make their living
in the same way, then their competitive equilibrium is
unstable. Perpetual conflict characterises industries
where competitive differentiation is hard to establish
and maintain over the long term.
Examples are newsprint and retailing. The competitive
equilibrium will be upset if any firm lowers its price to
reduce the overcapacity that may prevail. Price wars
frequently break out in these industries. In the United
States, despite there being only two competitors in the
otherwise attractive market for industrial lasers –
Spectra-Physics and Coherent Radiation – neither is
profitable. Deep-seated antagonism between the
managers of these implacable rivals often leads them to
use their resources to attack and retaliate against each
other, with price cutting being a favourite weapon. In
South Africa, the airline industry is an example of where
price wars often occur when overcapacity becomes a
problem, especially as Kulula.com has grown over time,
and new entrants, such as Mango compete aggressively
with the more established competitors.
If a single major factor is the critical factor, the
competitive equilibrium is unstable. This is the case in
industries where cost-differentiation opportunities exist
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through economies of scale, advanced technology or
experience. A firm that achieves a cost breakthrough –
such as Dell, which markets its computers only via the
Internet – can cut its price and win market share at the
expense of other firms, which can defend their market
shares only at great cost. Price wars frequently break out
in these industries as a result of cost-reduction
breakthroughs.
• If multiple factors may be critical factors, then it is
possible for each competitor to have some advantage
and be differentially attractive to some customers. The
more factors that may provide an advantage, the more
competitors can co-exist. Competitors all have their
competitive segment defined by market preferences for
what they offer. Multiple factors occur in industries in
which firms can be differentiated by factors such as
quality, service, convenience, and so on. If customers
place different values on these factors, many can co-exist
through specialisation and differentiation. What
otherwise could be intense rivalry is muted when there
are large perceived differences among competing
products because customers then develop strong
preferences and loyalties that make them more resistant
to competing offerings. The long-run equilibrium of such
a market is further enhanced when the differences are
difficult to imitate. On the other hand, if there are no
perceived differences among competing products, the
focus soon turns to price, terms, and sales conditions,
and, as a result, rivalry intensifies.
• The fewer the critical competitive variables, the fewer the
competitors. If only one factor is critical to consumers,
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then no more than two or three competitors are likely to
co-exist. The airline industry is an example once again:
safe, reliable transport at affordable prices is what is
important to airline travellers and, as a result, there are
not many competitors in this market in South Africa.
• The measurement of competitive equilibrium. A ratio of
2:1 in market share between any two competitors seems
to be the equilibrium point at which it is neither practical
nor advantageous for either competitor to increase or
decrease market share. At this level, the costs of extra
promotion or distribution would outweigh the gains in
market share. In other words, when competition is
concentrated among a few firms and one competitor
clearly dominates, the followers co-exist under the
leader’s umbrella, and seldom challenge the price
structure for fear of retaliation. This is especially likely
when differences in accumulated experience mean the
leader has much lower costs than the other firms.
• If customer-switching costs are high, equilibrium is
more likely. These costs tend to tie buyers to one
supplier, who is then protected from raids by others.
These costs are high when the product is durable or
specialised (for example, IT systems), when the
customer has invested a lot of time and energy in
learning how to use the product, or has made specialpurpose investments that are useless elsewhere. For
instance, a commitment to a computer operating system
makes it very difficult for a customer to switch from a PC
to an Apple computer, or vice versa, without retraining
and general disruption. Another example is the many
South African firms that have switched to SAP as their
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enterprise resource planning (ERP) software.
11. Deciding which competitors to attack
and which to avoid
LO13
No firm can compete with all other firms in an industry. And
it is impossible to avoid all competition. Often firms may
decide to compete with some competitors in certain market
segments, but not in others. General Motors, for instance,
has decided that it will compete with Toyota in the bakkie
segment of the motor vehicle market, but not in other
markets. Also, Wesbank chose not to follow its competitors
in taking advantage of what seemed to be an opportunity in
the financing of motor vehicles market, which ultimately
turned out to be the correct decision. See Reader 26, ‘Drive a
new car for R699 a month? Too good to be true?’, below.
Most firms will concentrate their efforts on weak
competitors, because this requires fewer resources per share
point gained. The problem is that defeating a weak
competitor will not necessarily enhance the firm’s own
position much, not in terms of increased sales or market
share and not in terms of enhanced capabilities.
Benchmarking and competing with strong competitors
(within reason), however, may strengthen the firm’s own
capabilities and skills over time, which will prepare it much
better for the future.
Most firms compete with competitors who resemble
them the most. General Motors competes with Volkswagen
and not with Mercedes-Benz. At the same time, a firm
should avoid trying to destroy its closest competitor. Porter
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cites two examples of counterproductive ‘victories’: in the
late 1970s, Bausch & Lomb moved aggressively against other
soft-contact-lens manufacturers with great success.
However, this led each weak competitor to sell out to larger
firms, such as Revlon, Johnson & Johnson and ScheringPlough, with the result that Bausch & Lomb then faced
much larger competitors.46 In another similar case, a
speciality rubber manufacturer attacked another speciality
rubber manufacturer and gained share. This led the
speciality divisions of large tyre firms to move quickly into
speciality rubber markets, using them as a dumping ground
for excess capacity.
Another potential strategy for managing the competitive
landscape is to form coalitions and partnerships with
competitors. The argument in favour of this strategy is
obvious: if firms are not competing with each other then
they cannot lose market share to each other. However, this
practice can sometimes be construed as an anti-competitive
practice and, as such, firms can face legal sanctions.
However, strategic collaboration with partners in the value
chain (as opposed to competitors) is usually in the interests
of the consumers and can be converted into a competitive
advantage for businesses. For example, Dell Computers has
strategic partnerships with many of its suppliers, which
allow it to compete with its competitors on both price and
quality.
READER 26 >> Drive a new car for R699 a month? Too
good to be true?
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When something seems to be too good to be true, then is probably is, but to
thousands of South Africans, the ‘Drive a new car for R699 a month’ deal
seemed like the perfect solution to their ‘want a new car but can’t afford it’
dilemma. Essentially the deal allowed buyers to get a new car, with a 100
percent loan from a bank, making the buyer responsible for the full repayment
amount every month. However, this was offset with the promise that if the
buyer acted as a mobile advertisement, by putting certain stickers on the car
(see picture below) they would be able ‘earn’ money from the dealer (Drive Car
Sales) which they would be able to set off against the instalment due to the
bank.
Although most banks participated in the scheme, FirstRand’s WesBank
was the only South African bank that refused to have anything to do with it.
WesBank CEO Chris de Kock, said that the numbers ‘just did not make sense’
and the business model was just not sustainable. As De Kock predicted, the
scheme collapsed.
To make matters worse, De Kock said, the agreement customers signed
with Just Cars, was ‘the most one-sided agreement you’re ever going to find’.
The contract contained all sorts of trivial conditions that, if not meticulously
adhered to, disqualified customers from claiming the financial subsidies the
scheme promised. Without the subsidies, there was no way that most of the
buyers could make their monthly repayments to the banks.
‘It was clear that his model was based on finding ways to get rid of 80 per
cent of his customers through these sorts of technicalities,’ says De Kock,
‘Their model relied on 80 per cent of their customers not claiming, or being
able to claim, any of this money.’
SOURCES: Adapted from Knowler, W. 2014. ‘R699’ car deal owners in despair. iol motoring. 23 June
2014. Available from http://www.iol.co.za/motoring/industry-news/r699-car-deal-owners-in-despair1.1707476#.U-iQWMuKCP8 (Accessed on 11 August 2014); Barron, C. 2014. R699 cars: ‘We just did
the basics and saw it was never going to work’. Sunday Times Business Times (electronic edition), 10
August 2014. Available from http://www.timeslive.co.za/businesstimes/2014/08/10/r699-cars-wejust-did-the-basics-and-saw-it-was-never-going-to-work (Accessed on 11 August 2014)
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The moral of the story is that every industry contains
‘good’ and ‘bad’ competitors. A firm should not condemn its
good competitors and should instead attack its bad
competitors. Good competitors play by the industry’s rules;
they make realistic assumptions about the industry’s growth
potential; they set prices in reasonable relation to costs; they
favour a healthy industry; they limit themselves to a portion
or segment of the industry; they motivate others to lower
costs or improve differentiation; and they accept the general
level of their share and profits. Bad competitors try to buy
share rather than earn it, they take large risks, they invest in
overcapacity and they upset industrial equilibrium. The
Asian information technology firm, Huawei, operating in
South Africa is an example of a ‘bad’ competitor. It is said
that the firm is ‘… not afraid to infringe the odd patent
[right]’.47 As a result of its questionable strategies, Huawei is
highly competitive, with lower R & D costs and cheaper
equipment.48 Corporate scandals, such as Masterbond, the
Health and Racquet Club, and, more recently, Fidentia, are
examples of ‘bad’ competitors.
LOOKING BACK
Today’s firms face their toughest competition ever.
Understanding customers is an important first step in
developing strong customer relationships, but it is not
enough. To gain a competitive advantage, firms must use
this understanding to design market offers that offer more
value than the offers of its competitors. Ariel’s distinctive
brand identity and rapid acceptance has forced Unilever to
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reconsider its marketing strategy. Unilever has responded by
saying that it will increase its spending on advertising – but
that may not be enough.
SUMMARY
1
2
3
4
Analysing actual and potential competitors. A firm can
place competitors on a continuum ranging from direct
competition (level 1) to indirect competition (level 4). At
level 1, competitors offer more or less the same products
and services, whereas level 4 competition is more
generic in nature.
Differentiating between the strategic group and
customer-based approaches to identify competition.
Sometimes also referred to as the market perspective to
competition, this perspective regards all firms or
organisations that satisfy the same customer needs as
competitors. The strategic-group approach to identify
competition is sometimes also referred to as the industry
concept of competition. Competitive activity must be
seen in the context of an industry. The viewpoint is that
all firms that exist in the same industry are de facto
competitors.
The customer-based approach analyses the choices
that consumers make when buying a product or brand. A
second alternative is to analyse the usages of the
products that consumers buy.
The strategic group approach considers competition
from a supplier rather than from a consumer
perspective.
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The industry structures. Four competitive models can
5 be distinguished: monopoly, monopolistic competition,
oligopoly and pure competition.
6 Identifying competitors. Firms should consider direct
and indirect competitors through a competitor analysis.
A competitor analysis starts with current and potential
competitors. It may utilise a customer-based or a
strategic-group approach.
7 A key competitor is any firm targeting the same market
segment as the firm conducting the analysis. The
objective of a key competitor analysis is to be able to
predict key competitors’ potential actions, especially
those taken in response to the actions of the local
business.
8 Understanding current competitors. Understanding
competitors and their activities can provide several
benefits. Factors that should be taken into account
include competitors’ size, growth, profitability, image,
objectives, current and past strategies, organisational
culture, cost structure, exit barriers and strengths and
weaknesses.
9 Understanding potential competitors. It is important to
consider the involvement of potential market entrants in
market expansion, product expansion and integration,
as well as entry barriers.
10 Strengths and weaknesses compared to key success
factors. These can be analysed using a three-step
approach, during which the firm and its key competitors
are compared with each other on the basis of key success
factors in the industry.
11 Reaction patterns. How a firm will respond to
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competition will be determined by its business
philosophy, cultures and values. Most competitors can
be divided into one of four categories: the laid-back
competitor, the selective competitor, the tiger
competitor and the stochastic competitor.
12 Direct rivalry. In some markets rivals co-exist
comfortably, but in others they are constantly at war.
Competitive equilibrium can be disturbed by a number
of factors.
13 Selecting competitors to attack and to avoid. Most
firms will compete with the weakest rivals because this
requires fewer resources. The problem is that defeating
weak competitors will not lead to many gains.
DISCUSSION AND WRITING QUESTIONS
1
2
3
4
5
Using Porter’s five forces’ model, suggest why there is
intense rivalry between the leading supermarket brands
in South Africa.
A new low-cost, ‘no-frills’ airline has just announced that
it will enter the South African airline industry. Conduct a
competitor analysis for the new airline.
Assume that Volkswagen has just announced that it will
drop all its vehicle prices by 25 per cent from next
month. How do you think Toyota will respond? Provide
reasons.
How do you think an online bank could compete in the
South African banking industry?
Choose a B2C industry sector such as airlines, book
retailers, book publishers, CDs or clothing. Work
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6
individually or in groups to identify the type of
information that should be available from websites
which will be useful in terms of competitor
benchmarking. Once your criteria have been developed,
you should then benchmark firms and summarise which
you feel is making best use of the Internet.
Why is Google standing out from its rivals?
STRATEGY READER >> Success not only breeds
success – it also attracts competition
Grocery retailer Woolworths has been a particularly successful retailer,
generating sales growth and profitability well above those of its direct
competitors. But success sometimes attracts competition. The growing size of
the LSM 8–10 segment has attracted competition from Fruit and Veg City
Group’s Food Lover’s Market. Since its establishment in 2006 ninety Food
Lover’s Market stores have been opened and will open another 15 in the next
18 months. Sales have reached R6 billion in 2013 compared to R1,6 billion in
2006. But there is more. Also targeting the top end of the market is Oxford
Freshmarket (currently only in Durban), a resurgent Pick ‘n Pay with its Pick ‘n
Pay Finest range and Checkers who already has more than 3 m customers in
LSM 7–10.
SOURCE: Based on Thomas, S. 2013. For the love of food. Financial Mail, 1 – 6 November 2013, pp.
48-49
QUESTIONS
1
How should Woolworths respond to increasing competition at the top-end
of the grocery market?
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KEY CONCEPTS
Attractive market (or market segment): this market promises returns on
investment well above the cost of capital for the firms serving that market.
Bargaining power: the ability to positively influence others in a selling situation.
Entry barriers: the investment of resources required to compete effectively in a
given market.
Exit barriers: the factors that hinder a firm from disinvesting in a market in
which it has been competing.
Industry: a group of firms that offer a product or class of products that are close
substitutes for each other.
Monopolistic competition: a situation in which a relatively large number of
suppliers offer similar, but not identical, products.
Monopoly: a market situation in which one firm controls the output and price of
a product for which there are no close substitutes.
Oligopoly: a market characterised by a relatively small number of firms
dominating the market for goods or a service.
Price sensitivity: a measure of how important lower prices are to a buyer.
Pricing flexibility: the amount of freedom that marketers have to set their own
prices in a market independently of competitors.
Pure competition: a market characterised by a large number of sellers marketing
a fairly standardised product to a group of buyers who are well informed about
the market.
Stochastic competitor: a competitor that does not exhibit a predictable reaction
pattern when faced with a new competitive threat.
Strategic group: a group of firms following the same strategy in a given target
market.
REFERENCES
1
2
3
4
Wilson, R.M.S. & Gilligan, C. 2005. Strategic marketing management:
Planning, implementation and control. London: Elsevier ButterworthHeinemann, p. 231.
Kotler, P. Marketing management (10th millennium edition). Prentice Hall,
p. 221.
Understanding your competition. 2008. Available from
http://pinoybusiness.org/2008/04/23/understanding-your-competition/
(Accessed on April 2008).
This section is based on Aaker, D.A. 2001. Strategic market management (6th
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5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
edition). Wiley, pp. 61–66.
Kotler, P. & Keller, K.L. 2006. Marketing management (12th edition). Prentice
Hall, p. 346.
Kotler & Keller op cit, 346.
Chen, M. 1996. Competitor analysis and interfirm rivalry: Toward a
theoretical integration. The Academy of Management Review 21(1), p. 102.
Ibid.
Cravens, D.W. & Piercy, N.F. 2006. Strategic marketing (8th edition). New
York: McGraw-Hill, p. 83.
Mochiko, T. 2014. Vodacom buyout ‘important’ for Neotel. Business Day Live,
27 May 2014. Available from
http://www.bdlive.co.za/business/technology/2014/05/27/vodacombuyout-important-for-neotel (Accessed June 2014).
Phasiswe, K. 2005. Transnet on way to becoming a lean freight operator.
Business Day electronic edition, 27 December 2005; Phasiswe, K. 2007. Cash
flow gives Transnet confidence to fund expansion from reserves. Business
Day electronic edition, 27 June 2007; Transnet Integrated Report, 2013.
Riley. G. 2012. Perfect Competition - Economics of Competitive Markets, 23
September, 2012. Available from http://tutor2u.net/economics/revisionnotes/a2-micro-perfect-competition.html (Accessed on June 2014).
Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, pp. 218–219.
Investment bankers in scramble for business. Business Day electronic
edition, 9 September 2003.
Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, pp. 218–219.
Daneshkhu, S. 2013. Competition hots up for coffee capsule market smooth
operators. Available from http://www.ft.com/cms/s/0/d8c237a4-489c-11e38237-00144feabdc0.html#axzz39KNhsT84 (Accessed June 2014).
Webb, S. 2014. Coffee wars: Tesco launches espresso shot pods to rival
Nespresso luxury coffee capsules endorsed by George Clooney. Available
from http://www.dailymail.co.uk/ (Accessed in June 2014)
Cravens, D.W. & Piercy, N.F. 2006. Strategic marketing (8th edition). New
York: McGraw-Hill, p. 85.
Courtney, H., Horn, J.T. and Kar, J. 2009. Getting into your competitor’s head.
Available from http://www. mckinsey.com/ (Accessed June 2014).
Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. 2003. Internet
marketing: Building advantage in the networked economy (2nd edition).
Boston: McGraw-Hill, p. 512.
PWC. Shaping the bank of the future South African banking survey 2013.
Available from www.pwc.co.za/banking(Accessed June 2014).
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22 Media release published on the McGregor BFA, Moneymax website. 5 July
2001. Available from www. moneymax.co.za.
23 Kotler, P. & Armstrong, G. 2008. Principles of marketing management (12th
edition). Upper Saddle River: Prentice Hall, p. 518.
24 Thomas, S. 2013. For the love of food. Financial Mail, 1 – 6 November, p. 48.
25 Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, p. 224.
26 Battle for the bottom line. Financial Mail, 8 December 2000, p. 36.
27 Graham, S. 2002. Cell C plans to hit the business button. Business Times, 14
July 2002, p. 3.
28 This section is based on Aaker, D.A. 2001. Strategic market management (6th
edition). Wiley, pp. 57–61.
29 Kotler, P. & Armstrong, G. 2008. Principles of marketing management (12th
edition). Upper Saddle River: Prentice Hall, p. 519.
30 Chaffey, D., Ellis-Chadwick, F., Mayer, R. & Johnston, K. 2006. Internet
marketing: Strategy, implementation and practice (3rd edition). Harlow:
Prentice Hall, p. 85.
31 Jobber, D. 1998. Principles and practice of marketing. London: McGraw-Hill,
pp. 497–499.
32 Alsem, K.J. 2007. Strategic marketing: An applied approach. New York:
McGraw-Hill, pp. 131–132.
33 Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, p. 225.
34 Kotler op cit, p. 226.
35 Adami, N. 2100. Challenge brewing. Financial Mail, 29 April, p. 14.
36 Claasen, L. 2002. Pick n Pay steps up competition. Business Day, 26 May 2002.
37 Mokgata, Z. 2013. War of the soaps. Financial Mail, 19–24 July, p. 58.
38 Shapshak, T. 2014. Buy and rule. Financial Mail, 28 February – March, p. 36.
39 Chaffey, D., Ellis-Chadwick, F., Mayer, R. & Johnston, K. 2006. Internet
marketing: Strategy, implementation and practice (3rd edition). Harlow:
Prentice Hall, p. 85.
40 Gilligan, C. & Wilson, R.M.S. 2003. Strategic marketing management. Oxford:
Butterworth-Heinemann, p.183.
41 Koenderman, T. 2001. Disrupting the opposition pays off. Financial Mail, 1
June 2001, p. 69.
42 Neethling, T. 2012. Cell C boss plans to gain market share from rivals.
Business Day, 29 March, p. 16.
43 Msombi, S. 1999. Global hair-care war reaches SA. Business Times, 3 October
1999, p. 1.
44 Wilson, C. 2014. FNB, Cell C ‘joining hands’. Citizen, 4 August 2014, p. 22.
45 Bruce Henderson, as summarised by Kotler, P. 2002. Marketing management
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(10th millennium edition). Prentice Hall, p. 228.
46 Selecting Competitors to Attack and Avoid. Available from
http://lib.znate.ru/docs/index-106622.html?page=100 (Accessed 24
November 2014).
47 Planting, S. 2003. Up and at them. Financial Mail, 21 March 2003, p. 32.
48 Ibid.
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CHAPTER
05
Information for marketing
decision-making and marketing
research
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
Describe the relevance of information for managerial decisionmaking.
2 Explain the nature and purpose of a marketing decision support
system.
3 Distinguish between database marketing and micro-marketing.
4 Describe the importance of database marketing.
5 Distinguish between the descriptive, diagnostic and predictive
roles of research.
6 Define marketing research and describe the relationship between
marketing research and a marketing decision support system.
7 Explain the importance of marketing research in marketing
management decision-making.
8 Describe the steps involved in conducting a marketing research
project.
9 Demonstrate your ability to plan a marketing research project by
preparing a research proposal.
10 Distinguish among the various types of techniques available for
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11
12
13
15
16
17
collecting primary data in terms of their nature and advantages
and disadvantages.
Prepare a set of guidelines for questionnaire development.
Critically evaluate the means of measuring consumer perceptions
and attitudes.
Distinguish between probability and non-probability samples. 14
Explain when marketing research should and should not be
conducted.
Describe a set of criteria for evaluating research.
Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
Provide a marketing management solution related to any of the
above outcomes.
>> Marketing in practice
Listen and obey
Consumer-facing companies must take heed of their
customers’ opinions and act on them. Logically this is
obvious, yet many SA companies fail to do so, says Aki
Kalliatakis, CEO of consumer relationship consultancy
The Leadership LaunchPad. Kalliatakis says the
message many companies send their customers is: ‘You
know nothing and are not worth listening to.’ This
conclusion is borne out by surveys conducted by his
firm over almost 25 years. ‘It is amazing to see how
many companies do not challenge things that make it
physically, intellectually and emotionally difficult to do
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business with them,’ he says. Customers of some
companies have virtually given up expecting a positive
response to their needs. Banks are among the worst
offenders, he says, pointing to the contrasting success
Capitec has achieved by listening to consumers and
addressing their needs. ‘A smart brand listens,
reinterprets what it hears and presents customers with
a solution that meets their needs,’ says Charl Nel,
Capitec’s communications head. Applying this
approach has helped Capitec grow customer numbers
from 1,5m to 3,5m over the past two years. Capitec’s
success serves as a warning to companies that ignore
their customers, says Kalliatakis. The bottom line is that
consumers are becoming more demanding and
businesses that respond to their needs are likely to
excel. But, he warns: ‘Increasingly customers who do
not get the service they expect are likely to go
elsewhere.’
SOURCE: Adapted from Thomas, S. 2012. Listen and obey. Financial Mail,
6 July 2012, p. 56
QUESTIONS
1
2
What is the result if a firm has an attitude of: ‘You know nothing and
are not worth listening to’ towards its customers?
What is the reason for Capitec Bank’s phenomenal success?
1. Introduction
In Chapter 3 we pointed out that to be able to implement the
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marketing concept, marketers need to understand the needs
and wants of their target market. But how do marketers
become aware of the needs and wants of consumers? The
answer is by collecting and interpreting consumer-related
information. This information can be collected by a variety
of means. Many of them have already been discussed (see
the discussion in the section ‘Methods of environmental
scanning’ in Chapter 2) and others will be discussed in this
chapter. The most important of these data-collection
techniques is marketing research, which is a technique used
to collect marketing information to enhance the quality of
managerial decision-making.
2. The need for managerial information
LO1
Marketing research can be defined as the systematic and
objective process of collecting, recording and analysing data
to guide managerial decision-making.1 From a marketing
perspective, information is particularly important because
firms that do not know and understand consumer needs and
wants cannot implement the marketing concept. Ignorance
of consumer needs will also stifle efforts to develop new
need-satisfying products, and leave the opportunity for
competitors to steal a march on the firm. Many firms have
made very costly and embarrassing mistakes because they
did not have sufficient information at their disposal. Alert,
well-informed firms, on the other hand, are able to
anticipate consumer-need changes and detect and
anticipate what competitors – both existing and potential –
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are doing. This way, they ensure that they are not caught off
guard. Information is also critical when firms get involved in
a new venture – such as launching a new product, entering a
new market segment or using a new channel of distribution.
Managerial decision-making is almost invariably about
the future – and the future is by definition uncertain. The
availability of information reduces (but does not eliminate)
risk and enhances the quality of decision-making. It leads to
more accurate planning and better anticipation of consumer
needs and competitive activity, which allows the firm to
utilise new opportunities quickly, and to effectively
overcome threats.
EXAMPLE >> To anticipate new developments in consumer markets
there are a variety of free tools that track the popularity of subjects on certain
social media platforms and in so doing help businesses anticipate future trends.
For example, a look at WhatTheTrend.com shows that ‘Big Screen Kindle’, at the
time of writing, is a topic being discussed on Twitter. The site explains that this
subject is prominent because the new Kindle’s large screen is rumoured to be
more suitable for newspaper content, which is one step closer to a paperless
culture. So for a company like the Times Media Group, which owns several
newspapers and electronic media in South Africa, this is important information
which might impact on its business in the future.2
But information and marketing research is not a cure for all
ills, and certainly does not guarantee success. Three
mistakes commonly made by researchers are:
•
•
Wrong assumptions that are made about the type of
information required
The wrong research technique is used
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•
The data are misinterpreted.
3. Marketing decision support systems
LO2
Accurate, relevant and timely information that is easily
accessible is the lifeblood of marketing decision-making.
Good information can help maximise a firm’s sales and
assist with the efficient use of scarce resources. Marketing
decision support systems have become central in these
endeavours. There’s a growing emphasis on the use of
analytics software to turn both internal and external data,
into insights that can guide managerial decision-making
(see Reader 27 ‘Big Brother watches Discovery members’). A
number of trends are shaping these developments. The first
trend is the near-total digitisation of business processes –
and just about everything else. Company systems are now
repositories of vast and growing amounts of data, plus client
and product information. At Hewlett Packard for instance
they can access vast amounts of external data about
everything from commodity prices to weather forecasts to
geopolitical information.3 To prepare and adjust marketing
strategies and plans, managers thus need a system for
collecting everyday information about developments in the
marketing environment – that is, for collecting marketing
intelligence. The system most commonly used these days for
collecting and storing marketing intelligence is called a
marketing decision support system (DSS).
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>> Strategy
The need for information that is accurate, relevant and
timely is demonstrated by the view of a manager of the
clothing retailer, Edgars. He says: ‘The ability to
interpret what was happening in the South African
environment and respond to it in a fluid, constantly
evolving kind of way is crucial to the success Edgars has
enjoyed. As we evolved through our credit business,
our merchandise business and our marketing strategy,
we realised that fast and accurate information would
give us the edge. And so we are using technology far
more aggressively. Throughout the Edgars Group, the
results of the previous day’s trading are on the
computer terminals of its key executives the following
morning. They can see the results by region, by store,
by department and even by item of merchandise.’4
A marketing decision support system is an interactive, flexible
computerised information system that enables managers to
obtain and manipulate information as they are making
decisions. A DSS bypasses the information-processing
specialist and gives managers access to useful data (such as
sales figures, advertising expenditure and research results)
from their own computers.
An effective DSS has the following characteristics:
•
Interactivity. For a DSS system to be effective, managers
must be able to give simple instructions and see
immediate results. The process ought to be under their
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•
•
•
direct control, and the assistance of a computer
programmer should not be required. In other words, a
DSS system should be user-friendly and managers
should not have to wait long for the DSS system to
provide the required reports.
Flexibility. A DSS should be able to sort, regroup, total,
average and manipulate the data in various ways. It will
shift gears as the user changes topics, matching
information to the problem at hand. For example, the
CEO must be able to see highly aggregated figures (such
as sales figures), and the marketing analyst must be able
to view very detailed breakdowns of the same data (such
as sales by region, by product or by salesperson).
It is discovery-orientated. Managers must be able to
probe for trends, isolate problems and ask ‘what if’
questions. An example would be: what will happen to
sales if we reduce the size of our sales force?
Accessibility. A DSS must be easy to learn and use by
managers who are not skilled computer users. Novice
users should be able to choose a standard – or default –
method of using the system. They can bypass optional
features so that they can work with the basic system right
away while gradually learning to use its advanced
features.
>>Strategy
The US firm Quaker Oats’ DSS, for example, contains
some 2 billion facts about products, national trends
and competitors. Management credits their DSS with
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helping the firm achieve a number-one market share in
several product categories, including Quaker Oats
cereals and the sports drink Gatorade. More than 400
marketing professionals at Quaker Oats use the DSS
daily. They use it for three major tasks: reporting,
tracking and running the standard reports; marketing
planning, which automates the brand planning and
budgeting process by adding ‘what if’ analysis and
marketing capabilities; and eliciting people’s
immediate answers to spontaneous marketing
questions.
READER 27 >> Big Brother watches Discovery members
Members of Discovery should know Big Brother is indeed watching them. CEO
Adrian Gore spent some time during his presentation on the full-year results to
June talking about the power of the data the company collects on its
members’ shopping habits, which it is using through its partnerships with
Woolworths and Pick n Pay to study the effects of different diets. ‘We track
every basket of food our customers buy, we know the demographic, we know
their cholesterol reading, their BMI (body mass index) and we can correlate
these diets to these readings,’ Mr Gore said. Mr Gore said Discovery had no
answers as yet but the data were ‘incredibly rich’. The answers are important
to Discovery as it bases its business model on changing behaviour with the
aim of reducing claims, whether they are related to health, life cover or car
accidents. Discovery has 17 million life years’ worth of behavioural, clinical
and actuarial data on the correlations between incentives and behaviour
change, as well as between behaviour change and risk. According to Mr Gore,
the data show that safer drivers also manage their health better, smokers are
worse drivers, and people who manage their health also manage their credit
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better.
SOURCE: Marrs, D. 2014. Big Brother watches Discovery members. Business Day, 5 November 2014,
p. 10
A hypothetical example showing how a DSS can be used is
provided by Renee Smith, marketing director and manager
of new products for Central Corporation. To evaluate sales
of a recently introduced product, Renee can ‘call up’ sales by
the week, then by the month, breaking the information up in
more detail such as by, say, customer segments or different
geographic regions. As she works at her desktop computer,
her inquiries can go in several directions, depending on the
decision at hand. If her train of thought raises questions
about monthly sales last quarter compared with the sales
forecasts, she can use her DSS to analyse problems
immediately. Renee might see that her new product’s sales
were significantly below forecast. Were her forecasts too
optimistic? She compares other products’ sales with her
forecasts and finds that the targets were very accurate. Was
something wrong with the product? Is her sales department
getting insufficient sales leads, or is it not putting sales leads
to good use?
Considering how to examine that question, she checks
the ratios of leads converted to sales, product by product.
The results disturb her: only 5 per cent of the new product’s
leads generated orders compared with the firm’s 12 per cent
all-product average. Why? Renee guesses that the sales force
is not supporting the new product vigorously enough.
Qualitative information from the DSS could perhaps provide
more evidence to support that suspicion. But already having
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enough quantitative knowledge to satisfy her curiosity, the
marketing director acts on her intuition and experience and
decides to have a chat with her sales manager.
4. Database marketing and micromarketing
LO3
Perhaps the fastest-growing use of a DSS is for database
marketing purposes, which is the creation of a large
computerised file of customers’ and potential customers’
profiles (i.e. demographics such as age, gender, marital
status, address) and purchase patterns. (What was bought?
Where? When? How many?) The DSS is usually the key tool
for successful micro-marketing, which relies on very specific
information about a market and the individuals who make
up a market. More specifically, database marketing can:
•
Identify the most profitable and least profitable
customers
• Identify the most profitable market segments or
individuals and target efforts with greater efficiency and
effectiveness
• Target marketing efforts at those goods, services and
market segments that require the most support
• Increase revenue by repackaging and repricing products
for specific market segments
• Evaluate opportunities for offering new products and
services
• Identify the products and services that are selling well
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and are most profitable.
EXAMPLE >> The size of many databases is astounding. In the United
States, Ford Motor Company’s database has over 50 million names; Kraft General
Foods, 25 million; and Kimberly-Clark (maker of Huggies nappies), 10 million new
parents’ names. General Motors now has a database of 12 million GM credit card
holders, giving the firm access to a great deal of data on their buying habits. GM
also surveys these customers to get information on driving habits and needs. The
Clicks Club Card programme has a database of 5 million names and addresses,
of which 2,1 million are active. Clicks mails out 6 million promotional packs a
year in addition to the Club Card magazine.
WEBSITE
Consider how the Quaker companies use
e-mail to build their databases:
www.quakermeal.com www.gatorade.com
>>Technology in action
Mining ‘big data’ is new commercial trend
‘Big data’ is increasingly becoming one of the most
closely watched technology trends and many
companies are already acquiring the required
resources to process large amounts of data and content
created internally and externally. ‘Big data’ is a phrase
that refers to the software tools, processes and
procedures that allow companies to create and manage
very large data sets that conventional database systems
cannot handle. Companies use big-data technologies
for insights into new and emerging types of data and
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content and related trends, to make their businesses
more agile.
For example, a company may use big-data-related
software to analyse big data in order to monitor
customer perceptions and sentiments about its brand
on social media websites. The increasing volume and
detail of information, the rise of multimedia, social
media, and the rise in Internet use and access is
fuelling exponential growth in data and making the
rapid growth of data more challenging to manage,
according to analysts. According to IBM, every day 2,5quintillion bytes of data are created. This data comes
from everywhere, such as sensors used to gather
climate information, postings to social media sites,
digital pictures and videos, purchase transaction
records, cellphones and satellite navigation systems, to
name a few, says IBM. Companies are spending billions
of rands on software related to data management and
analytics.
SOURCE: Adapted from Mochiko, T. 2012. Mining ‘big data’ is new
commercial trend. Business Day, 19 June 2012, p. 12
5. The importance of database marketing LO4
Direct marketing and database marketing are not
synonymous, although direct marketers have long led the
way in using databases for marketing purposes. With better
targeting of prospects for products and promotions and a
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greater ability to customise marketing messages and
programmes, and so on, database marketing clearly
contributes to greater marketing efficiency. When utilised
properly, it yields double-digit response rates, compared
with 2 to 4 per cent for ‘junk mail’.5
In the 1950s, mass marketers and advertisers began using
media such as television and radio to get the same message
to a large number of people simultaneously. Database
marketing, on the other hand, can get a customised,
individual message to everyone simultaneously through
direct mail. This is why database marketing is sometimes
called micro-marketing. Database marketing can create a
computerised form of the old-fashioned relationship that
people used to have with the corner grocer, butcher or
baker.
‘A database is sort of a collective memory’, says Richard
G. Barlow, president of Frequency Marketing, Inc., a
consulting firm. ‘It deals with you in the same personalised
way as a mom-and-pop grocery store, where they knew
customers by name and stocked what they wanted.’6 As
Richard Came, then marketing director of Dimension Data,
referring to new technology says: ‘Business can move from
mass marketing to mass customisation and can assume the
role of the small proprietor, once again doing business with
individuals – though hundreds of thousands of them – one
at a time.’7 (See Reader 28 ‘Science of behavior key to bank
loyalty schemes’.)
READER 28 >> Science of behaviour key to bank loyalty
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schemes
The major banks are increasingly adopting a scientific approach to their
loyalty programmes to make them more rewarding, for both banks and
consumers. It is all about big data, customer behavioural science and finding
ways to stand out from the clutter of the 100 or so loyalty programmes
available in South Africa.
‘Ten to 15 years ago, companies had to have a call centre, five to 10 years
ago it was a website. Now it’s a loyalty programme,’ he says. Recent research
by Value Nett-work found South Africa had almost 100 loyalty programmes,
with more than 50 million registered members. The major banks tout their
loyalty programmes as essential tools to acquire and retain customers. The
banks use the programmes as a means to influence customer behaviour. All
the banks, for example, use rewards to entice customers out of branches and
into transacting online. They also offer carrots to customers who transact more
with their bank. The head of transaction banking and rewards at Absa retail
and business banking, James Rheeder, says a rewards programme is not going
to make someone change banks. ‘It is about increasing debit and credit card
usage and customer loyalty. You want customers to be transaction loyal, which
means they deposit their salary in your bank.’ The head of loyalty and rewards
at Standard Bank, Faye Elizabeth Foster, says its rewards programme, UCount,
has to make a difference to its bottom line. The efforts to ensure loyalty
programmes are effective and ultimately drive profitability has seen growing
emphasis on behavioural science and using big data in a smarter way. Ms
Foster says banks usually have good data on customers, while rewards
programmes provide more detailed information, such as what people want to
buy with their disposable income or where they go on holiday. ‘You can use
data smartly to offer customers a much richer, personalised offering, which
will become a big differentiator of loyalty programmes in future,’ she says. This
could mean targeting customers in malls with specific offers via their
smartphones or social media.
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SOURCE: Jones, G. 2014. Science of behaviour key to bank loyalty schemes. Business Day, 18 August
2014, p. 10
Database marketing provides tremendous opportunities for
products that can be sold by cross-selling related products.
For example, Canon Computer Systems maintains a
database of its 1,3 million customers. The firm obtained a
50 per cent response rate in a direct-mail solicitation asking
printer owners if they wanted information on a new colour
scanner, and buyers of scanners received four free ink
cartridges for their printers.
EXAMPLE >>
A technique of growing popularity for building a
database is the creation of ‘customer clubs’. Kraft (in the United States), for
example, has been inviting children to join the Cheese & Macaroni Club. For three
proofs of purchase, a small joining fee and a completed membership form with
the child’s – and, of course, the mother’s – address, Kraft will send a painter’s
cap, bracelet, shoelaces, a book of stickers and other goodies. By requiring
customers who respond to offers of free shirts, sleeping bags, or other
merchandise to fill out detailed questionnaires, Philip Morris has built a database
of about 26 million smokers. The Clicks retail chain has a data base of 5 million
and they know that 77 per cent of its sales are to its Club Card users – drastically
cutting the need for, and expenditure on, advertising. Woolworths can track
64 per cent of its sales using the data base generated by its WRewards loyalty
programme.
WEBSITE
Digital Fire is an email marketing and
digital media specialist that specialises in
full service opt-in email marketing, email
data rental, email database management
and digital media consultancy. Visit their
website and see how they can assist firms
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in the above areas.
http://www.digitalfire.co.za/
Database marketing is unfortunately a source of concern for
many consumers (see Chapter 2) because of the potential
for invasion of privacy. A recent study found that 89 per cent
of South Africans are very concerned about information
privacy.8 Privacy and the use of consumer information is
regulated in South Africa by the Electronic Communications
and Transactions Act (No 25 of 2002). This act limits the
extent to which consumers’ personal information can be
utilised for marketing purposes.
6. The role of marketing research
Marketing research is the process of planning, collecting and
analysing data of relevance to marketing decisions. The
results of this analysis are then communicated to
management. Marketing research plays a key role in the
marketing system. It provides decision-makers with data on
the effectiveness of the current marketing mix, and insights
for required changes. Furthermore, marketing research is a
main data source for management information systems and
DSS.
To be useful, marketing research information must be
readily available, correct and reliable, and relevant. An
example of unreliable information is that provided by
Statistics South Africa (SSA). A number of years ago, SSA
reported that the number of overseas visitors to South Africa
had grown by 5 per cent. After this figure was announced, it
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was revised to 16 per cent. The following question can now
be asked: can the tourism industry rely on SSA information
to plan its marketing strategies? (see Reader 29 ‘What lies
behind the statistics?’).
READER 29 >> What lies behind the statistics?
I am not surprised to read Victor Tharage’s letter (August 24–29). Government
employees in the tourism field love to quote official statistics as these
numbers make them look good. The reality is that the tourism industry is in
bad shape - especially in the rural areas. Hiding behind meaningless statistics
is not going to change the fact that most tourism companies are experiencing
extremely low occupancies and many have had to retrench. It is the poorest of
the poor who are feeling the brunt of these retrenchments. The fact is that our
tourism arrival statistics are flawed. One Lesotho shopper who travels to SA
100 times a year can be counted as 100 tourists. One American who is
travelling to Botswana/East Africa and so on, can be counted as two tourists –
once on arrival from the US and again when travelling back into SA from Africa
before flying back home. We have no idea if the 43 000 British ‘tourists’ who
visited SA in March 2012 are actually from the UK as we do not accurately
measure the country of residence of our arrivals. These are just a few of many
issues that distort our tourism arrival numbers and render our arrival statistics
ineffective. Tourism statistics should be collected on departure (as they do
very successfully in Australia) where key questions are asked and accurate
answers gained via an easily read bar-card that delivers accurate statistics
within weeks. This will allow all stakeholders to quickly learn who is travelling
to SA and why. Once we know these arrival numbers accurately, then SA
Tourism and tourism companies can create effective marketing campaigns
that deliver real value for the country.
SOURCE: Letter to the Financial Mail, 31 August, 2012, p. 8
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7. The functions of marketing research
LO5
Marketing research plays three roles in any firm: descriptive,
diagnostic and predictive. Its descriptive role includes
collecting and presenting factual statements. For example,
what is the historic sales trend in the industry? What are
consumers’ attitudes towards a product and its advertising?
Its diagnostic role includes explaining data and results. For
instance, what was the impact on sales of a change in the
design of a product package? Its predictive function is to
address ‘what if’ questions. In other words, if we increase
our firm’s advertising from R5 million per year to R7 million
per year, what impact will it have on our sales and market
share?
8. The relationship between marketing
research and DSS
LO6
Because marketing research is problem-orientated,
managers use it when they need guidance to solve a specific
problem. Marketing research has been used, for example, to
find out what features consumers want in a new computer.
It has also helped product development managers to decide
how much milk to add in a new cream sauce for frozen peas.
The US Army has used marketing research to develop a
profile of the young person most likely to respond to
recruitment advertisements. The SABC uses it to assess
viewers’ needs and assist with programme scheduling.
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Magazines such as Getaway, Cosmopolitan, YOU and Drum
regularly survey their readers to assess customer satisfaction
and readers’ reading habits, and to adjust their content
accordingly.
By contrast, DSS continually channels information about
environmental changes to the firm. This information is
collected from a variety of sources, both inside (internal)
and outside the firm (external). One such important
information source is marketing research.
9. Management uses of marketing
research
LO7
Marketing research can help managers in several ways. It
improves the quality of decision-making and helps
managers trace problems (see the Sanlam Health strategy
extract below). Most importantly, however, sound
marketing research helps managers to understand the
market better and alerts them to market trends.
>>Strategy
The medical scheme Sanlam Health has recently begun
capitalising on its data analysis capabilities. Sanlam
Health has developed the ability to analyse data in a
way not possible previously. A typical example is its use
in the analysis of asthma patient data. Sophisticated
techniques and models are used to enable medical
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schemes to identify which asthma patients would be
likely to end up in hospital within the next 12 months.
This way, proactive and pre-emptive measures and
treatment can be implemented. These types of data
give Sanlam Health the ability to examine the efficacy
of preventive steps, such as flu injections, measured
against members’ claims patterns. It is able to ascertain
if such treatment is making a difference, and if so, to
what degree. High-risk members are then encouraged
to have the injections. All this gives Sanlam Health the
ability to act more intelligently and efficiently in the
way it manages the health of the scheme’s members.
Proficient data analysis capability includes the ability to
predict future trends, such as developments in genetic
engineering and DNA manipulation, for example,
which could have a future bearing on areas of
treatment, such as treatment for cancer.9
EXAMPLE >> The SABC regularly analyses what viewers think of their
programmes as well as the content of its own television programmes. A recent
research report released by Media Monitoring Africa (MMA) which was based on
an analysis of SABC television schedules and news bulletins from all the TV
stations and some radio stations found that 21 per cent of broadcasting time was
filled with repeats of recently aired programmes. When it came to analysis of
news bulletins, the researchers found that the SABC was unable to set the news
agenda but rather followed the lead of others such as the print media – and that
the news was characterised by event-based reporting with political parties
dominating news sources. Among the most interesting findings in the research on
SABC’s news bulletins are:
• Women were grossly under-represented as news sources – only 20 per cent,
which is below the global figures of 24 per cent
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•
•
•
Political parties were the most frequently accessed class of news sources –
at 21 per cent – while academics and experts were the least (2 per cent)
Most news bulletins contained basic, factual information and did not often
go further to explain the story in depth. However, many news stories did
discuss the cause of an issue and also mentioned relevant legislation
Reporting was also generally ethical. 10
>>Strategy
Faced with declining circulation figures for both
Huisgenoot and YOU magazines a few years ago,
management commissioned research that revealed
that readers’ most important needs are information on
how to save time and money, articles on a good lifestyle
and financial advice. It also emerged that the motives of
the buyers of the magazines have changed: it is no
longer a woman buying a magazine for herself, because
the family happens to read it too. Most buyers were
working women, it was found, which accounts for the
shift in focus towards women, for instance, in food,
décor and fashion, and beauty features. Previously,
there had been only teen fashion pages. The
management of the two magazines then decided that
the emphasis would be on practicality and value for
money. ‘For the readers we serve, it is completely
ridiculous to have an R800 scarf on the fashion pages’,
they concluded.11
Finally, marketing research helps managers gauge the
perceived value of their goods and services, as well as the
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level of customer satisfaction. The motor vehicle
manufacturer Toyota does extensive marketing research to
measure the effectiveness of its marketing activities. More
specifically, Toyota’s objectives are to:12
•
•
•
•
•
•
•
•
•
•
•
Improve the accountability of marketing tools and
managers
Ensure that their marketing activities serve as an earlywarning device
Measure top-of-mind brand awareness among
consumers
Identify and track key attributes for each model range
Identify shifts in consumer needs
Compare its performance on key attributes with those of
its competitors
Provide speedy feedback on marketing actions or
decision-making
Provide information on competitive activity
Measure ad wear-out
Assist with market segmentation
Predict shifts in market share.
9.1 Improving the quality of decision-making
Managers can improve their decision-making by using
marketing research to explore the desirability of various
marketing alternatives.
EXAMPLE >> Some years ago, General Mills decided to expand into fullservice restaurants. Marketing research indicated that the most popular ethnic
food category in the United States was Italian, and that interest in pasta and
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preference for Italian food would continue to increase. The firm conducted many
taste tests to find appropriate spice levels and to create a menu to please target
customers. These marketing research studies led to the creation of The Olive
Garden Italian restaurants, the fastest-growing and most popular full-service
Italian restaurant chain in the United States.
In South Africa, Coca-Cola, together with its advertising agency, SMLB, is
making a concerted effort to understand the country’s different cultural groups
better. ‘We are striving towards the concept of understanding the market, their
fears and desires, from an emotional, rather than an intellectual, base’, says
account management director, Nandi Scorer. Coca-Cola has done this by
adapting its marketing research. Traditional research is now supplemented with
more personal observation. ‘By going out into the field and observing consumers
we have gained insights that we could not have got any other way.’13
Other examples of research findings that helped South African marketers
make better decisions recently are the following:
• More than 35 per cent of vehicle owners will buy a different brand from their
current one when they buy a vehicle again14
• 42 per cent of adult South Africans do not have access to a bank account15
• More than 70 per cent of South African women have banking accounts but
only 27 sought professional financial advice16
9.2 Identifying problems
Another use of marketing research is to find out why a
product has experienced a drop in sales or why a plan did
not work. Was the initial decision incorrect? Did an
unforeseen change in the external environment cause the
plan to fail? How can the same mistake be avoided in the
future?
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>>Strategy
When spectator attendances were low during the Pro20
part of the 2009 England cricket tour (fewer than 8 000
spectators attended the second match at Supersport
Park), Cricket South Africa commissioned a research
firm to identify the reasons behind the poor
attendances.17
Reynolds Metals used marketing research to develop
a new line of plastic food wrap in transparent shades of
red, green, yellow and blue. The research results
among women showed that they loved the product. Yet
after the product launch, sales were sluggish. Similarly,
Reynolds Metals called on marketing research. A
telephone survey found that men didn’t really see the
point of coloured plastic wraps. Unfortunately, the
purchasing staff of most supermarkets are male. Armed
with this knowledge, Reynolds crafted a simple plan. It
sent samples to the supermarket buyers’ homes,
hoping that their wives’ reactions would convince the
buyers that the product would sell. The strategy worked
and sales soared.
Typical problems identified by marketing research have
been:
•
•
Oros orange squash established that many mothers were
concerned about the quality and healthiness of the
product
Tylenol found that consumers are reluctant to accept
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that a pain killer (Tylenol NightPain) can also be used for
insomnia.
9.3 Understanding the market
To effectively implement the marketing concept (see
Chapter 1) it is important that marketing managers
understand the needs, wants, decision-making and
behavioural patterns of its target markets. Only then will
they be able to develop a marketing mix that can optimally
satisfy their needs.
Managers also use marketing research to understand the
dynamics of the market they are targeting.
The Eastern Province Cricket Board (EPCB) recently
surveyed a sample of cricket supporters and found that
supporters expect more than just a game of cricket. They
attend cricket for an experience of which the cricket itself is
only a part. As a result of the study, the EPCB now offers a
wide range of entertainment, including ball-throwing
competitions and mini-cricket for children during lunch or
supper breaks, and has improved the catering facilities at
the ground.
Publics, a leading South African advertising agency, is
credited with knowing its market particularly well.18 Publics
analyses the market, the brand and its competitors, and
consumers – in terms of their habits, attitudes, preferences
and rational and emotional needs. Some of the research
tools the agency uses are the following:
•
A brand preference monitor, which tracks consumer
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•
•
•
•
•
usage and preference of brands
Market insight – a structured market or brand analysis
procedure
Context analysis – a technique to predict trends by
studying the media
Tweens – a continuous study of the characteristics of
people aged 12 to 25
Prism – a structured procedure to determine a brand’s
added value
Mindscapes – a study of consumer perceptions and how
they affect consumption patterns.
As you can see, marketing research helps managers develop
and optimise the marketing mix by providing insights into
the lifestyles, preferences and purchasing habits of target
consumers (see Reader 30 ‘Brands get up close and
personal’).
READER 30 >> Brands get up close and personal
A Chinese woman squats on a low plastic stool, reaches for the shampoo and
begins massaging it into her head, fingers working deep into her scalp in a
kind of ritual. She is not the only Chinese woman to use conditioner like this –
as testified by hundreds of hours of videotape, all filmed in Chinese
bathrooms.
Perverse? No: this is the Holy Grail of fast-moving consumer goods
companies seeking to make products that consumers want. To that end, FMCG
groups are earnestly studying human behaviour through focus groups, surveys
and, more frequently in recent years, ways that are distinctly up close and
personal.
‘Traditional research concentrated on the “what”. Now we are trying to
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establish the “why”,’ says Simon Stewart, marketing director at Britvic, the
beverages company. ‘We are not asking what they think about products and
ideas but focusing on what makes them tick.’
The same dynamics inform L’Oréal’s experimentation in bathroom
photography. In similar experiments conducted in other markets, the French
cosmetics group discovered that Korean women apply more potions and
cosmetics to their faces than anyone else – a total of more than 25 creams
and cosmetics at any one time, compared with 20–25 in Japan and more than
double the amount used by American or European women. Japanese women
may apply more than 50 coatings of mascara at one time, making European
women – five to 10 coatings – look mere amateurs.
‘It all starts with observation,’ says Patricia Pineau, who oversees L’Oréal’s
consumer insights team, talking about the company’s ‘evaluation centres’,
which involve ‘labs’ decked out as bathrooms as well as cameras in people’s
homes. ‘Observing is necessary to decode exactly what [women] are trying to
get and what they are attracted to. Sometimes it is the gesture that will reveal
something that they really want to gain,’ says Ms Pineau.
And what gestures. Japanese women spend a full minute massaging in
lotions, patting their faces and eyelids. In Brazil, women change their nail
polish every day to match their dress – and are wanton with the brush,
painting their fingers along with their nails and relying on a cotton bud to mop
up afterwards.
Back in the labs, scientists respond in turn. Thus Lancôme’s Génifique
Youth Activating Concentrate has a stickier consistency in Japan than in
Europe or the US, the better to pat in. Lip gloss is lighter in Japan, the better
to allow the constant reapplication beloved of Japanese women.
Sometimes, however, gestures are not enough. Hence Nestlé’s strategy of
embedding researchers in family homes, taking tea with a multigenerational
Indian family or sitting cross-legged on the floor pounding pulses with a group
of scarved women and their jeans-wearing daughters in Syria.
SOURCE: Adapted from Lucas, L. 2010. Brands get close and personal. Business Day, 20 October
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2010, p. 10
9.4 Fostering customer value and quality
The environment in which a business operates today is far
more competitive and mercurial than it has ever been.
Consumers are less tolerant of poor quality and service, less
forgiving and less loyal to specific brands. Consumer
expectations are moving to the highest level. A good product
and a fair price are not enough – and service must be
excellent as well. High product quality, good service and a
fair price mean value – which is the cornerstone of customer
satisfaction. Satisfied customers are more likely to develop
long-term relationships with a firm, which helps to create
long-term profitability. Dissatisfied customers, on the other
hand, move on, as Huisgenoot and YOU magazines have
found. Marketing research is often used to identify the
reasons for customer dissatisfaction.
In a competitive environment, perceived customer
satisfaction is the scorecard that tells a firm how well it is
doing in delivering value. Marketing research is the vehicle
for measuring perceived satisfaction. Today, virtually all
large firms, from Toyota to British Airways, measure
customer satisfaction. An old management adage says that
‘what gets measured gets done’, and customer satisfaction is
no exception.
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10. The steps in a marketing research
project
LO8
Virtually all firms that have adopted the marketing concept
engage in marketing research because it offers decisionmakers many benefits. Some firms spend millions of rands
on marketing research; others, particularly smaller firms,
conduct only informal research studies on a limited scale.
However, whether a research project costs R20 000 or
R4 million, the same general process should be followed.
The marketing research process is a scientific approach to
decision-making that maximises the chance of getting
accurate and meaningful results. Figure 5.1 traces the typical
steps in a marketing research process:
•
•
•
•
•
•
•
Step 1: Define the marketing problem
Step 2: Do some exploratory research by collecting
secondary data
Step 3: Formulate the research objectives
Step 4: Plan the research design
Step 5: Collect the data
Step 6: Analyse and interpret the data, leading to
conclusions
Step 7: Prepare and present the report, including
recommendations for management on how to solve the
problem identified (see Step 1).
These steps are considered in more detail in the sections
that follow.
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10.1 Step 1: Define the marketing problem
The first step in the marketing research process must be to
develop a problem statement on which the decision-maker
(e.g. the marketing director) and the researcher (the
marketing research manager) can both agree. This step is
not as easy as it sounds. But it is important because this
statement directs the rest of the research project or study.
Some situations require only a simple problem statement,
whereas others lend themselves to a detailed statement of
the purpose of the study, or what the study will hope to
achieve. For instance, a firm providing catering services in a
factory canteen may define its problem as ‘declining sales’,
whereas a women’s fashion retailer such as Foschini’s may
decide to identify the most important factors that determine
a satisfactory shopping experience.
Early in the process the researcher ought to commit the
research plan to paper. This is done by means of a research
proposal. A research proposal ensures that both the
marketing manager and the researcher agree on precisely
what ought to be done. The research proposal, therefore,
serves not only as a guideline for implementing the research
project, but also as a tool to ensure that no
misunderstandings arise. The ‘Framework for preparation of
a research proposal’ can serve as the guide. One must keep
in mind, though, that a research proposal is a planning
document. The researcher sets out what he or she wants to
do during the project in a research proposal. Most of the
considerations and decisions that should be set out in the
research proposal will be discussed during the rest of the
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chapter; the framework serves a guideline for decisionmaking.
10.2 Step 2: Exploratory research by collecting
secondary data
Exploratory research is especially important to any
researcher dealing with a particular type of problem for the
first time. It permits the researcher to become immersed in
the problem – to learn about the firm, its products, markets,
marketing history, competition, and so forth. In the catering
example mentioned above, the researcher may interview the
CEO, a few regular customers of the canteen, a few
employees who do not eat at the canteen and a few
competitors. The researcher may even visit the canteen
posing as a real customer to experience the service and the
food at first hand – a technique known as ‘mystery
shopping’.
After collecting this background information and
analysing the new insights gained from this exploratory
phase, the researcher may need to backtrack and revise the
problem statement, if needed.
Secondary data are those data previously collected for
any purpose other than the current problem at hand. People
both inside and outside the firm may previously have
collected secondary data to meet their needs, such as IpsosMarkinor’s survey of brand perceptions in South Africa.
Another example is TGI South Africa’s database. It has
conducted 85 000 interviews with South Africans since 1993
with 11 biannual data release that have been used by over 1
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000 market researchers, brand managers, product
managers, media planners and strategists. Included in the
survey is information about thousands of brands, together
with information about media consumption, lifestyles and
attitudes – all linked by a comprehensive set of
demographics and geodemographics.19 A more recent
innovation in the generation of secondary data is Wolfram
Alpha (www.wolframalpha.com) which is a type of search
engine, but it does not return a list of pages to be searched
(like Google) nor is it a database of information. Wolfram
Alpha interprets queries and, in addition to giving basic
answers, is able to compute relationships amongst different
variables. 20
EXAMPLE >> Another example of secondary information is completed
research reports. For instance, Business consulting firm Accenture initiated a
research study in 2013 to understand consumer preferences about shopping in
different channels and the ability of retailers to offer that seamless experience.
The survey evaluated 15 000 consumers across 20 countries to rank their
shopping experiences across channels. The research suggests that consumers
may be having second thoughts about the benefits of online shopping. Accenture
Research also found significant signs of a swing back to shopping in-store. While
almost half of all respondents (46 percent) said they plan to purchase more
online in the future, 28 percent said they also would be shopping more in-store.
Fewer consumers now cite ‘convenience’ as the main reason for shopping online.
In fact, an overwhelming majority (91 percent) told them that it’s easier to
complete a purchase in-store than either online (57 percent) or by mobile
(36 percent). What’s more, when it comes to fulfillment, most told them that
scheduling is more important than speed; and about one-third indicated that
they are buying more in-store and carrying home compared to a year ago. These
findings clearly challenge some commonly held assumptions about what
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consumers want. They also indicate that retailers struggling to provide a
seamless, cross-channel customer experience may need to re-think key aspects
of their marketing approach. 21
Table 5.1 describes other major sources of secondary data.
Most research efforts rely at least partly on secondary data,
which can usually be obtained quickly and inexpensively.
The problem, however, is finding appropriate and relevant
secondary data that are reliable.
Figure 5.1 The marketing research process
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WEBSITE
Visit
http://www.mymarketresearchmethods.com/
This website is designed for market
research students and professionals. You
will find easy to understand lessons and
tutorials on the topic of market research,
along with a variety of market research
tools and resources.
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Secondary data save time and money if they help solve
the researcher’s problem. Even if the problem is not solved,
secondary data have other advantages. They can help the
researcher formulate or refine the problem statement and
suggest appropriate research methods and identify other
types of data needed for solving the problem.
In addition, secondary data can pinpoint the kinds of
people to approach and their locations, and serve as a basis
of comparison with other data. The disadvantages of
secondary data stem mainly from a mismatch between the
researcher’s particular problem and the purposes for which
the secondary data were originally collected, which are
usually different.
Framework for preparation of a research proposal
Title of study or project Statement of
general purpose Exploratory research
• Secondary information – sources
• Summarises existing knowledge
• Identifies the gaps in our knowledge
(in the case of academic study)
Collecting primary and secondary data
• Secondary data: published
information, such as company
records, previous studies
• Primary data: formal and informal
interviews with experts, customers,
focus groups, and so on
Problem statement or definition
• Identify and describe the dependent
•
Sampling
> Population to be
studied
> Unit of analysis – who
will provide the
information?
> Sampling frame
> Sampling procedure
> Sample size
• Data collection
> Fieldwork
> Data-collection
technique (personal
interviews, mail
survey, etc.)
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variable(s) and independent
variable(s)
Objectives (both primary and secondary)
Hypotheses and/or propositions
Research design (sometimes a pilot study
is done to test the research design and
questionnaire)
> Design and test the
questionnaire
> Type of data
(nominal, ordinal,
etc.)
• Data analysis
> Statistical techniques
to be used
> Interpreting results
Reporting the results
(how and when)
• Who is the audience?
Budget
Time schedules
Appendices
• Draft questionnaire and
other technical details
Provisional list of sources
Table 5.1 Major sources of secondary data
Source
Internal
information
Description
Internal company information may be helpful in solving a
particular marketing problem. Examples include sales
invoices, other accounting records, data from previous
marketing research studies and historical sales data.
Market
Firms such as AC Nielsen, Synovate, Ipsos-Markinor, and
research
SAARF are major sources of secondary data covering market
firms
share for consumer products, the characteristics of media
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audiences and brand perceptions.
Trade
associations
There are many trade associations, such as the SA Chamber
of Business. There are also many regional trade associations,
such as Wesgro in the Western Cape and the Gauteng
Economic Development Agency in Gauteng, which provide
national and local economic data.
University
research
bureaus;
professional
associations;
foundations
A variety of non-profit organisations (such as Unisa’s Bureau
of Market Research) collect and disseminate data of interest
to marketing researchers.
Commercial
publications
Marketing Mix, Food & Beverage Reporter Online, the
Financial Mail and many other commercial publications
provide useful research data.
Government
data
The government generates some secondary data. Census
data, for instance, are available from Statistics South Africa.
Online
databases
First search and the South African catalogue via SABINET.
CD-ROM
database
packages
South African Studies (SAS), ABI Inform and Business
Periodicals Index are CD-ROM packages available to access
marketing reports and other business-related information.
For example, a major manufacturer of consumer products
wanted to determine the market potential for a fireplace log
made of coal rather than of compressed wood by-products.
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The researcher found plenty of secondary data about the
total amount of wood consumed as fuel, the quantities
consumed in different areas and the types of wood used.
Secondary data were also available about consumer
attitudes and purchase patterns of wood by-product
fireplace logs. The wealth of secondary data provided the
researcher with many insights into the artificial log market.
Yet nowhere was there any information that would tell the
firm whether consumers would buy artificial logs made of
coal if they were available.
The quality of secondary data may also pose a problem.
Often secondary data sources do not give detailed
information that would enable a researcher to assess their
quality or relevance. Whenever possible, a researcher needs
to address these important questions: who collected the
data? Why were the data obtained? What methodology was
used? How were classifications (such as heavy users versus
light users) developed and defined? When was the
information collected?
Collecting traditional secondary data is often an arduous
task. Researchers write requests for government and trade
association data, or other reports, and then wait several
weeks for a reply. Frequently, they make trips to the library
only to find that the needed reports are out on loan or
missing. Today, however, online computerised databases
have reduced the drudgery associated with collecting
secondary data. An online database is a collection of public
information accessible by anyone with the proper computer
facilities. With more than 10 000 online databases available,
practically any topic of interest to a marketing researcher is
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contained in some database. Examples are EBSCO HOST,
Web of Science and DIALOG.
For an example of how an online database can affect
decision-making, consider the experience of Superior, Inc.
(not its actual name), a large consumer goods firm. One
morning, the CEO woke up to some unpleasant news. A
competitor was rumoured to be marshalling its troops for an
attack on the market for one of Superior’s personal-care
products, worth R10 million in annual sales. Later that day,
concerned executives at Superior were already preparing to
take a drastic step: slashing the price to defuse the
competitive challenge.
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Before taking that step, however, Superior’s executives
decided to do a little research. Their online database told
them that the competitor had been bought several years
earlier by a conglomerate. Next, a check of local business
newspaper databases revealed evidence of an advertising
agency recruiting new staff to back up the rumoured
campaign. Further online searches showed that the parent
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company had once tried to sell the unprofitable subsidiary.
A business news database revealed that a senior executive of
the parent company had recently retired, with no successor
named. Other stories noted that two other executives had
left, and hinted at turmoil at board level.
Superior’s executives decided that what at first appeared
to be an aggressive threat was actually no more than a
gesture by a paralysed firm unable to take new initiatives. ‘If
there is any gold outside’, beamed one Superior executive,
‘it looks like they just don’t have a shovel to pick it up with.’
Result: Superior’s CEO decided to maintain prices and
thereby preserve the firm’s profits.
Many marketing researchers make use of the services of
online database vendors. An online database vendor is an
intermediary that acquires databases from database
creators. Such vendors offer electronic mail, news, finance,
sports, weather, airline schedules, software, encyclopaedias,
bibliographies, directories, full-text information and
numeric databases. Consequently, a user can go to a single
online vendor such as Eighty20 and gain access to a variety
of databases.
WEBSITE
Visit the Eighty20 web site to view the
available secondary data offered by this
firm www.eighty20.co.za
10.3 Step 3: Formulate the research objectives
During this stage, it is important for the researcher to
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formulate a series of objectives. These objectives, if realised
during the research process, will ensure that the problem
statement is addressed. The objectives will also serve as
criteria against which to assess the relevance of the
questionnaire, or other measuring instrument that will be
used, and to assess the empirical results emanating from the
data-analysis phase.
The following are examples of research objectives:
• To calculate the average household expenditure on
toothpaste in South Africa
• To assess the attitude of South African motorists towards
electric cars
• To compare the perceptions of males and females with
regard to the death penalty.
After completing the exploratory study, the researcher
compiles a list of all the data required to address the
research objectives and then decides on the types of data
required for decision-making. Often the researcher will
begin with secondary data (data that are available
elsewhere, such as in a library, which can be retrieved from
a company database) in order to further refine the problem
statement or the research objectives.
10.4 Step 4: Planning the research design
Good secondary data can help researchers conduct a
thorough exploratory study. Armed with secondary data and
information, the researcher can list the unanswered
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questions and rank them. The researcher must then decide
on the exact information required to answer the research
questions. Declining sales in the canteen may prove to be
only a symptom of a larger problem, rather than the
problem itself. The real problem may be poor customer
satisfaction due to poor-quality food, an inadequate menu
selection and long waiting in queues.
The research design specifies which research questions
must be answered, how and when the data will be collected
and how the data will be analysed. Typically, the project
budget is finalised after the research design has been
approved.
Sometimes research questions can be answered by
collecting more secondary data; otherwise, primary data
may be needed. Primary data – or information collected for
the first time for a specific problem at hand – can be used for
solving the particular problem under investigation. The
main advantage of primary data is that they will answer a
specific research question that secondary data cannot
answer.
For example, suppose the baking firm Sasko has two new
recipes of refrigerated dough for a new biscuit. Which one
will consumers prefer? Secondary data will not help to
answer this question. Instead, targeted consumers must try
each proposed recipe and evaluate the taste, texture and
appearance of each biscuit. Moreover, primary data are
current and researchers know the source. Sometimes
researchers collect the data themselves rather than
assigning projects to outside research firms. Researchers
also specify the methodology of the research. Secrecy can be
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maintained because the information is proprietary. By
contrast, most secondary data are available to all interested
parties for relatively small fees.
Collecting primary data is expensive. Costs can range
from a few thousand rands for a limited survey to several
hundred thousand for a national study. For instance, in the
United States a nationwide, 15-minute telephone interview
with 1 000 adult males may cost $50 000 for everything,
including the data analysis and report. Because collection of
primary data is so expensive, firms commonly cut back on
the number of interviews in order to save money. Larger
firms that conduct many research projects use another costsaving technique. They ‘piggyback’ studies, or collect data
on two different projects using one questionnaire (also
called an omnibus survey). The research firm IpsosMarkinor conducts two omnibus studies, namely Khaya bus
(face-to-face personal interviews) and Telebus (telephonic
interviews).
The disadvantage of this approach is that answering
questions about, say, dog food and gourmet coffee on the
same questionnaire may be confusing to respondents.
Piggybacking also requires a longer interview (sometimes
half an hour or longer), which many respondents find tiring,
and as a result the quality of the answers often declines.
However, the disadvantages of primary data collection
are usually offset by the advantages. It is often the only way
of solving a research problem. And with a variety of
techniques available for research – including surveys,
observations (such as immersion) and experiments –
primary research can address almost any marketing
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question. The first data-collection technique we will
consider is survey research.
10.4.1 Survey research
LO10
Although there are several techniques or methods available
to marketing researchers to collect primary data, we will
only discuss three of them, namely surveys (which include
personal interviews, shopping mall interviews, telephone
surveys, electronic mail surveys, postal mail surveys and
focus groups), observation research and experimental
studies.
The most popular technique for collecting primary data is
survey research, in which a researcher interacts with people
to obtain facts, ask opinions and record perceptions and
attitudes. Table 5.2 summarises the characteristics of the
most popular forms of survey research, and identifies the
primary advantages and disadvantages associated with
each.
Personal interviews
In-home, personal interviews often provide high-quality
information, but they tend to be very expensive because of
the interviewers’ travel time and costs. Therefore, market
researchers tend to conduct fewer in-home personal
interviews today than in the past. Nevertheless, this form of
survey research has some important advantages. The
respondent is often interviewed at home, in a natural setting
where many consumption decisions are actually made. Also,
the interviewer can show the respondent items (for
example, package designs or a printed advertisement) or
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invite the respondent to taste, use or test a product. An
interviewer can also probe when necessary – a technique
used to clarify a person’s response. For example, an
interviewer might ask, ‘What did you like best about the
salad dressing you just tried?’ The respondent might reply,
‘Taste.’ This answer doesn’t provide a lot of information, so
the interviewer could probe by saying, ‘Can you tell me a
little bit more about the taste?’ The respondent then
elaborates: ‘It’s not too sweet, it has the right amount of
pepper and I love that hint of garlic.’
>>Strategy
MTN recently used face-to-face interviews to
investigate the efficacy of advertising on the Icon
Media-branded shopping carts among shoppers, with
aspects such as brand recall and the influence on
purchase decisions coming under the spotlight. The
study was conducted at Checkers hyperstores in
Benoni, Boksburg, Edenvale and Constantia. A sample
of approximately 200 consumers was randomly
selected for intensive face-to-face interviews. An
incredible 98 per cent of respondents said that their
children were more manageable in a shop where the
Icon carts were available. Of these parents, 74 per cent
said that the advertising reminded them to purchase a
product. Brand recall also fared well, with 89 per cent of
parents remembering the advertising message of a
certain branded cart. Says Storm Ackerman, general
manager for Icon Media: ‘It is clear from our research
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that our platform is a fantastic shopper marketing tool.
The objective is to assist advertisers to make optimal
usage of the advertising space available, drawing on
consumer insights when fine-tuning design, colour
choices and creating competitions, thus ensuring we
deliver only the best for our clients.’22
Shopping mall intercept interviews
The shopping mall intercept interview is conducted in the
common areas of shopping malls or large shopping centres.
It is the economy version of the door-to-door interview with
personal contact between interviewer and respondent,
minus the interviewer’s travel time and costs. One
disadvantage is that it is hard to get a representative sample
of the population inside a shopping mall. Also, mall
intercept interviews must be brief. The researchers often
show concepts for new products to the respondents, or they
test a new advertisement or have them taste a new food
product. Data collected during mall intercept interviews is of
a similar overall quality as that collected from telephone
interviews.
Marketing researchers are increasingly using new
technology in mall interviewing. The first technique is
computer-assisted personal interviewing. If used, the
researcher conducts personal interviews, reads questions to
the respondent off a computer screen and directly keys the
respondent’s answers into the computer. A second
approach is computer-assisted self-interviewing. A mall
interviewer intercepts and directs willing respondents to
nearby computers. Each respondent reads questions off a
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computer screen and directly keys his or her answers into a
computer.23
Table 5.2 Characteristics of various types of survey research
Telephone interviews
Compared with the personal interview, the telephone
interview costs less and may provide the best (i.e. most
representative) sample of any survey procedure. Most
telephone interviewing is conducted from a speciallydesigned phone room called a central-location telephone
(CLT) facility. A phone room has many phone lines,
individual interviewing stations, sometimes monitoring
equipment and headsets. The use of Wide Area Telephone
Service (WATS) lines permits the research firm to interview
people nationwide from a single location.
Many CLT facilities offer computer-assisted interviewing.
The interviewer reads the questions from a computer screen
and enters the respondent’s responses directly into the
computer as the respondent answers questions. The
researcher can stop the survey at any point and immediately
print out the survey results. This way, a researcher can get a
sense of the project as it unfolds and fine-tune the research
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design as necessary. An online interviewing system can also
save time and money because data entry occurs as the
response is recorded rather than as a separate process after
the interview. Hallmark Cards, for instance, found that an
interviewer administered a printed questionnaire for its
greeting cards in 28 minutes. The same questionnaire
administered with computer assistance took only
18 minutes.24
Electronic surveys
Telephone surveys have been the backbone of much
consumer research during the past several decades because
they are a fast, relatively cheap, easy way to collect data.
However, answering machines, negative consumer attitudes
towards phone surveys (due to misuse by some salespeople
making telephone sales calls) and the growing number of
unlisted phones have led marketing researchers to look for
other media for collecting data. The growing number of
South Africans who have access to personal computers and
the Internet has opened up new opportunities for data
collection and marketing research using electronic
techniques.
Researchers typically use batch-type electronic mail to
send e-mail questionnaires to potential respondents who
use e-mail. Respondents key in their answers and send an email reply. The major advantage of e-mail surveys is the
rapid response rate. One recent survey had a 23,6 per cent
response rate after two days. This is shorter than the time
usually required to distribute traditional mail surveys
nationwide. After 14 days, the overall response rate was
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48,8 per cent, which is quite high compared with most mail
or telephone surveys.25
Furthermore, because e-mail is a semi-interactive
medium, respondents can enquire about the meaning of
specific questions or pose other questions they may have.
E-mail surveys still face the problem of the limited
number of subscribers online, particularly in South Africa.
Other problems encountered when using e-mail surveys
include a large number of invalid e-mail addresses and the
fact that e-mail questionnaires are easy to ignore and/or
delete.
Internet-based surveys, in which a questionnaire is
placed on a website and the sample’s respondents (taken
from a database containing names and e-mail addresses)
are e-mailed an invitation to participate in the study (with a
link to the website) are gaining in popularity. Examples are
Qualtrics and SurveyMonkey. This survey method yields the
same advantages and disadvantages as e-mailed surveys,
except for one additional advantage: the data are captured
directly into a database as the respondents answer the
questions. It is not only much quicker than other methods,
but overcomes the problem of errors when the data are
captured.
WEBSITE
Visit the Qualtrics web site to see how this
data collection method can be used
www.qualtrics.com
Mail surveys
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Mail surveys have several benefits: relatively low cost;
elimination of interviewers and field supervisors; centralised
control; and actual or promised anonymity for respondents
(which may draw more candid responses). Some
researchers feel that mail questionnaires give the
respondent a chance to reply more thoughtfully, to check
their records, talk to family members, and so forth.
However, mail questionnaires usually produce low response
rates (sometimes as low as 10 per cent). Low response rates
pose a problem because certain elements of the population
tend to respond more than others. Therefore, the resulting
sample may not represent the surveyed population. For
example, the sample may have too many retired people and
too few working people. In this instance, answers to a
question about attitudes towards old-age pensions may
indicate a much more favourable overall view of the system
than is actually the case. Another serious problem with mail
surveys is that it is not possible to probe respondents to
clarify or elaborate on their answers.
Mail panels like those used by market research firms such
as Synovate and Ipsos-Markinor offer an alternative to the
one-shot mail survey. A mail panel consists of a sample of
households who have agreed to participate regularly by mail
for a given period. Panel members often receive gifts in
return for their participation. Essentially, the panel is a
sample used several times over. In contrast to one-time mail
surveys, the response rates from mail panels are high. Rates
of 70 per cent (of those who initially agreed to participate)
are not uncommon.
WEBSITE
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Evaluate the research design for the
omnibus survey of the marketing research
firm Ipsos-Markinor at www.ipsosmarkinor.co.za (click on omnibus).
Focus groups
A focus group is a type of personal interviewing. Often
recruited by random telephone screening, seven to ten
people with certain desired characteristics (to make them
representative of the population being studied) form a focus
group. These qualified consumers are usually offered an
incentive to participate in a group discussion. The meeting
place (sometimes resembling a living room, sometimes
featuring a conference table) usually has both audio-taping
and videotaping equipment. It is also likely to have a
viewing room with a one-way mirror so that interested
parties (e.g. clients such as the marketing staff of
manufacturers or retailers) may watch the session. During
the session, a moderator leads the group discussion.
Focus groups are much more than question-and-answer
interviews. The distinction is made between ‘group
dynamics’ and ‘group interviewing’. The interaction
between focus-group members during focus-group
meetings is essential to the success of focus-group research.
This interaction is the reason for conducting group rather
than individual interviews. One of the most important
reasons for using group sessions to collect consumer data is
that a response from one person may become a stimulus for
another, thereby generating an interplay of responses that
may yield more insight than if the same number of people
had contributed independently.
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Focus groups are occasionally used to brainstorm new
product ideas or to screen concepts for new products. Ford
Motor Company, for example, asked consumers to drive
several prototype cars. These ‘test drivers’ were then
brought together in focus groups. During the discussions,
consumers complained that they were scuffing their shoes
because the rear seats lacked foot room. In response, Ford
sloped the floor underneath the front seats, widened the
space between the seat adjustment tracks, and made the
tracks in some models out of smooth plastic instead of
metal.
The Afrikaans daily newspaper, Die Burger, was
redesigned recently on the basis of focus-group research.
Focus groups were conducted in Cape Town, Somerset
West, Stellenbosch, Port Elizabeth, Humansdorp and
George, and, as a result, the publisher of the newspaper has
incorporated the following changes:26
•
The newspaper will include more and sharper in-depth
analysis of daily news
• Greater focus on international news, especially relating
to the African continent
• More legible typography and accessible layout
• Shorter articles, but without sacrificing depth, meaning
and relevance
• Larger crossword puzzles
• TV schedules will include the latest entertainment news
• Supplements will be full of relevant and interesting
trends and news
• The daily ‘fun’ pages will include the most popular
comic strip, as voted by readers.
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10.4.2 Questionnaire design
LO11
All forms of survey research require a questionnaire.
Questionnaires ensure that all respondents will be asked
exactly the same series of questions. Questionnaires include
three basic types of questions (see Table 5.3): open-ended,
closed-ended, and scaled-response questions. An openended question encourages an answer phrased in the
respondent’s own words. Researchers get a rich array of
information based on the respondent’s frame of reference.
By contrast, a closed-ended question asks the respondent to
make a selection from a limited list of responses.
Traditionally, marketing researchers separate the twochoice question (called dichotomous questions) from the
many-item type (often called multiple choice questions). A
scaled-response question is a closed-ended question
designed to measure the intensity, or scale, of a
respondent’s answer.
The data (results) generated by closed-ended and scaledresponse questions are easier to tabulate than open-ended
questions because response choices are fixed. On the other
hand, if the researcher is not careful in designing the closedended question, an important choice might be omitted. For
example, suppose this question was asked during a food
study:
Table 5.3 Types of questions typically found in questionnaires
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‘What, besides meat, do you normally add to a pizza that you
have prepared at home?’
☐ Peppadews
☐ Olives
☐ Cheese
☐ Onions
☐ Mushrooms
☐ Peppers
☐ Tomato
☐ Pineapple
☐ Banana
☐ Bacon
The list seems complete, doesn’t it? However, consider the
following responses: ‘I always add garlic’; ‘I usually add a
green, avocado-tasting hot sauce’; ‘I cut up a mixture of
lettuce and spinach’; ‘I’m a vegetarian; I don’t use meat at
all.’ How would you code these replies? As you can see, the
question needs an ‘other’ category.
A good question must also be asked clearly and concisely,
and ambiguous language must be avoided. Take, for
example, the question ‘Do you live within ten minutes of
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here?’ The answer depends on the mode of transport
(maybe the person walks), driving speed, perceived time
and other factors. Instead, respondents should see a map
with certain areas highlighted and be asked whether they
live within one of the areas.
Poor questions such as the two above will clearly produce
invalid results. Clarity also implies using reasonable
terminology. A questionnaire is not a vocabulary test. Jargon
should be avoided, and language should be geared to the
target audience. A question such as, ‘What is the level of
efficacy of your preponderant dishwasher powder?’ would
probably be greeted by a lot of blank stares. It would be
much simpler to say ‘Are you (1) very satisfied, (2)
somewhat satisfied, or (3) not satisfied with your current
brand of dishwasher powder?’
Other principles of questionnaire design include the
following:
•
•
•
•
•
•
Avoid leading questions
Do not put the respondent on the defensive
Do not identify the sponsor if it can be avoided
Ask sensitive questions at the end
Do not ask unanswerable questions
Response options must be mutually exclusive.
Stating the survey’s purpose at the beginning of the
interview also improves clarity. The respondents should
understand the study’s intentions and the interviewer’s
expectations. Sometimes, of course, to get an unbiased
response, the interviewer must disguise the true purpose of
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the study. If an interviewer says, ‘We’re conducting an image
study for Absa Bank’ and then proceeds to ask a series of
questions about the bank, chances are the responses will be
biased. Often respondents will try to provide answers that
they believe are ‘correct’ or that they think the interviewer
wants to hear.
A good introduction to a questionnaire can go a long way
to ensuring a good response rate. The following also ought
to be considered:
•
•
•
•
•
•
•
Include brief introductory remarks, and a greeting
State the name of the research firm (not the client or
sponsor)
Make it clear that this is a genuine research study and
not a sales attempt
Introduce the general topic
State the duration of the interview – accurately
Provide assurance of confidentiality and, if possible,
anonymity
Make it clear that there are no right or wrong answers.
To ensure clarity, the interviewer should also avoid asking
two questions in one – for example, ‘How did you like the
taste and texture of the coffee cake?’ This is known as a
‘double-barreled’ question – it should be divided into two,
one question concerning taste and the other texture.
A question should be not only clear, but also unbiased. A
question such as, ‘Have you purchased any quality Black &
Decker tools in the past six months?’ influences respondents
to think of the topic in a certain way (in this case, to link
quality and Black & Decker tools). Questions can also be
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leading: ‘Weren’t you pleased with the good service you
received at the Holiday Inn?’ (The respondent is all but
instructed to say ‘yes’.) These examples are quite obvious.
Unfortunately, bias is usually more subtle. Even an
interviewer’s clothing, tone of voice or gestures can lead to
biased responses.
Observation research
In contrast to survey research, observation research does
not rely on direct interaction with people. The three types of
observation research can be described as people watching
people, people watching activity, and machines watching
people.
There are two types of people-watching-people research:
•
•
Mystery shoppers. Researchers posing as customers
observe the quality of service offered by retailers.
Mystery shoppers usually evaluate salespeople’s
courtesy, airline in-flight service, the efficiency of
hamburger ordering at fast-food outlets, etc. without the
employees knowing that they are not actually dealing
with ‘real’ customers.
One-way mirror observations. At the Fisher-Price Play
Laboratory, children are invited to spend 12 sessions
playing with toys. Toy designers watch through one-way
mirrors to see how children react to Fisher-Price’s and
other makers’ toys. Fisher-Price, for example, had
difficulty designing a toy lawnmower that children would
play with. A designer, observing behind the mirror,
noticed the children’s fascination with soap bubbles. He
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then created a lawnmower that spewed soap bubbles. It
sold more than a million units in the first year.
People-watching-activity observation research is known as
consumer immersion. This is a primary research method
which is usually used to complement other types of primarydata-collection techniques. The technique requires a
researcher (or a member of the marketing team) to
‘immerse themselves’ in the world of the consumer and in
so doing capture a 360 degree view of the consumer’s world
insofar as it relates to a particular product. This way,
marketers are able to observe the behaviour and the lifestyle
of the consumer and explore the factors that are important
to the user. For example, Johnson & Johnson changed the
top of its baby shampoo from a flip-up lid to a pump-action
top. The reason for this was that, following a consumerimmersion day with a young mother, Johnson & Johnson
realised that it was difficult for a mother to open up the
shampoo bottle (with a flip-up) lid while holding the baby at
bath time. With the pump-action top, the mother was able to
hold the baby with one hand and operate the pump of the
shampoo with the other.
Three examples of machines watching people are:
• Traffic counters. The most common and most popular
form of machine-based observation research relies on
machines that measure the flow of vehicles over a stretch
of road. Outdoor advertisers rely on traffic counts to
determine the number of exposures per day to a
billboard. Retailers often use the information to decide
on the location of a new shop. Convenience stores, for
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example, require a moderately high traffic volume to be
profitable.
• Videocart. This machine uses infrared sensors in shop
ceilings to track shopping trolleys. The new system has
spotted a lot of ‘dippers.’ These shoppers park their
trolleys at the ends of aisles and then walk down, filling
their arms with items from the shelves as they go.
Retailers suspect such shoppers probably buy less
because they are limited by what they can carry in their
arms.27
• Peoplemeter. This is a camera-like device used to
measure the size of television audiences. The passive
system, packaged to resemble a VCR and placed on top
of the TV, will be programmed to recognise faces and
record electronically when specific members of a family
watch TV. It will note when viewers leave the room and
even when they avert their eyes from the screen.
Strangers would be listed simply as visitors.
Peoplemeters are very useful because television
advertisers are demanding more proof of viewership and
the TV stations are under pressure to show that
advertising is reaching its intended targets. (Ratings are
used to help set prices for advertising time.) An AC
Nielsen executive has said that a passive system should
yield ‘even higher quality, more accurate data because
the respondents don’t have to do anything other than be
themselves’. Already, however, the TV stations and
advertisers are criticising the passive peoplemeter. One
executive noted, ‘Who would want or allow one of those
things in their bedroom?’ Others claim that the system
requires bright light to operate properly. Also, the box
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has limited peripheral vision, so it might not sense all the
people in a given room.28
EXAMPLE >>
A few years ago, Kimberly-Clark Corp saw sales of
Huggies baby wipes slip just as the company was preparing to launch a line of
Huggies baby lotions and bath products. Focus groups weren’t yielding any
compelling insights. Then a senior packaging designer suggested a new approach:
a camera mounted on a pair of glasses to be worn by consumers at home, so
researchers could see through their eyes. ‘Letting Kimberley-Clark see what
consumers see, rather than pointing the camera at them, proved more
comfortable for consumers and useful to the company,’ says Becky Walter,
innovation and design chief. It didn’t take long to spot the opportunities. While
women in groups talked about changing babies at a diaper table, the truth was
they changed them on beds, floors, and on top of washing machines in awkward
positions. The researchers could see they were struggling with wipe containers
and lotions requiring two hands. The company redesigned the wipe package with
a push-button one-handed dispenser and designed lotion and shampoo bottles
that can be grabbed and dispensed easily with one hand. 29
All observation techniques offer at least two advantages over
survey research. Firstly, bias from the interviewing process is
eliminated. In other words, it is relatively difficult to lie to a
peoplemeter – the people who have to supply information
do not have to remember what they did or what they bought.
And secondly, observation does not rely on the respondent’s
willingness to provide data. Conversely, observation
techniques also have two important disadvantages. Firstly,
subjective information is limited because motivations,
attitudes and feelings are not measured. Secondly, data
collection costs may run high unless the observed behaviour
patterns occur frequently, briefly or somewhat predictably.
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Experiments
An experiment is another method a researcher can use to
collect primary data. An experiment is conducted in a
controlled environment, such as a laboratory-like set-up or
artificially created environment. The researcher alters one
or more variables, such as price, package design, shelf
space, advertising theme and advertising expenditures,
while observing the effects of those alterations on another
variable (usually sales). The best experiments are those in
which all factors are held constant except for the ones being
manipulated. The researcher can then observe that changes
in sales, for example, result from changes in the shelf
location where the product is placed (and are not due to
increased advertising, changed packaging or a change in
price).
Holding all other factors constant in the external
environment is a monumental and costly – if not impossible
– task. Such factors as competitors’ actions, weather and
economic conditions are beyond the researcher’s control.
That is why successful experimental studies in a controlled
environment can be so valuable.
For example, before adding a new sandwich or burger to
its menu, McDonald’s might use experiments to test the
effects on sales at two different prices. It could introduce the
new sandwich at one price in one city and at another price
in another city. If the cities are similar and if all other
marketing efforts for the sandwich are the same, then
differences in sales in the two cities could be attributed to
the price difference.
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EXAMPLE >> Mars, the chocolate bar, was losing sales to other brands
recently. Traditional surveys showed that the smaller bar was not perceived as
good value. The marketers of Mars chocolate bars wondered whether a bigger bar
sold at the same price would increase sales enough to offset the higher
ingredient costs. The firm then designed an experiment in which the marketing
mix stayed exactly the same in different markets but the size of the chocolate bar
varied. The substantial increase in sales of the bigger bar quickly proved that the
additional costs of a bigger bar would be more than covered by the additional
revenue. Mars increased the bar size – and its market share and profits.
10.4.3 Measuring perceptions and attitudes
LO12
The purpose of most consumer research conducted by firms
is to measure consumer perceptions and attitudes. The
researcher attempts to record the answers to the questions
in some sort of format. Two general formats are commonly
used: one is qualitative information and the other is
quantitative. Qualitative data are not in a numerical format,
but in a descriptive form. Qualitative information is very
valuable when the researcher is interested in in-depth,
detailed information. The researcher uses open-ended
questions rather than a structured questionnaire, and
probes continuously to try to unearth underlying feelings,
emotions, opinions and motivations.
A question such as: ‘Why do you prefer All Gold tomato
sauce?’ is likely to produce a qualitative response such as:
‘It’s the best-tasting tomato sauce on the market.’ Further
probing may produce interesting insights: ‘Who first
introduced you to All Gold tomato sauce?’ ‘My mother.
Those were wonderful, carefree days on the family farm.’
Further probing may suggest that the choice of a brand of
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tomato sauce is not primarily guided by taste, but instead by
a nostalgic longing for an era of peace and happiness.
>>Strategy
The appliances marketer Whirlpool relies heavily on
qualitative research to understand the many
international markets it operates in around the world.
The firm does business in every corner of the world,
including the United States and Canada, and
expanding markets in Asia, Europe and Latin America.
Whirlpool produces products under 12 brand names in
more than 140 countries.
How does Whirlpool intend to prosper in these very
diverse markets? Whirlpool has invested heavily in
cross-cultural market research. By using the expertise
of local staff members, qualitative research – in the
form of focus groups, depth interviews and various
forms of projective techniques – is undertaken around
the world. In refrigerator research in Europe, Whirlpool
found that British consumers want strong construction,
French consumers want fresh fruit and vegetables and
the Spanish want fresh meat. For ovens, the research
revealed that Italians want childproof features and the
Spanish favour accurate timers. Overall, Germans were
the only group concerned about environmental
features. In Latin America gas ranges are favoured
because of high electricity prices. Whirlpool strives to
understand cultural factors so that they can take
advantage of growing markets. For example, Latin
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America’s economy is expected to grow at more than
5 per cent annually in the next decade. Whirlpool is
well aware of the different consumer needs from this
global qualitative research and is well equipped to
compete in a global market.30
Quantitative data, on the other hand, are expressed in a
numerical format. Usually exactly the same question is
asked of all respondents. Converting perceptions and
attitudes into numbers is usually done by means of a scale
that permits the data to be summarised as percentages,
averages, and so on. Several scales can be used to measure
perceptions and attitudes. These can be classified into four
groups, namely nominal scales, ordinal scales, interval
scales and ratio scales. In this introductory text we will
briefly discuss only the first two groups – nominal scales and
data and ordinal scales and data.
A nominal scale is no more than a descriptive ‘tag’ or
label attached to a classification or category. In other words,
a nominal scale classifies or identifies a respondent. A
respondent is, for instance, classified as a male or a female,
or as a Stormers, a Blue Bulls or a Sharks supporter. When a
nominal scale is used for identification of each object (such
as a male or a female) it has only one number assigned to it.
In other words, a respondent can be classified into one
group only and there is a number for each respondent
(exhaustive). All the respondents in the same category are
regarded as equal in respect of that characteristic. In other
words, Sharks supporters cannot be ranked above Blue Bulls
supporters.
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An ordinal scale, on the other hand, implies some sort of
rank order relative to others possessing the same
characteristic. In other words, an ordinal scale allows the
researcher to determine whether a respondent has more or
less of a certain characteristic than some other respondent,
but not by how much. An ordinal scale indicates relative
position. One classification is higher, taller, richer, or faster,
and so on, than the next classification. For instance, the
higher-income group is richer than the low-income group
(but we do not know by how much). Two of the more
popular ordinal scales are the Likert-scale and the semantic
differential scale.
The Likert scale
The Likert scale is a rating scale on which respondents can
indicate their agreement or disagreement with a series of
statements, ranging from strongly agree to strongly disagree.
Table 5.4 Example of a Likert scale questionnaire
The respondent’s answer can then be expressed as a
number. For instance, we can report that the mean
(average) score of our respondents to the statement ‘Coke is
the most enjoyable soft drink’ was 4,14. Alternatively, we can
report that the frequency distribution of the statement ‘Coke
is the most enjoyable soft drink’ was:
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•
•
•
•
•
5 – 55%
4 – 20%
3 – 15%
2 – 5%
1 – 5%.
In other words, 55 per cent of those interviewed strongly
agreed that ‘Coke is the most enjoyable soft drink’ on the
market and only 5 per cent strongly disagreed. Also note that
respondents’ alternatives are limited: they can answer only
one of five possible answers.
The semantic differential scale
The semantic differential scale is slightly different, but
allows the researcher to do the same statistical
manipulations as those for the Likert scale because it is also
an ordinal scale. For example:
How would you describe the quality of service at the Pick
n Pay outlet you just visited?
Qualitative and quantitative data alike have advantages and
disadvantages. Qualitative data are normally of an in-depth
nature, providing detailed insight into a problem – but we
cannot quantify the responses by saying, for instance, that
95 per cent of the customers of a firm are satisfied with its
products. We can only report detailed information about our
respondents’ attitudes and perceptions in a non-numerical
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fashion. Quantitative data, on the other hand, allow us to
make statements such as ‘our customer satisfaction index is
98’, or ‘81 per cent of our customers rate the quality of our
services as excellent.’
Which one of the two is the better? The answer is – it
depends. It depends on the objectives of the research
project. If the objective is to get information about a new
product that the firm wants to launch, then qualitative data
will be the best. However, if we wish to assess the firm’s level
of customer satisfaction, then quantitative data will be the
best.
10.4.4 Deciding on the sampling procedure
LO13
Once the researcher has decided on the type of data needed
and the questionnaire has been finalised, the next step in
the research process is to decide on the sampling procedure.
Before a decision on the sampling procedure can be made, a
decision needs to be made on who will provide the
researcher with the required information. In other words,
who or what will be the unit of analysis? Who is to be
surveyed, or who will be questioned? Customers, potential
customers, firms, CEOs, industry experts and channel
members can all be respondents in a survey – the unit of
analysis.
A related question is sample size. How many respondents
are going to be surveyed? Generally, larger samples are
preferred because they yield more valid and reliable data.
However, provided a credible sampling procedure is used,
smaller samples can be equally valid and reliable. Once the
researchers have decided how they will collect primary data,
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how big the sample will be and how the collected data will
be captured (scored), the next step is to select the sampling
procedure they will use. A firm is seldom in a position to
take a census of all potential users of a new product, or of all
customers, and it is not possible to interview them all.
Therefore, it has to select a sample of the group to be
interviewed. A sample is a subset (usually people,
households or firms) selected from a larger population.
Several questions must be answered before a sampling
plan is chosen. First, the population or universe of interest
must be accurately defined. The population is the group
from which the sample will be drawn. It should include all
the people whose opinions, behaviour, preferences,
attitudes, and so on, are of interest to the market researcher.
For example, in a study whose purpose is to assess the
attitude towards a new canned dog food, the population
may be defined to include all current buyers of canned dog
food; if a petroleum firm wants to introduce a new brand of
petrol, all private vehicle owners may be the study
population.
After the population has been defined, the next question
is whether the sample needs to be representative of the
population. If the answer is yes, a probability sample is
needed. Otherwise, a non-probability sample might be
considered. These types of samples are discussed in the
sections that follow.
When the Sunday Times conducts its annual Top Brands
surveys, it selects a probability sample: a national sample of
3 500 people older than 16, who are representative of the
South African population, are interviewed face-to-face (2
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000 urban dwellers and 1 500 rural dwellers).
Probability samples
A probability sample is one in which every element in the
population (all dog owners, in this case) has a known
statistical likelihood of being selected. Its most desirable
feature is that scientific rules can be used to ensure that the
sample represents the population. In other words, a
probability sample allows the researcher to generalise the
results of the sample to the entire population, which is a
major advantage over non-probability samples.
The choice of a probability sample is often influenced by
the availability of a sampling frame: a complete list of the
population from which the sample (consisting of individual
respondents) can be drawn. Depending on how the
population is defined, the following are examples of
sampling frames: a list of customers, a list of employees, a
rate-payers list, a telephone directory or a list of graduates in
South Africa. If a sampling frame is not available,
researchers are often forced to use a non-probability
sample.
One type of probability sample is a random sample. A
random sample must be arranged in such a way that every
element of the population has an equal chance of being
selected as part of the sample. For example, suppose a
university is interested in getting a cross-section of student
opinions on a proposed sports complex to be built using
student fees. If the university can acquire an up-to-date list
of all the enrolled students, it can draw a random sample by
using random numbers from a table (found in most statistics
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textbooks) to select students from the list.
Non-probability samples
Any sample in which little or no attempt is made to get a
representative cross-section of the population can be
considered a non-probability sample. The most common
form of a non-probability sample is the convenience
sample, based on using respondents who are convenient or
readily accessible to the researcher – for instance,
employees, friends or students. Non-probability samples are
acceptable as long as the researcher understands their nonrepresentative nature. In other words, no generalisations
can be made about the entire population. The findings are
applicable to that sample only. Because of their lower cost,
convenience and speed of data collection, non-probability
samples are used in many marketing research studies.
Common types of probability and non-probability
samples are described in Table 5.5.
Table 5.5 Types and features of probability and non-probability samples
Sample type
Probability samples
Simple
random
sample
Every member of the population has a known and equal
chance of selection.
Stratified
sample
Population is divided into mutually exclusive groups (such as
gender or age), then random samples are drawn from each
group.
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Cluster
sample
Population is divided into mutually exclusive groups (such as
geographic areas), then a random sample of clusters is
selected. The researcher then collects data from all the
elements in the selected clusters or from a probability sample
of elements within each selected cluster.
Systematic
sample
A list of the population is obtained (e.g. all people with a
cheque account at XYZ Bank), and a skip interval is obtained.
The skip interval is obtained by dividing the population size
by the sample size. If the sample size is 100 and the bank
has 1 000 customers, then the skip interval is 10. The
beginning number is randomly chosen within the skip interval.
If the beginning number is 8, then the skip pattern would be
8, 18, 28 …
Sample type
Non-probability samples
Convenience
sample
The researcher selects the easiest population members from
whom to obtain information.
Judgement
sample
The researcher’s selection criteria are based on personal
judgement that the elements (persons) chosen are likely to
give accurate information.
Quota
sample
The researcher finds a prescribed number of people in several
categories (e.g. owners of large dogs versus owners of small
dogs). Respondents are not selected on probability sampling
criteria.
Snowball
sample
The selection of additional respondents is made on the basis
of referrals from the initial respondents. This is used when a
desired type of respondent is hard to find, e.g. people who
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have taken round-the-world cruises in the last three years.
This technique employs the old adage ‘birds of a feather flock
together’.
10.5 Step 5: Collecting the data
Marketing research often utilises fieldworkers or
interviewers to collect primary data. A marketing research
manager must ensure that detailed field instructions are
developed for every research project in which fieldworkers
are used. Nothing should be left to chance. There must be
no uncertainties once the fieldwork (interviewing) starts and
no interpretation of procedures should be left to
fieldworkers.
Sometimes the services of outside market research firms
are used to do the fieldwork. Besides conducting interviews,
field-service firms provide focus-group facilities, mall
intercept locations, test-product storage and kitchen
facilities to prepare test-food products. After an interview is
completed, field-service supervisors validate the survey by
recontacting about 15 per cent of the respondents. The
supervisors verify that certain responses were recorded
properly and that the people were actually interviewed.
10.6 Step 6: Analysing the data
After collecting the data, the marketing researcher proceeds
to the next step in the research process: data analysis. The
purpose of this analysis is to interpret and draw conclusions
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from the mass of collected data. The marketing researcher
tries to organise and analyse the data by using one or more
techniques common to marketing research: one-way
frequency counts, cross-tabulations and more sophisticated
statistical analysis.
Of these three techniques, one-way frequency counts are
the simplest. One-way frequency tables record the
responses to a question. For example, the answers to the
question ‘what brand of chips do you buy most often?’
would provide a one-way frequency distribution. One-way
frequency tables are always done in data analysis, at least as
a first step, because they provide the researcher with a
general picture of the study’s results.
A cross-tabulation, or ‘cross-tab’, lets the analyst look at
the responses to one question in relation to the responses to
one or more other questions. For example, what is the
association between gender and the brand of chips bought
most frequently? Hypothetical answers to this question are
shown in Table 5.6.
Table 5.6 Brand choice by gender (hypothetical)
Brand
Male
Female
Simba
50%
50%
Willards
51%
49%
Pringles
30%
70%
Analysing the data in Table 5.6 shows that both the Simba
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and the Willards brands are equally popular with both males
and females. Women, compared to men, however, strongly
prefer Pringles potato chips.
Researchers can use many other more powerful and
sophisticated statistical techniques, such as correlation
analysis and regression analysis to test whether there are
relationships among variables of interest (such as between
gender and choice of a brand of potato chip in this case).
The use of sophisticated statistical techniques depends on
the researchers’ objectives and the nature of the data
collected. A description of these techniques is beyond the
scope of this book, but can be found in any good marketing
research textbook.
After the data have been analysed, the researcher has to
interpret the results. In other words, the question that must
be answered is: ‘What do the results say?’ This interpretation
is made against the background of the stated objectives and
the problem statement, and relies heavily on the data
analysis phase of the research. For example, if women prefer
Pringles potato chips, what are the reasons for the
preference? What can be done to enhance preference
among males?
10.7 Step 7: Preparing and presenting the report
After data analysis and interpretation have been completed,
the researcher must prepare the report and communicate
the conclusions and recommendations to management.
This is a key step in the research process. If the marketing
researcher wants managers to carry out the
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recommendations, he or she must convince management
that the results are credible, valid, reliable and justified by
the data collected.
Researchers are usually required to present both written
and verbal reports on the project. These reports should be
tailored to the audience. They should begin with a clear,
concise statement of the research objectives, followed by a
complete, but brief and simple, explanation of the research
design or methodology used. A summary of the major
findings should come next. The conclusion of the report
should also present recommendations to management.
Most people who enter the marketing profession will
become research users rather than research suppliers. So
they must know what is required of a research report. As
with many other items we purchase, quality is not always
readily apparent. Nor does a high price guarantee superior
quality. The basis for measuring the quality of a marketing
research report is the research proposal. Did the report meet
the objectives formulated in the proposal? Was the
methodology outlined in the proposal followed? Are the
conclusions based on logical deductions from the data
analysis? Do the recommendations seem prudent, given the
conclusions?
Another criterion is the quality of the writing. Is the style
crisp and lucid? It has been said that if readers are offered
the slightest opportunity to misunderstand, then they
probably will. The report should also be as concise as
possible.
It may be a good idea, a few months after the submission
of the research report, to conduct a follow-up exercise. The
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researcher should investigate why management did or did
not implement the recommendations in the report. Was
sufficient decision-making information included? What
could have been done to make the report more useful to
management? A good rapport between the marketing
manager, or whoever commissioned the research project,
and the market researcher is essential. Often they must work
together on several studies throughout the year.
Many small firms do not have the time or money to
engage in sophisticated, formal marketing research studies.
However, that should not preclude them from doing less
complicated forms of research.
11. When should marketing research be
LO14
conducted?
When managers have several possible solutions to a
problem, they should not instinctively call for marketing
research. In fact, the first decision to make is whether to
conduct marketing research at all. Some firms have been
conducting research in certain markets for many years. Such
firms understand the characteristics of target customers and
their likes and dislikes about existing products. Under these
circumstances, further research could be unnecessary and a
waste of money.
>>Strategy
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In the United States Procter & Gamble, for example, has
extensive knowledge of the coffee market. After it
conducted initial taste tests with Folgers Instant Coffee,
Procter & Gamble went into national distribution
without further research. Consolidated Foods Kitchen
of Sara Lee followed the same strategy with its frozen
croissants, as did Quaker Oats with Chewy Granola
Bars. This tactic, however, does not always work.
Procter & Gamble’s marketers thought they understood
the pain-relief market thoroughly, so they bypassed
market research for Encaprin aspirin in capsules.
Because it lacked a distinct competitive advantage over
existing products, however, the product failed and was
withdrawn from the market.
Coca-Cola launched soft-drink Bibo and Nestea, a
brand of iced tea, in Mozambique in the same type of
pouch packaging without any research conducted
before the time. Only afterwards did Coca-Cola
discover that females, in particular, did not want to buy
their iced tea in the same packaging as their children’s
drinks, and the launch of Nestea was consequently a
flop and Bibo discontinued later. Proper marketing
research may very well have prevented these
unsuccessful product launches. Not long ago DStv
stopped distributing its monthly magazine Dish which
‘infuriated subscribers’ without doing any research on
how consumer would respond (see Reader 31 ‘DStv
dishes up a problem for subscribers’). Rather
embarrassingly they had to rescind the decision later.
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READER 31 >> DStv dishes up a problem for
subscribers
Multichoice says it will canvass subscribers’ views on its decision to stop
printing its schedule in its DStv Dish magazine. From this month the schedule
is only accessible from the TV operators website or by scrolling through the
menus on DStv. This has infuriated subscribers and newspapers have been
inundated with letters and SMSs from viewers complaining about Multichoices
decision. Many subscribers said they used to highlight programmes in the
magazine as they had no time to surf all the channels and try to juggle
program times. Multichoice responded to viewer complaints by saying a survey
would ascertain whether subscribers wished to receive the printed version. The
survey would ask all subscribers whether they wish to receive a printed version
of the listings ‘even though there will still be inaccuracies in the listings’. The
best method of resolving the issue will then be determined.
SOURCE: Regchand, S. 2012. DStv dishes up a problem for subscribers. Business Times, 17 April, p.
13
Managers rarely have such so much trust in their judgement
that they would refuse more information if it were available
and free. But they may have enough confidence that they
would be unwilling to pay too much for the information or
to wait a long time to receive it. The willingness to acquire
additional decision-making information depends on
managers’ perceptions of its quality, price and timing. Of
course, if perfect information were available – that is, the
data conclusively showed which alternative to choose –
decision-makers would be willing to pay more for it than for
information that still left uncertainty.
In summary, research should only be undertaken when
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the expected value of the information is more than the cost
of obtaining it.
12. The characteristics of good
research
LO15
Several criteria can be used to judge the value and quality of
research projects:31
•
Scientific method: Effective marketing research
implements scientific principles, including proper
problem formulation; the careful formulation of
objectives and hypotheses; the choice of the correct
data-collection techniques; proper sampling;
appropriate data analysis; and the correct interpretation
of the empirical results, leading to meaningful, factuallybased recommendations.
• Creativity and originality: Some of the traditional
methods of research are no longer of much value, and
alternative data-collection techniques need to be
considered.
• Multiple methods often yield better results than an overreliance on one method. In a recent survey, British bank
Lloyds TSB measured the commitment of a sample of its
customers using standard market research techniques,
and then supplemented that with imputational
techniques, which helped it discover the links between
the commitment measure and customers’ behaviour
patterns. This enabled the bank to apply a measure of
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•
•
•
commitment to the entire database. The marketing
success, as measured by return on investment, has been
considerable.32
The value of research must always be seen in relation to
the cost of generating the information.
Healthy scepticism: Marketing research is only an aid to
decision-making and marketing managers must not
ignore their own experience and judgement.
Marketing research must always be conducted in an
ethical manner.
13. Why is marketing research criticised?
Like almost all other things in life, marketing research is not
beyond criticism. Some criticise the inability of research to
accurately predict human behaviour. Consumers’ intentions
to buy, for instance, are not always a good predictor of their
actual buying behaviour, it is argued. Others believe that
research results are often useless and cannot be
implemented because of poor communication between the
researcher and the user of the research (often the marketing
manager). Lastly, research is unfortunately sometimes seen
and utilised as a stand-alone, isolated activity, instead of
being integrated into the entire marketing process.33
In conclusion, we need to revisit the value and
importance of research. Marketers use marketing research
to explore the likelihood of the success of future marketing
strategies. Research also allows marketing managers to
evaluate why particular strategies failed after the event and
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minimise the recurrence of the same mistakes in the future.
Research also allows managers to analyse the characteristics
of specific market segments. Moreover, marketing research
allows management to behave proactively rather than
reactively by identifying newly emerging patterns in society
and the economy. The most important reason why
information in general and marketing research in particular
are so important is that they enhance the quality and
accuracy of managerial decision-making by reducing risk.
>>Technology in action
How to Measure Social Media
Marketing Success
One of the biggest issues in marketing research is how
to measure the effectiveness marketing campaigns and
although social media has been a ‘game changer’ in
respect of marketing communication, it has not
changed the importance of assessing the return on
investment of marketing spend. However, how
businesses assess the success of social media
marketing campaign are very different to traditional
measures and are mostly available for free. As with
traditional (off-line) marketing campaigns, social
media marketers need to know the potential reached of
their marketing communications. While it is impossible
to gauge how many people actually viewed, for
example, a post on a businesses’ Facebook page, the
number of fans of the page, connections on LinkedIn
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and followers on Twitter, should all give a good
indication of the extent of the reach. However, of
particular interest to marketers is how many people
actually engaged with a particular post, in other words
were inspired to act as a result of a post in social media.
Once again, there is no comprehensive measure, but
businesses can look at such metrics such as clicks,
comments and shares, all of which indicate that a
particular consumer actually read and comprehended
the message.
Ultimately, though, the goal of any marketing
campaign, social media or otherwise, is to get
consumers to interact with the business, online or
offline. In the social media there are also a number of
free tools available in order to track the effectiveness of
the conversion from prospect to actual customer. For
example, Google Analytics which will allow you to build
traceable links for all your social media posts and in
addition track online conversion activities, for example
downloads, registrations.
SOURCE: DeStefano, B. 2014. How to Measure Social Media Marketing
Success.
Available
from
http://www.svmsolutions.com/onlinemarketing/how-to-measure-social-media-marketing-success/ (Accessed
1 August 2014)
<<< LOOKING BACK
The opening section (‘Marketing in practice’) attempts to
illustrate the point that to be able to implement the
marketing concept marketers need to understand the needs
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and wants of their target market. But how do marketers
become aware of the needs and wants of consumers? The
answer is by collecting and analysing reliable, valid
information about consumer needs and wants.
Capitec has been a phenomenally successful bank whose
share price increased from R1,80 when listed to around R400
today and a customer base of over 5 million. They have
gained a 14 per cent market share in a very tough market
dominated by the ‘big four’ banks.
Their success is directly attributable to its ability to satisfy
its customers’ needs and wants: affordable banking,
simplified processes and procedures, simplified fee
structures and longer business hours.
SUMMARY
1
2
The relevance of marketing information. Firms that do
not know and understand consumer needs and wants
cannot implement the marketing concept. Ignorance of
consumer needs will also stifle efforts to develop new
need-satisfying products, and leave open opportunities
for competitive attacks. Information is also important
when firms become involved in a new venture, such as
launching a new product, entering a new market
segment or using a new channel of distribution.
The nature and purpose of a marketing-decision
support system. Decision support systems (DSS) make
data instantly available to marketing managers and allow
them to manipulate the data themselves to make
marketing decisions. Four characteristics of decision
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support systems make them especially useful to
marketing managers: they are interactive, flexible,
discovery-orientated and accessible. Decision support
systems give managers access to information
immediately and without outside assistance. They allow
users to manipulate data in a variety of ways and to
answer ‘what if’ questions. And, finally, they are
accessible even to inexperienced computer users.
3 Database marketing and micro-marketing. A
marketing database is part of a decision support system
composed of present and potential customers’ profiles
and purchasing patterns. Micro-marketing is the
creation of a large database of customers’ and potential
customers’ profiles and purchasing patterns used to
target households or individuals. Micro-marketing has
several important functions: it identifies the potential
profitability of specific customers and market segments;
it helps determine effective packaging and pricing
strategies for specific market segments; and it provides
insights into market opportunities for new products and
services.
4 The importance of database marketing. The
advantages of database marketing are that it can:
• Identify the most profitable and least profitable
customers
• Identify the most profitable market segments or
individuals and target efforts with greater efficiency
and effectiveness
• Aim marketing efforts at those goods, services and
market segments that require the most support
• Increase revenue by repackaging and re-pricing
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products for specific market segments
• Evaluate opportunities for offering new products and
services
• Identify products and services that are selling well
and are most profitable.
5 Descriptive, diagnostic and predictive research.
Marketing research has three roles: descriptive,
diagnostic and predictive. Its descriptive role includes
collecting and presenting factual statements; its
diagnostic role includes explaining data and results; its
predictive function is to address ‘what if’ questions.
6 The relationship between marketing research and
DSS. Marketing research is a process of collecting and
analysing data for the purpose of solving specific
marketing problems. Marketing research generates new
information that is then input into the DSS. Therefore,
the DSS stores research information for later use by
those who make managerial decisions.
7 The importance of marketing research in marketing
decision-making. Marketers use marketing research to
explore the profitability of marketing strategies. They can
examine why particular strategies failed and analyse the
characteristics of specific market segments. Moreover,
marketing research allows management to behave
proactively rather than reactively by identifying newly
emerging patterns in society and the economy. The most
important reason for marketing research is to enhance
the quality and accuracy of managerial decision-making
by reducing risk.
8 The steps involved in conducting a marketing
research project. The marketing research process
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involves several basic steps. First, the researcher and the
decision-maker must agree on a problem statement
and/or a set of research objectives. Sometimes this step
requires a background investigation, referred to as a
situational analysis, usually drawn partly from secondary
sources. The researcher then creates an overall research
design to specify how primary data will be collected and
analysed. Before collecting data, the researcher decides
whether the group to be interviewed will be a probability
or non-probability sample. Field-service firms are often
hired to carry out data collection. Once data have been
collected, the researcher analyses them using statistical
analysis. The researcher then prepares and presents oral
and written reports, with conclusions and
recommendations to management. As a final step, the
researcher determines whether the recommendations
were implemented and what could have been done to
make the project more successful.
9 Planning a research proposal. The nature of the
research proposal will depend on the project. The
guidelines set out in the ‘Framework for preparation of a
research proposal’ (p. 153) should be used.
10 Different types of data-collection techniques:
• Personal interviews – one-on-one interviews,
personal interviews normally conducted in-home
• Shopping mall intercept interviews – personal
interviews conducted in the common areas of
shopping malls
• Telephone interviews – a personal interview that is
not face to face
• E-mail surveys – interviews conducted via the
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Internet
• Mail surveys – questionnaires sent to respondents via
mail
• Mail panels – a sample of households that have
agreed to participate regularly by mail for a given
period. Essentially, the panel is a sample used several
times over
• Focus groups – a type of personal interviewing. Often
recruited by random telephone screening, seven to
ten people with certain desired characteristics (to
make them representative of the population being
studied) form a focus group – in essence, a group
interview.
The advantages and disadvantages of the different
research techniques are summarised in Table 5.2 (p. 156).
11 Principles of questionnaire development:
• Options must be exhaustive
• Avoid ambiguous questions
• Use commonly accepted terminology and concepts
• Avoid leading questions
• Do not put the respondent on the defensive
• Provide a good introduction
• Do not identify the sponsor if this can be avoided
• Ask sensitive questions at the end
• Do not ask unanswerable questions
• Options must be mutually exclusive.
12 The measuring or scaling that can be used to measure
perceptions and attitudes.
Most of the consumer research conducted by firms is
aimed at measuring consumer perceptions and
attitudes. In response to questioning, the researcher
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records these views in some sort of format. Two general
formats are commonly used: one is qualitative
information and the other is quantitative in nature.
Qualitative information is not in a numerical, but a
descriptive form. Qualitative information is very valuable
when the researcher is interested in in-depth, detailed
information. The researcher uses open-ended questions
rather than a structured questionnaire, and probes
continuously to try and unearth underlying feelings,
emotions, opinions and motivations.
Perceptions and attitudes can be recorded in four
types of quantitative data: nominal, ordinal, interval and
ratio. The most desirable of these is ratio data.
Unfortunately, most researchers generally have to settle
for ordinal data when measuring perceptions and
attitudes – often done by means of a Likert scale.
13 Probability and non-probability samples. A probability
sample is one in which every element in the population
has a known statistical likelihood of being selected. Its
most desirable feature is that scientific rules can be used
to ensure that the sample represents the population. The
choice of a probability sample is often influenced by the
availability of a sampling frame or a complete list of the
population from which the sample (consisting of
individual respondents) can be drawn. If a sampling
frame is not available, researchers are often forced to use
a non-probability sample. Any sample in which little or
no attempt is made to get a representative cross-section
of the population can be considered a non-probability
sample. The most common form of a non-probability
sample is the convenience sample, based on using
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respondents who are readily accessible to the researcher.
The major difference between the two samples is that in
the case of a probability sample, the results can be
generalised to the entire population. The results
emanating from a non-probability sample are applicable
only to that sample and cannot be generalised.
14 When marketing research should be conducted. In
general, more marketing research information will
always be better than less. Research should be
undertaken, however, only when the expected value of
the information is greater than the cost of obtaining it.
15 Criteria for evaluating research projects:
• Scientific method: effective marketing research
implements scientific principles, including proper
problem formulation, the careful formulation of
objectives and hypotheses, the choice of the correct
data-collection techniques, proper sampling,
appropriate data analysis and correct interpretation
of the empirical results, leading to meaningful,
factually based recommendations
• Creativity and originality. Consider new techniques.
Some traditional methods of conducting research
may no longer be appropriate
• Multiple methods often yield better results than overreliance on one method
• The value of research must always be seen in relation
to the cost of generating the information
• Healthy scepticism: marketing research is only an aid
to decision-making, and marketing managers must
not ignore their own experience
• Marketing research must always be conducted in an
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ethical manner.
16 Social media adds a whole new dimension to marketing
research in that, without any persuasion from market
researchers, consumers express their views about
products, businesses and trends. A number of tools exist
within the social media which allow businesses to track
and monitor consumer’s perceptions.
DISCUSSION AND WRITING QUESTIONS
1
2
3
4
5
The task of marketing is to create exchanges. What role
can marketing research play in the facilitation of the
exchange process?
Marketing research has traditionally been associated
with manufacturers of consumer goods. Today, we are
experiencing an increasing number of firms and
organizations – both profit and non-profit – that use
marketing research. Why do you think this trend exists?
Provide examples.
Write a reply to the following statement: ‘I own a
restaurant in the centre of town. I see customers every
day whom I know on a first-name basis. I understand
their likes and dislikes. If I put something on the menu
and it doesn’t sell, I know that they didn’t like it. I also
read the magazine Modern Restaurants, so I know what
the trends are in the industry. This is all of the marketing
research I need to do.’
Give an example of (a) the descriptive, (b) the diagnostic,
and (c) the predictive roles of marketing research.
Critique the following methodologies and suggest more
appropriate alternatives:
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6
7
8
9
A supermarket was interested in assessing its market
• image. It dropped a short questionnaire into the
grocery bag of each customer before putting in the
groceries
• To assess the extent of its trade area, a shopping mall
stationed interviewers in the parking area every
Monday and Friday evening. Interviewers walked up
to persons after they had parked their cars and asked
them in which residential suburb they lived
• To assess the popularity of a new movie, a moviehouse manager invited people to call an 0800
number and vote ‘yes’, they would see it again, or
‘no’, they would not. Each caller was charged R10.
You have been asked to determine how to attract more
students majoring in business studies at your university
or university of technology. Write an outline of the steps
you would take, including the sampling procedures, to
accomplish the task.
Under what circumstances would secondary data be
preferable to primary data?
In the absence of problems in a firm, is there any reason
to develop a marketing decision
support system (DSS)?
Discuss when focus groups should and should not be
used.
STRATEGY READER >> Facebook – more than just
about friends
There are a number of facets to marketing research, including finding out
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about the specific needs of potential customers, searching for hidden niches
and ascertaining the best way to target specific market segments. However,
marketing research is often dismissed by small businesses and entrepreneurs
as an expensive exercise, way beyond the reach of their limited resources.
Nevertheless, small businesses are known for being innovative, flexible and
creative in their approach to marketing, which allows them to compete with
their larger counterparts.
Assume that, as a small-business owner, your target market is young male
university students in South Africa (which is an important market segment for
products such as the male deodorant, Axe) and that you want to communicate
the benefits of your product to this market segment. However, as a typical
small business, you have inadequate resources available for marketing, unlike
big corporations – such as Unilever, which owns the Axe brand – which are
able to employ the services of professionals to conduct their market research
and advise them on their advertising strategy.
One medium that is often put forward as a cost-effective means for small
businesses to reach consumers is the Internet, and, specifically, social
networking websites, such as Bebo, Big Tent, Facebook, Hi5, LinkedIn and
Twitter. In South Africa, Facebook is one of the most popular social-networking
sites for students, and we would expect that many of our target market (young
male university students) would be members of Facebook. However, as a small
business owner, the research question which you would ask yourself would be:
‘How effective is Facebook in reaching my target market?’ Fortunately, if you
are innovative and creative, you can leverage this website’s functions to allow
us to do market research into the feasibility of using Facebook to
communicate with young people in South Africa.
SOURCE: www.saunderslog.com (accessed 21 July 2010)
QUESTIONS
Discuss the value of social media as a method of collecting information about
the following research problems:
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1
2
3
A sporting goods manufacturer wants to identify university students’ brand
preferences for tennis racquets, golf clubs and soccer boots.
A supermarket chain wants to identify the most effective physical layout
for its shops.
A manufacturer of male deodorants wants to establish who makes the
buying decision on the shop floor.
KEY CONCEPTS
Audit: form of observation research that features people examining and
verifying the sale of a product.
Business research: the systematic and objective process of collecting, recording
and analysing data for managerial decision-making.
Central-location telephone (CLT) facility: a specially designed phone room
used to conduct telephone interviewing.
Closed-ended question: interview question that asks the respondent to make a
selection from a limited list of options.
Computer-assisted personal interviewing: interviewing method in which the
interviewer reads the questions from a computer screen and enters the
respondent’s responses directly into the computer.
Computer-assisted self-interviewing: interviewing method in which a mall
interviewer intercepts and directs willing respondents to a nearby computer
where the respondent reads questions off a computer screen and directly keys
his or her answers into a computer.
Convenience sample: a form of non-probability sample using respondents who
are convenient, or readily accessible, to the researcher, for example, employees,
friends or relatives.
Cross-tabulation: a method of analysing data that lets the analyst look at the
responses to one question in relation to the responses to one or more other
questions.
Database marketing: the creation of a large computerised file of customers’ and
potential customers’ demographic profiles and purchase patterns.
Decision support system (DSS): an interactive, flexible computerised
information system that enables managers to obtain and manipulate
information as they are making decisions.
E-mail surveys: interviewing technique in which researchers use batch-type
electronic mail to send surveys. Respondents reply via e-mail.
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Experiment: a research method used to collect primary data in a laboratory-type
environment.
Field-service firm: firm that specialises in interviewing respondents on a
subcontracted basis.
Focus group: seven to ten people who participate in a group discussion led by a
moderator.
Frame error: error that occurs when a sample drawn from a population differs
from the target population.
Group dynamics: interaction among group members essential to the success of
focus-group research.
Leading question: a question that is formulated in such a way that the
respondent is inadvertently encouraged to respond in a certain manner.
Mall intercept interview: survey research method that involves interviewing
people in the common areas of shopping malls.
Marketing intelligence: everyday information about developments in the
marketing environment that managers use to prepare and adjust marketing
plans.
Marketing research: the process of planning, collecting and analysing data
relevant to a marketing decision.
Measurement error: an error that occurs when there is a difference between the
information desired by the researcher and the information provided by the
measurement process.
Nominal scale: descriptive label attached to a classification or category.
Non-probability sample: any sample in which little or no attempt is made to get
a representative cross-section of the population.
Observation research: research method that relies on three types of
observation: people watching people, people watching activity, and machines
watching people.
Online database: a collection of public information accessible to anyone with
the proper computer facilities.
Online database vendor: an intermediary that acquires databases from
database creators.
Open-ended question: interview question that encourages an answer phrased in
the respondent’s own words.
Ordinal scale: score that implies some sort of rank order relative to others.
Population: the group under study from which a sample will be drawn (also
called universe).
Primary data: information collected for the first time. Can be used for solving
the particular problem under investigation.
Probability sample: a sample in which every element in the population has a
known statistical likelihood of being selected.
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Random error: error that occurs because the selected sample is an imperfect
representation of the overall population.
Random sample: sample drawn in such a way that every element of the
population has an equal chance of being selected as part of the sample.
Research design: the specification for which research questions must be
answered, how and when the data will be collected, and how the data will be
analysed. The research design ought to be captured on paper in the form of a
research proposal.
Sample: a subset of a population.
Sample frame: a complete list of sample elements.
Sampling error: error that occurs when a sample somehow does not represent
the target population.
Scaled-response question: a closed-ended question designed to measure the
intensity of a respondent’s answer.
Secondary data: data previously collected for any purpose other than the one at
hand.
Situation analysis: extensive background investigation into a particular
marketing problem.
Survey research: the most popular technique for collecting primary data, in
which a researcher interacts with people to obtain facts, opinions and attitudes.
REFERENCES
1
2
3
4
5
6
7
8
9
Zikmund, W.G. 1997. Business research methods. New York: The Dryden
Press, p. 6.
Tracking Social Media Topics, Trends and Traffic. Available from
http://www.heavycontent.com/track_social_media.html (Accessed on 11
August 2014).
HP enables real-time ‘always on’ decision-making. Available from
http://www.itwebinformatica.co.za/ (Accessed on 18 June 2014).
Author’s personal notes, 21 July 2000.
A potent new tool for selling – Database marketing. Business Week, 5
September 1994, pp. 56–62.
Sheth, J. & Sisodia, R. 1995. Feeling the heat – Part 2. Marketing Management,
winter 1995, pp. 19–33.
Bidoli, M. 1998. Customer service rules. Financial Mail, 1 August 1998, p. 65.
Jordaan, Y. 2003. ‘South African consumers’ information privacy concerns:
An investigation in a commercial environment’. Unpublished D.Com
dissertation, University of Pretoria.
Factors in market repositioning. Business Day, 6 April 2001, p. 20.
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10 Moodie, G. 2012. SABC research shows state broadcaster not meeting localcontent requirements. Available from
http://grubstreet.co.za/2012/12/11/sabc-research-shows-state-broadcasternot-meeting-local-content-requirements/ (Accessed on 29 June 2014).
11 YOU and Huisgenoot get new look. Business Day, 15 May 2001, p. 11.
12 Jarrard, C. 1998. ‘Managing the brand image through research’. Paper read at
the 10th South African Institute of Management Scientists Conference,
Mpekweni Sun, July 1988.
13 Emerging to the real thing. Advertising Focus, supplement to Financial Mail,
29 May 1998, p. 69.
14 Owners consider a switch, Business Day, 24 July 2014, p. 6.
15 Finscope. 2005 Survey. www.finscope.co.za (accessed 25 July 2010).
16 Kamhunga, S. 2012. Revealing Visa survey on women. Business Day
Company section, 24 October 2012, p. 11.
17 CSA probes reasons for empty stadiums. Business Day, 24 November 2009, p.
28.
18 Six ways to keep tabs on your market. Advertising Focus, supplement to
Financial Mail, 29 May 1998, p. 176.
19 Bizcommunity online newsletter, www.bizcommunity.com, 18 October 2004.
20 Who Knows? Wolfram Alpha Knows. Available from
http://www.heavycontent.com/track_social_media.html (Accessed on 11
August 2014).
21 Accenture. 2013. The Secrets of Seamless Retailing Success. Available from
http://www.accenture.com/microsites/retail-research/Pages/index.aspx
(Accessed 14 July 2014).
22 Branded shopping carts come out tops. 2008. Bizcommunity online
newsletter, www.bizcommunity.com, 29 April 2008.
23 Dacko, S. 1995. Data collection should not be manual labour. Marketing
News, 28 August 1995, p. 31.
24 Pyle, D. 1990. How to interview your customers. American Demographics,
December, pp. 44–45.
25 E-mail surveys: Potentials and pitfalls. 1995. Marketing Research, summer
1995, pp. 29–33.
26 Die Burger soon to sport a new look. 2008. Bizcommunity online newsletter,
www.bizcommunity.com, 9 July 2008.
27 McCarthy, M. 1993. James Bond hits the supermarkets: Stores snoop on
shopper habits to boost sales. Wall Street Journal, 25 August 1993, pp. B1 and
B8.
28 Nielsen Schmielsen. 1996. Business Week, 12 February 1996, pp. 38–39.
29 Kiley, D. 2005. Shoot The Focus Group. Available from
http://www.businessweek.com/ (Accessed on 24 June 2014).
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30 Jansurak, J. 1997. Whirlpool: US leader pursues global blueprint. Appliance
Manufacturer vol. 45(2), p. 921.
31 Kotler, P. 1997. Marketing management: Analysis, planning and control (9th
edition). New York: Prentice Hall, p. 125.
32 Higgs, N. 2001. Why marketing research is essential in today’s environment.
The Future: Marketing and Business Vision 2(3), p. 54.
33 Stanton, W.J., Etzel, M.J. & Walker, B.J. 1991. Fundamentals of marketing.
New York: McGraw-Hill.
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CHAPTER
06
Segmenting and targeting
markets
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
3
4
5
Describe the nature of market segmentation.
Explain the importance of market segmentation.
Discuss criteria for successful market segmentation.
Describe bases commonly used to segment consumer markets.
Distinguish between a qualifying and a determining dimension in
marketing segmentation terms.
6 Use the conventional steps in market segmentation to segment a
consumer market.
7 Elucidate the advantages and disadvantages associated with
various strategies for selecting target markets.
8 Contrast the various alternative strategies for selecting target
markets.
9 Explain how positioning is related to target marketing and why
firms implement positioning strategies.
10 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
11 Provide a marketing management solution related to any of the
above outcomes.
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>> Marketing in practice
Fast-growing and recession-resistant
over-40s market presents golden
opportunity for South African
business
South African business could be ignoring the moneyed
over-40s market at their peril, says director of the
University of Cape Town Unilever Institute for Strategic
Marketing, Professor John Simpson. With a combined
income of R300 billion, the 1,9 million South Africans
who are older than 40 and classified as being between
living standards measures (LSM) 7 and 10 are an
economic force to be reckoned with.
One of the factors that contribute to this market’s
prosperity is that many ‘prime timers’ are not as
burdened by debt as their younger counterparts,
explains Professor Simpson. ‘Our study reveals many
South Africans over 40 believe that most marketing
messages are aimed at those in their 20s and 30s, and
feel alienated by marketing communication,
overlooked by product developers and dissatisfied with
customer service’, explains Simpson. ‘Traditionally,
marketers
have
focused
their
marketing
communication on the under-40 market. The reality is
that the majority of this market has less disposable
income than prime timers. ‘Older consumers who are
financially in their prime feel alienated by advertisers’
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and marketers’ obsession with youth. This provides a
tremendous opportunity for savvy businesses and
marketers.’
An opinion often voiced by ‘prime time’ respondents
was that firms do nothing to reward brand loyalty. ‘This
is regrettable, as it leads to the attrition of businesses’
most valuable customer base.’ Clothing, in particular,
was singled out with regard to both sizing and styling:
many participants complained that despite having the
money to spend on clothing, they found it increasingly
difficult to find clothing that fitted them, but was also
fashionable.
SOURCE: Adapted from Fast-growing and recession-resistant over-40s
market presents golden opportunity for SA business. Bizcommunity
electronic newsletter, www.bizcommunity.com, 22 July 2008
QUESTIONS
1
2
Why have so many firms ignored the over-40s market?
Is this market segment worth pursuing?
1. Introduction
Marketers who accept and implement the marketing
concept appreciate that not all consumers are the same.
Consumers have different needs that can be satisfied in
different ways. Some are extremely price-conscious and will
not be loyal to any firm or brand. Others are very brand loyal
and yet others are concerned only about quality and
reliability or convenience. Thanks to research information
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(see Chapter 5), marketers are often aware of these different
needs and can design products or services to satisfy a variety
of needs. This acceptance that need satisfaction is
multifaceted spawned the introduction of the concept of
market segmentation. Its proponents argue that market
segmentation yields benefits such as more accurately
defining opportunities to build long-term relationships with
customers, and being able to assess the objectives and
performance of marketing activities more precisely.
It is true that some marketers do not segment their
market or markets. Virgin Active, for instance says: ‘We
create an environment that welcomes everybody from sixmonths-old babies to senior citizens’.1 They are referred to
as ‘mass marketers’, and will point to the disadvantages of
segmentation and the perils of targeting relatively small
market segments. These include high costs and limited
market coverage (see Table 6.4). Mass marketers engage in
mass production, mass distribution and mass promotion.
Henry Ford became the world’s first mass marketer when he
proclaimed that ‘you can have any colour Ford you want as
long as it is black’. Mass marketers argue that it is a good
approach to marketing because it appeals to the largest
market – which, through economies of scale, keeps costs
and therefore prices, as low as possible. In this way,
profitability is enhanced.
However, mass marketing is not a universally-accepted
philosophy. The alternative, as we have said, is market
segmentation.
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2. The nature of market segmentation
LO1
The term ‘market’ means different things to different people.
We are all familiar with terms such as ‘supermarket’, ‘stock
market’, ‘labour market’, ‘fish market’ and ‘flea market’. All
these types of markets share several characteristics. First,
they are composed of people (consumer markets) or firms
(business markets). Second, these people or firms have
wants and needs that can be satisfied by particular product
categories. Third, they have the ability to buy the products
they desire. Fourth, they are willing to exchange their
resources – usually money or credit – for the desired
products.
To summarise, a market consists of (1) people or
organisations with (2) needs or wants and with (3) the ability
and (4) the willingness to buy. A group of people that lacks
any one of these characteristics is not a market.
Within a market, a market segment is a subgroup of
people – or organisations in the case of business-to-business
marketing – sharing one or more than one characteristic that
causes them to have similar product needs. At one extreme,
we can define every individual person and every individual
organisation in the world as a market segment because each
is unique. At the other extreme, we can define the entire
consumer market as one large market segment and the
business-to-business market as another large segment. In
this case it is assumed that all people have certain similar
characteristics and needs, as do all firms.
From a marketing perspective, it normally makes sense to
describe market segments somewhere between these two
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extremes.
The process of dividing a market into meaningful, relatively
similar and identifiable segments or groups is called market
segmentation. The purpose of market segmentation is to
enable the marketer to tailor marketing mixes to meet the
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needs of one or more specific segments. The Nedbank
advertisement is an acknowledgement by the bank that not
all its customers have the same needs. To address the
unique needs of different market segments Nedbank divides
its business into four major divisions: Nedbank Retail,
Nedbank Corporate, Nedbank Capital and Nedbank Wealth.
Nedbank’s Retail division is again sub-divided into (1)
consumer banking, (2) retail relationship banking, (3) cards
and (4) secured lending.
>> Strategy
After twenty five years the realisation that not all
customers have the same needs offered City Lodge a
wonderful business opportunity. In those days all
hotels were ‘full-service’ hotels offering spacious
rooms, ‘full’ breakfasts, porters, banqueting, room
service, in-house bars and restaurants – but they were
expensive. City Lodge’s market research revealed that
the Monday-to-Friday business traveller did not need
all of that and targeted business travellers with a
‘selected service’ offering. Hotels patrons now had a
choice, depending on their needs. Breakfast was
offered as an optional extra and to reduce costs (and
thus room rates), staff were reduced to one employee
for every three rooms. To target the more priceconscious business travellers, City Lodge introduced
the two-star Town Lodge room which is about 25 per
cent smaller than a City Lodge room and has a maxishower but no bath. Later the one-star Road Lodge was
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introduced which is one tier lower that the Town Lodge
and is also about 25 per cent smaller than a Town
Lodge room. The company also did an ‘up-ward
stretch’ when introducing the four-star Courtyard
brand for the business traveller who expected a little
more.2
3. The importance of
market segmentation
LO2
Until the 1960s, few firms practised market segmentation.
When they did, it was likely to be a haphazard effort rather
than a formal marketing strategy. Before 1960, for example,
the Coca-Cola Company produced only one beverage and
targeted it at the entire soft-drinks market. Today, CocaCola offers more than a dozen different products to a variety
of market segments for carbonated soft-drinks based on
diverse consumer preferences for drink flavour, calorie and
caffeine content, and size.
EXAMPLE >> For example, Coca-Cola markets traditional carbonated
soft drinks (Coca-Cola, Fanta, Sprite), and a variety of alternative beverages, such
as energy drinks (for example, Powerade), flavoured teas (Nestea), mineral water
(BonAqua), fruit drinks (Fruitopia) and fruit juices (Minute Maid). Similarly,
Unilever markets a diverse range of products, including fabric-cleaning products
(Omo, Surf, Skip), home-care products (Domestos, Handy Andy), dental products
(Mentadent P, Close-Up), hair-care products (Timotei, Vibrance, Salon
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Selectives), deodorants (Shield, Impulse, Pears) and skincare products (Dawn,
Pond’s), to very different market segments.
Market segmentation plays a key role in the marketing
strategy of almost all successful firms. Market segmentation
is a powerful marketing tool for several reasons. When a firm
segments a market, it can tailor a marketing mix to a welldefined target market. For example, the BMW 3 series car
that targets middle-level managers is a completely different
design to the BMW X5, which is targets higher-income
couples with children. Most importantly, nearly all markets
include groups of people with different product needs and
preferences. Market segmentation helps marketers define
customer needs and wants more precisely. Because market
segments differ in size and profit potential, segmentation
helps decision-makers define marketing objectives more
accurately and allocate scarce resources to brands and
market segments. In turn, performance can be evaluated
better when objectives (such as sales targets per product or
brand) are more precise.
Due to the Internet’s growth and accessibility and the
changing demographics of Internet users, market
segmentation has become even more important. Internet
usage worldwide is about 34 per cent (an estimated 2,4
billion users) of the total world population (estimated at 7,2
billion). In Africa, there are as many as 167 million Internet
users. There are an estimated 8,5 million Internet users in
South Africa alone.3 Because the Internet eliminates
geographic boundaries, firms can communicate and reach
segments of customers previously difficult to access. As the
base of Internet users continues to grow, change and
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become more heterogeneous, there will be an increasing
number of marketing opportunities, specifically in Africa.
EXAMPLE >> The high-fashion US furniture chain, Domain, offers an
interesting example of how market segmentation can boost sales. Domain learnt
that its baby-boomer customers (see Chapter 2) were as concerned about selfimprovement as they were about decorating. To reach this segment, the shop
offered a series of in-store seminars that addressed topics such as women’s
issues and interior design. The group’s repeat business has increased by 35 per
cent since the programme began. Another target segment was retired World War
II and postwar customers, for whom the shop offered narrower sofas with more
back support, which made getting out of them easier. This segmentation
approach allowed Domain to replace newspaper advertising with direct mail,
bringing spending on advertisements down by 3 per cent, while sales increased
by nearly 40 per cent.4
WEBSITE
Visit the Internet World Stats site at
(http://www.internetworldstats.com) for
the latest statistics
4. The criteria for successful
segmentation
LO3
Marketers segment markets for three important reasons.
Firstly, segmentation enables them to identify groups of
customers with similar needs and analyse the characteristics
and buying behaviour of these groups. Secondly,
segmentation provides marketers with information to help
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them design marketing mixes that specifically match the
characteristics and desires of one or more segments.
Thirdly, segmentation is consistent with the marketing
concept: satisfying customer wants and needs while meeting
the firm’s objectives.
To be useful, a segmentation scheme must produce
segments that meet four basic criteria:
1
Substantiality. A segment must be large enough to
warrant developing and maintaining a special marketing
mix (see Reader 32 ‘Technology ignoring the needs of
left-handers is nothing new’). This criterion does not
necessarily mean that a segment must have many
potential customers. Marketers of custom-designed
homes and business buildings, commercial aeroplanes
and large computer systems normally develop marketing
strategies tailored to each potential customer’s
individual needs. In most cases, however, to make
commercial sense a market segment needs many
potential customers. Almost all South African banks
target segments with mobile banking services. Yet only 6
per cent of all banking transactions are conducted by
means of cell-phones, making this segment risky in
terms of substantiality. Undoubtedly, the banks believe
that this segment will grow in the future. KykNet is a
DSTV channel targeting upper-income Afrikaansspeakers. It has access to about 800 000 people out of
South Africa’s population of about 52 million – yet is
substantial enough to be a highly profitable TV channel.
2 Identifiability and measurability. Segments must be
identifiable and their size measurable. Data about the
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3
4
population within geographic boundaries, the number of
people in various age categories and other social and
demographic characteristics are often easy to obtain,
and provide fairly concrete measures of segment size.
Universities, for instance, have fairly accurate figures of
how many pupils matriculate every year, and because
they know the size of the market, they can target their
market segment(s) accurately.
Accessibility. The firm must be able to reach members
of targeted segments with customised marketing mixes.
Some market segments are difficult to reach – for
example, senior citizens (especially those with reading or
hearing disabilities), those who don’t speak English and
the illiterate. A firm trying to target the San in the
Kalahari Desert may have an accessibility problem!
Responsiveness. Markets can be segmented using any
criteria that seem logical. However, unless one market
segment responds to a marketing mix differently from
other segments, that segment need not be treated
separately. In other words, a market segment must be
homogeneous within (more or less similar and with
similar needs) but heterogeneous between (significantly
different from other market segments). For instance, if
all customers are equally price-conscious about a
product, there is no need to offer high-, medium- and
low-priced versions to different segments.
Despite the popular belief that cats love milk, adult cats are
often lactose-intolerant. These cats are unable to digest fullcream cow’s milk and can suffer severe abdominal pain and
diarrhoea if milk is fed to them. For this reason, Martin &
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Martin, South Africa’s leading brand in pet healthcare, has
produced the first lactose-reduced milk for cats. The
manufacturer is of the opinion that the owners of lactoseintolerant cats would respond to their marketing of a
lactose-reduced milk for cats, that the market segment is
accessible and that the market segment is large enough to be
profitable.5
READER 32 >> Technology ignoring the needs of lefthanders is nothing new
When the iPhone 4 hit shops in 2010, some customers could not use the new
Apple device either to call or the surf the Internet. The reason was that holding
the device in the left hand could in some cases cover the phone’s antennae,
thereby cutting off reception. Apparently, the designers, technicians and
testers at Apple did not think about the needs of left-handers, or just ignored
them. And that is nothing new, according to Agnes Maria Forsthofer, a member
of an association for left-handed people in Germany. ‘There are essentially no
devices fitted for left-handers’. Even standard devices like a mouse or
keyboard have some pitfalls for left-handed users. The number pad, for
example, is difficult to use with your left hand. ‘There are only a few keyboards
where the number pad is on the left side,’ said Barbara Sattler, who heads an
information centre for left-handers in Germany. But such solutions are only
practical in places where the left-hander works alone. Sharing a computer that
has such special devices with right-handers is difficult. Ms Sattler suggests
left-handers should rather get a separate number pad with a USB connection,
like those available for laptops. Most of the time the mouse is located on the
right side of the keyboard.
SOURCE: Adapted from Hanraths, T. 2012. Technology ignoring the needs of
left-handers is nothing new. Business Day, 13 August
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5. Bases for segmenting consumer
markets
LO4
Marketers use segmentation bases, or variables – namely,
characteristics of individuals, groups or organisations – to
divide a total market into segments. The choice of
segmentation bases is crucial because an inappropriate
segmentation strategy may lead to lost sales and missed
profit opportunities. The key is to identify bases that will
produce substantial, measurable and accessible segments
that exhibit different response patterns to different
marketing mixes.
Markets can be segmented using a single variable, such
as age group, or several variables, such as age group, gender
and level of education simultaneously. Although it is less
precise, single-variable segmentation has the advantage of
being simpler and easier to use than multiple-variable
segmentation. The disadvantages of multiple-variable
segmentation are that it is often harder to use than singlevariable segmentation; usable secondary data are less likely
to be available; and as the number of segmentation variables
increases, the size of individual segments decreases.
Nevertheless, the current trend is towards using more,
rather than fewer, variables to segment most markets.
Multiple-variable segmentation (e.g. age, gender and level
of education all used simultaneously) is clearly more precise
than single-variable segmentation (just age, for instance).
Consumer-goods marketers commonly use one or more of
the following characteristics to segment markets: behaviour,
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geography, demographics, psychographics and benefits
sought. The following sections provide a more detailed
description of some of these segmentation variables.
5.1 Behavioural segmentation
If behavioural segmentation is used, potential buyers are
divided into segments on the basis of their knowledge of,
attitude towards, use of, or response to a product.6 In other
words, factors such as usage rate, occasions, and brand
familiarity exert an influence on buyer behaviour to such an
extent that different marketing approaches are justified for
each of them. For example, women buy 90 per cent of all
greetings cards.7 Therefore, women are an attractive target
market for the marketers of greetings cards, such as Cardies.
5.1.1 Usage-rate segmentation
Usage-rate segmentation divides a market by the amount of
product bought or consumed. Categories vary with the
product, but are likely to include some combination of the
following: former users, potential users, first-time users,
light or irregular users, medium users and heavy users.
Segmenting by usage rate enables marketers to focus their
efforts on heavy users or to develop multiple marketing
mixes aimed at different segments. Because heavy users
often account for a sizeable portion of all product sales,
some marketers focus on the heavy-user segment.
Most airlines will focus heavily on passengers who fly
more frequently (see the British Airways advertisement)
because they are not only a lucrative segment, but also have
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different needs from those who fly once a year. The 80/20
principle probably holds for the airline industry – that 20 per
cent of all customers generate 80 per cent of the demand for
air travel. Although the percentages are not exact, the
general idea often holds true. For instance, the diamond
firm De Beers has found that in the United States 60 per cent
of its diamonds are bought by 25 per cent of the population.
An airline that uses usage-rate segmentation will need to
know more about the needs of its more frequent passengers
and then use specific strategies to satisfy those needs.
Frequent business passengers may need access to business
machines such as telephones, scanners, computers and email at airports. They may also need facilities to meet
customers or business associates in private. If that is the
case, airlines can establish business centres in airports to
satisfy those needs.
The most sophisticated segmentation schemes are often
used by ‘e-retailers’, who have detailed customer-profiling
information and purchase-history data, which they use in
order to increase customer lifetime value by encouraging
increased use of online services over time. As visitors use
online services they can potentially pass through the
following seven stages:8
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• First-time visitor
• Return visitor
• Newly registered visitor
• Registered visitor
• Purchased once or n times
• Purchased (inactive)
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•
Purchased (active); e-responsive.
Once firms have defined or categorised their customers
according to these stages, they can then deliver personalised
messages, either by personalised on-site messaging or by
using e-mails that are triggered automatically by different
rules. First-time visitors can be identified by whether they
have a cookie placed on their PC. Once visitors have
registered, they can be tracked as they move through the
remaining stages. Two particularly important groups are
customers that have purchased once or more than once. For
many e-retailers, encouraging customers to move from the
first purchase to the second and then on to the third
purchase is a key challenge. Specific promotions can be
used to encourage further purchases. Similarly, once
customers become inactive (i.e. they have not purchased for
a defined period – such as three months), further follow-ups
are required.
5.1.2 Occasions
The demand for certain products is influenced by the
occasions they are bought for. Orange juice for breakfast is
one example. Hot cross buns and Easter eggs are further
examples. Sparkling wine is another: occasions such as
birthdays, graduations or Valentine’s Day are often
celebrated with sparkling wine.
In the late 1990s, the biscuit manufacturer McVites began
examining its fundamental approach to the biscuit category.
McVites was already supplying a large part of the traditional
biscuit category, but it believed that there was little growth
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potential in this category. An examination of its consumer
profile revealed that its consumers were mainly older
people. McVites studied when consumers eat biscuits and
realised that biscuits are eaten during certain occasions:
lunchtime, teatime, Christmas time – or they are bought as
gifts. McVites then adapted its entire marketing strategy to
appeal to the needs of consumers during the specific times
they consume biscuits.9
During different occasions, buyers may be a lot less pricesensitive, allowing marketers to charge a price premium.
Seasonal rates are a well-accepted practice in the tourism
industry: airlines and hotels charge higher rates during the
holiday season. It may also be possible to change the
packaging and labelling of products to reflect the occasion,
such as during Easter, Christmas and Valentine’s Day, and,
in so doing, appeal to the needs of the occasional buyer.
5.1.3 Brand familiarity
Some consumers are well informed about the different
brands in a product class and others are extremely brandloyal. Those who are loyal and unlikely to switch brands
easily have different marketing strategies targeted at them
from those who are ill informed, ignorant or neutral.
If the loyalists are identified as a target market, marketers
often adapt their promotion strategy to more reminder-type
advertising instead of providing ‘new, convincing’
information. The advantages associated with a long-term
relationship may be the focus of an advertising campaign.
Also, it may be possible to charge a price premium because
most consumers are familiar with the available choices and
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have remained loyal over time. In a Nielsen Global Survey of
New Product Purchase Sentiment, which surveyed more
than 29 000 respondents with Internet access from 58
countries, it was confirmed that brand loyalty goes a long
way. More than half (60 per cent) of consumers around the
world with Internet access prefer to buy new products from
a familiar brand than switch to a new brand.10
5.2 Geographic segmentation
Geographic Segmentation Refers To Segmenting markets by
national region (see the UBank example), world region,
market size, market density or climate. Market density refers
to the number of people within a unit of land, such as a
province. Climate is commonly used for geographic
segmentation because of its dramatic impact on residents’
needs and purchasing behaviour. Ice-cream, snowblowers,
water, snow skis, air conditioning and heating systems are
products whose appeal varies according to the prevailing
climate.
Consumer-goods firms take a regional approach to
marketing for four reasons. Firstly, many firms need to find
new ways to generate sales because of sluggish or intensely
competitive markets. Western Cape wineries would target
the Gauteng area for this reason. Secondly, computerised
checkouts with scanners enable retailers to assess accurately
which brands sell best in their region. Thirdly, many
packaged goods manufacturers are introducing new
regional brands intended to appeal to local preferences. A
fourth reason for a more regional approach to market
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segmentation is that it allows consumer-goods firms to react
more quickly to competition. Unilever concentrates on rural
areas for some of its product categories. Employees
marketing Omo in these regions go on ‘roadshows’
(travelling in a van from one place to the next) to teach
people how to use washing powder. They give away soap
and bowls so that women can graduate from using laundry
soap at the river or communal tap to using cold-water Omo
in a bowl.11
>> Strategy
An excellent example of geographic segmentation is
uBank (previously Teba Bank), the first bank
exclusively servicing the rural and mining areas of
South Africa. The bank provides micro-financial
services to about 4 million low-income earners living in
and around mining towns and in rural areas, who have
not had access to formal banking services. Only about
20 per cent of rural people have savings accounts,
whereas research shows that more than 40 per cent
would like to have access to banking facilities. The bank
appeals to the need for affordable financial services
which give clients a safe place to keep their savings and
for mine workers to safely transfer money to family
members living in rural areas.12
EXAMPLE >>
In South Africa, regional beers are increasingly
marketed. Mitchell’s beer is found near Knysna and Cape Town, Birkenhead beer
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near Hermanus, Coelacanth beer near Port Alfred, Emerald Vale beer near East
London and Nottingham Road beers in the KwaZulu-Natal Midlands. In New
Zealand, many regions have their ‘own’ beer. In the south (Otago), for instance,
Speights beer is very popular, and Canterbury draught is sold in and around
Christchurch.
5.3 Demographic segmentation
Marketers often segment markets on the basis of
demographic information because it is widely available and
often related to consumers’ buying and consumption
behaviour. Some common bases of demographic
segmentation are age, gender, income, ethnic background
and family life cycle.
5.3.1 Age segmentation
Children aged 4 to 12 influence a great deal of family
consumption of products, such as toys, beverages and
movies. The youth market of today is computer literate from
an early age and they know how to use hand-held devices
such as cellphones and tablets. People between 35 and 44
are likely to have school-age children living with them and
spend more than all other age groups on food at home,
housing and clothing. Those between 45 and 54 spend more
than any other group on eating out, transportation,
entertainment, education, personal insurance and pensions.
The over-50 group controls most of the financial assets in
most countries and is, therefore, a very lucrative market
segment to target.
Mature consumers are being targeted by many firms as a
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powerful and lucrative segment of the investment market.
Some 22 per cent of South Africans are over 50 years of age –
and the number of mature households is on the increase. In
the United States, over-50 households make up 50 per cent
of the total discretionary income.
Indications are that the more moneyed 50-plus
households in South Africa are also substantial. Nedbank is
actively targeting the affluent over-70 market with their
Prime Club Account (‘When you’ve earned the right to pay
less and earn more’ says the slogan). According to its
research, banks need to offer more than just attractive
financial benefits to maintain the loyalty of their mature
customers. These clients insist on personal attention and
value-added services which address their social and health
needs. Prime Club clients earn higher preferential rates on
their investments and savings accounts and free access to
Nedbank’s self-service banking channels.
Other examples of products targeted at older market
segments are Reader’s Digest, Rennies and Vitaforce, for
instance, has different dietary supplements for older people
and children (Jungle-Vites).
5.3.2 Generational segmentation
One of the most common ways to segment an audience is
via generational segmentation. The generational
segmentation categorisation method is not new; market
researchers have been examining the characteristics of
different generations for decades. So what are the
generations and how are they categorised?
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•
The Silent Generation (born before 1946), were
influenced by two world wars and the depression. Called
‘Silent’ because of a perceived lack of interest in raising
issues or speaking publicly for change, they were also
cautious, conventional and somewhat fatalistic. Because
of the depression and World War II, they are also smaller
in number than the Baby Boomers after them.
• Baby Boomers (born between 1946 and 1964), grew up
in times of great social change and, to some extent,
freedom. As a result, they are characterised as
experimental, individualistic and social-cause oriented,
which is why they are often attracted to associations,
charities and not-for-profit firms. They work hard to
make their dreams come true. They also tend to be
receptive to anything that makes them look younger.
• Generation X (born between 1965 and 1980), was the
first generation of ‘latch-key’ kids – where both parents
were likely to be working full-time. They were also
exposed to rising divorce rates and corporate ‘downsizing’, which saw some parents lose their jobs.
Generation Xers value their independence, are less loyal
to employers, and favour a good work-life balance. They
are more entrepreneurial than the previous generations
and on average also better educated.
• Generation Y (often referred to as Millennials – born
between 1981 and 2000), is the technology generation –
the first to grow up with the Internet and the age of
instant communication. They rely far less on the
traditional methods of information dissemination – they
have the Internet at their fingertips and are more likely to
question the ‘norms’ that have existed in business. They
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•
are also more aspirational and, unlike Generation X
before them, are attracted to successful brands. 13
Generation Z (today’s tweens and teenagers), is brandconscious, tech-savvy, mature before their years and
equipped with generous incomes that are almost entirely
discretionary. Generation Z is an increasingly attractive
segment for marketers of all kinds of products, ranging
from fashion and beauty to digital devices. They are:
> Comfortable with and even dependent on
technology, having grown up in a digital world where
technology was ever-present
> Constantly multitasking with a variety of online
products and sophisticated electronic devices, and
appreciates simple, interactive designs
> More socially responsible, due to greater access to a
large online information pool they are more acutely
aware of modern day challenges such as terrorism
and climate change
> Always connected, communicating through various
social networking channels, often across countries
and cultures which significantly influences their
decision process.14
Companies targeting Generation Z need to adopt
technology-based marketing and sales channels such as text
messages (SMS), mobile Internet and social networking
portals. It is also important to ‘catch them young’ (especially
relevant for technology companies). For this reason
marketers must also enhance their virtual world presence
with online product information and purchase facility and
develop high value-for-money products that are
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multifunctional with simple and interactive designs. It also
appears that firms must provide ‘green’ products and
services or take a proactive stance toward the environment.
5.3.3 Gender segmentation
Marketers of products such as clothing, cosmetics, personalcare items, magazines, jewellery and footwear commonly
segment markets by gender. When one considers that
women in South Africa oversee 80 percent of all spending it
becomes apparent why this can be a very important target
market. Hotels, for instance, realise that 40 per cent of
today’s business travellers are females, and have adapted
their marketing accordingly.
>> Strategy
The Protea Hotel group is utilising an opportunity in
the accommodation market through gender
segmentation. It has decided to reserve an entire wing
of the President Hotel in Cape Town for females
travelling on their own. These guests are met and taken
to their rooms by a female manager and only female
staff service the rooms. Mineral water, flowers, bath
salts in the rooms, and other extras are used to appeal
to the needs of female travellers.15
EXAMPLE >> Unilever markets its Brut fragrance to men and Pears to
women. 1st For Women offers females 35 per cent lower short-term insurance
premiums because ‘women are better drivers.’ Almost 44 per cent of new-car
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sales are to women, and General Motors targets this market segment with its
Corsa range. Axe deodorant is a product targeted specifically at men. Magazines
such as Cosmopolitan and Femina are targeted at the female market.
However, brands that have traditionally been marketed to
men – such as cigarettes and alcohol – are increasing their
efforts to attract women. Women’s products, such as
cosmetics, household products and furniture, are also being
marketed to men.16 Calvin Klein’s CK One, for instance, is a
fragrance described as ‘unisex’. The beer brewer Heineken
is targeting the elusive female African drinker with a
sweeter, low-alcohol beer made from malt and lemon that it
hopes will persuade them to try its other lagers.
READER 33 >> Personal-care industry is getting under
men’s skin
Global sales of male toiletries other than razors, blades and shaving cream
will rise 5% to $17,5bn this year, surpassing the shaving segment for the first
time, according to Euromonitor. Unilever, with its Axe and Dove brands, has
26% of the market, more than Proctor & Gamble, Nivea maker Beiersdorf and
L’Oréal combined. The male segment’s expansion is fuelled by innovation,
marketing, and a growing realisation that men want to do more than just
shower, shave and shampoo. ‘The key objective among all the manufacturers
is turning a regime that you have to do into a ritual you want to do,’ says
Geometry Global European planning director Phil White. ‘They are trying to
establish that ritual’. That has not been easy as 90% of men spend a half-hour
or less getting ready in the morning, according to researcher Mintel. Ben
Voyer, a social psychologist and marketing professor at ESCP Europe business
school, says this is due to the perception that men get more attractive as they
age, and because men do not worry as much about their looks. Women use
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cosmetics ‘to signal beauty and youth, which are the attributes men look for,’
says Prof Voyer. ‘Men, on the other hand, have traditionally signalled status
and wealth, the attributes women look for.’
Manufacturers have found clever ways to convince guys to worry about
their looks, explaining that their skin is different – thicker, tougher, more oily –
and requires specialised products. As a L’Oréal ad once warned: ‘You think
you’re ageing well? She thinks you’re letting yourself go.’ Half of American men
now use skincare products as part of their daily routine, Mintel has found.
SOURCE: Adapted from Boyle, M. 2013. Personal-care industry is getting under men’s skin. Business
Day, 26 September, p. 16
WEBSITE
Visit the website www.tallgirlshop.com to
see how the retailer Tall Girl targets tall
women.
5.3.4 Income segmentation
Income is a popular demographic variable for segmenting
markets because it influences consumers’ wants and
determines their buying power. Many markets are
segmented by income, including the markets for housing,
clothing, automobiles, food and banking.
Nedbank unashamedly targets the higher-income market
(high net worth individuals) and a basic requirement to
become a Nedbank Private Wealth client is a personal
income exceeding R1.5 million per annum and an investable
assets greater than R5 million (excluding primary
residence), or a stockbroking account in excess of R250
000.17 Old Mutual’s Retail Affluent division specifically
targets wealthy clients. Considering that there are $28 000
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millionaires in South Africa, it is not surprising that the
major banks now all have ‘private banks’ for the well-heeled.
Clients who earn R800 000 per year or have investable assets
of R3m typically qualify for this special service.19 The Bureau
for Market Research estimates that the private banking
segment will grow to approximately 500 000 clients by 2016.
Nu World, a firm marketing small electrical appliances, uses
an income-segmentation targeting strategy. Its JVC brand is
targeted at higher-income consumers, Telefunken is aimed
at the middle-income group, and Nu Tec is an entry-level
brand.18 Pep Stores targets the lower-income market,
whereas clothing boutiques target higher-income groups.
Lever’s Pond’s facial cream is targeted at the middle-income
market and Elizabeth Arden at the higher income market.
South African Airways makes use of income
segmentation and identifies four segments each with
particular benefits, as follows:
•
•
•
•
Premium (the most expensive): free lounge access;
priority check-in; extra Voyager miles; refundable fares
Select: select seat at time of reservation; lounge access at
a fee; full Voyager miles; refundable fares
Classic (value-for-money economy-class travel): select
seat at check-in time; lounge access at a fee; full Voyager
miles; cancellation and change fees apply
Saver (the lowest economy-class fares): great for
travellers who want the best deal and are comfortable
with restrictions.
5.3.5 Ethnic segmentation
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Ethnic segmentation is based on the premise that consumers
who belong to different ethnic groups behave and consume
differently. In the United States, researchers have found
some differences in consumption patterns between African
Americans and other groups. American blacks and whites
often have different preferences in taste. Although African
Americans drink less coffee than average, this segment of
the market is much more likely than other Americans to lace
their coffee with large amounts of sugar, cream or non-dairy
creamer. Recognising this trend, Coffee-Mate began
marketing its product to blacks. It advertised in national
magazines like Ebony and Essence, broadcast its message on
local black radio stations and used outdoor advertising in
black neighbourhoods.
The difference between American blacks and whites also
shows up in packaging choices. African Americans have a
strong preference for larger sizes of non-alcoholic
beverages, for example. After the Coca-Cola Company
discovered this phenomenon in the early 1970s, it began
featuring and promoting 16-ounce bottles instead of the
standard 12-ounce size when advertising to the black
community.20
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EXAMPLE >>
In South Africa ethnicity is often used as a
segmentation variable. Carson is one of the most successful firms in South Africa
with its hair-care range of products for black South Africans. South African
Breweries specifically targets blacks with its Black Label brand and particularly
the large ‘quart’ bottle. The direct marketer Homechoice targets the black urban
female market. The cosmetics manufacturer L’Oréal has a range of products
aimed at making ‘African men and women feel beautiful’.21
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>> Strategy
Ethnic segmentation is often used in the publishing
industry. When Mandla Matla launched Illanga Langa
Sonto, the first Sunday newspaper for Zulu-speakers,
he made use of ethnic segmentation. Sometimes ethnic
segmentation is combined with gender segmentation.
Media24 targets ‘black women who aspire to better
most aspects of their lives’ and targets the LSM 4–6
range with its Move! magazine.22 Two newly launched
magazines, iZZiT and Sutra will target the coloured and
Indian markets in South Africa respectively.23 The jeans
company Levi Strauss is targeting the black middle
class. ‘Their shopping behaviours are different and
branded companies will have to communicate
differently through their marketing campaigns’ says
Levi’s manager Nuholt Huisamen.24
While segmenting on the basis of ethnicity may be
potentially controversial in South Africa, the burgeoning
black middle class in South Africa (as discussed in Chapter
3) is a feasible market segment for businesses as it is (1)
substantial (in 2013, for the first time, it exceeded the white
middle class both in terms of number and spend), which
suggests that it is (2) identifiable and measureable. In
addition, this affluent marketing segment is (3) accessible to
businesses through most of the contemporary marketing
communication tools and because of its unique culture and
values, it will (4) respond differently to the elements of the
marketing mix than other South African market segments.
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Although the black middle class in South Africa is
relatively homogenous, there are a number of sub-groups in
this market segment. Specifically there seems to be a
difference between those who were born into middle class
families and those who were not born into middle class
families.25 The University of Cape Town Unilever Institute of
Strategic Marketing broadly defines the black middle class
as comprising black individuals, 18 years old (or older) and
living in a household with a monthly income of between R16
000 and R50 000 per month. However for marketing
segmentation purposes, the group of individuals falling just
outside this threshold, known as Aspirants are included in
the definition of black middle class along with three other
sub-groups known as Makfikizolos, The Second Wave and
Forerunners. These four different sub-groups, making up
this market segment, are considered below.26
Aspirants
There are 1,9 million consumers in this sub-segment,
defined as individuals who live in households with an
income of between R10 000 and R16 000. Typically, this subsegment is confronted with a substantial debt burden and a
scarcity of jobs, but their potential spending power suggests
that business should not ignore them. If brands can build up
a relationship with these consumers before their disposable
income increases as they enter the middle class, then this
loyalty should endure, giving businesses a substantial
advantage.
Mafikizolos
As the name Mafikizolos suggests (it means ‘arrived
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yesterday’) this sub-segment have only recently become
middle class. Consequently the huge odds that they had
overcome and sacrifices they had to make to achieve the
status of middle class are fresh in their memories. However,
they are not entirely comfortable with confronting the
challenges and everyday routines of middle class life and
consequently are on a steep learning curve. Nevertheless, as
they become familiar with middle class life, their confidence
grows but they still have considerable (and perhaps
marginally unrealistic) dreams about the quality of life that
their new societal status will bring.
The Second Wave
These consumers are generally younger than the other subsegments and grew up in a middle class environment.
Unlike other sub-segments, they had access to good
education from a young age and consequently are better
educated and their aspirations are realistic, unlike other
members of the black middle class. Similarly, because they
grew up in a nuclear family rather than an extended family,
typical of the African culture, they feel under less pressure,
than other in this market segment, to take responsibility for
the well-being of relatives beyond their immediate family.
The middle class is where they are most comfortable,
having grown up in that environment, and consequently do
not consider it a realistic scenario that they will end up living
as their parents did, in challenging financial circumstances.
This is in contrast to the Forerunners, discussed below, who
find it difficult to forget the hardships associated with
modest income.
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Forerunners
The Forerunners are the first wave of previously
disadvantaged black consumers to move to the middle class.
Although they take pride in their achievements, they have
very real fear of slipping backward out of the relative
comfort and security of middle class living. While this
segment believes that anything is possible, unlike the
Mafikizolos, their dreams and aspirations are realistic,
possibly tempered by the recent recession which has made
them realise the value of a prudent lifestyle.
As discussed in Chapter 2, LSMs the South African
Advertising Research Foundation (SAARF) introduced a
non-racial measurement to describe the South African
consumer market called the Living Standards Measure
(LSM). The LSM methodology is based on the premise that
the consumption behaviour is largely determined by their
social class as measured by ownership of durable goods and
consumption of services. In 2004 black middle class notably
absent from top LSMs, with only 10 per cent in LSM 9 and
only 5 per cent in LSM 10. However the purchasing of
household assets by the black middle class has resulted in a
mass ‘migration’ of blacks to the upper LSMs (LSMs 8–10).
In other words, the purchasing of durable goods by the black
middle class has resulted in them being reclassified into
higher LSM groups.27
5.3.6 Family life-cycle segmentation
The demographic factors of gender, age and income often
do not sufficiently explain why consumer buying behaviour
varies. Frequently, differences in consumption patterns
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among people of the same age and gender result from their
being in different stages of the family life cycle. The family
life cycle is a series of stages determined by a combination of
age, marital status and the presence or absence of children,
and is a valuable basis for segmenting markets.
Figure 6.1 illustrates both traditional and contemporary
family life-cycle patterns and shows how families’ needs,
incomes, resources and expenditures differ at each stage.
The horizontal flow shows the traditional family life cycle.
The lower part of the figure describes some of the
characteristics and purchase patterns of families in each
stage of the traditional life cycle. Figure 6.1 also
acknowledges that many first marriages end in divorce.
When young married couples move into the young divorced
stage, their consumption patterns often revert back to those
of the young single stage of the cycle. Many divorced
persons remarry by middle age and re-enter the traditional
life cycle, as indicated by the ‘recycled flow’ shown in Figure
6.1.
An interesting approach to family life-cycle segmentation
is adopted by the financial services firm Investec. They have
a ‘cradle-to-grave’ strategy that implies that they offer
financial services that they believe will appeal to their clients
regardless of the stage of the life-cycle they find themselves
in. Investec argues that ‘without the cradle-to-grave strategy
it is hard to acquire the clients when they become higher
earners later in life’.
5.4 Psychographic segmentation
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Age, gender, income, ethnicity, family life-cycle stage and
other demographic variables are usually helpful in
developing segmentation strategies, but often don’t paint
the entire picture. Because of the limitations of
demographics as segmentation variables, psychographics
has been suggested as an additional means of segmenting
consumer markets. Demographics, some say, provides the
skeleton, but psychographics add meat to the bones.
Psychographic segmentation is market segmentation on the
basis of the following variables:
•
•
Personality. Personality reflects a person’s traits,
attitudes and habits. Porsche Cars North America
understood the demographics of the Porsche owner well:
a 40-something male university graduate earning over
$200 000 per year. However, research revealed that there
were five personality types within this general
demographic category that more effectively segmented
Porsche buyers. These are the ‘top guns’, ‘elitists’, ‘proud
patrons’, ‘bons vivants’, and the ‘fantasists’. Porsche
refined its marketing as a result of the study, and, after a
previous seven-year slump, the firm’s US sales rose by 48
per cent.28
Motive. Marketers of baby products and life insurance
appeal to consumers’ emotional motives, namely, to
care for their loved ones. Using appeals to economy,
reliability and dependability, car makers like Toyota and
Volkswagen target customers with rational motives, such
as safety and economic petrol consumption. Car makers
like Mercedes-Benz and Jaguar appeal to status-related
motives.
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•
Lifestyle. Lifestyle segmentation divides people into
groups according to the way they spend their time, the
importance of the things around them, their beliefs and
socioeconomic characteristics, such as income and
education. For example, NPD Market Research
identified the following five ‘eating lifestyles’: meat-andpotato eaters; families with kids whose diets feature
cooldrinks and sweetened cereal; dieters; natural-food
eaters; and ‘sophisticates’: high-income urban families
whose diets feature alcohol, Swiss cheese and rye breads.
Many cigarette marketers, including Camel and Peter
Stuyvesant, use a lifestyle-segmentation approach.
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Figure 6.1 The family life cycle
•
Geodemographics. Geodemographic segmentation
clusters potential customers into neighbourhood
lifestyle categories. It combines geographic,
demographic and lifestyle segmentations.
Geodemographic segmentation helps marketers practise
micro-marketing, which is the development of
marketing strategies tailored to prospective buyers who
live in small geographic regions, such as
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neighbourhoods, or who have very specific lifestyle and
demographic characteristics. Based on the idea that
people in the same neighbourhood tend to buy similar
things, retailers in densely populated areas, such as
Hillbrow, Hatfield and Greenpoint, where most people
live in high-rise flats, are less likely to sell products like
braaiwood and bicycles than in other suburban areas.
Retailers in suburbs where there is a lot of space may
find that products like tumble dryers do not sell as well
as in areas where space for drying clothes is more
limited.
Psychographic segmentation can also group consumers
according to some combination of three categories of
variables: activities, interests and opinions. Typical
dimensions used for this purpose are listed in Table 6.1.29
Table 6.1 Dimensions used in psychographic segmentation
Activities
Work
Hobbies
Social events
Holidays
Entertainment
Club membership
Shopping
Sport
Interests
Family
Home
Job
Community
Recreation
Fashion
Media
Achievements
Opinions
Themselves
Social issues
Politics
Business
Economics
Education
Future
Culture
A South African firm that uses psychographic and lifestyle
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segmentation particularly well to guide its entire marketing
strategy is South African Breweries. It has identified seven
personality segments (see also Figure 6.2):
•
•
•
•
•
•
•
The belongers: The bulk of the beer market consumers
who want to conform to the patterns of their peer group.
They can be found in the Castle Corners of South Africa’s
main sports fields.
The reclusives: The opposite of the belongers. They are
generally older and poorer consumers with limited
resources at their disposal, who either do not or cannot
participate in mainstream activities.
The intellectuals: More sophisticated consumers who
perceive themselves as rational and discriminating in
their selection of brands. Strong intrinsic differentiation
is important to this group of consumers as a means of
purchase justification. They seldom buy on impulse and
are often role models for others.
The macho braves: Consumers who want to reinforce
their manly and macho lifestyles through a brand that
reflects these values.
The feminists: Generally more up-market females who
are independent and confident and who choose brands
and products that set them apart from their male
counterparts as a statement of their emancipation. They
are often entrepreneurs, and are role models for others.
The cool egocentrics: Highly badged, status-conscious
consumers who are prepared to pay a substantial
premium for a label that makes this distinction clear to
all.
The home makers: Primarily concerned with family
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issues. Social responsibility and moderation are key
factors to be considered when dealing with this group.
Beers that are aimed at some of these segments are as
follows:
•
•
•
Castle Lager targets the belongers –
> Positioned as a mainstream brand: ‘It all comes
together with a Castle’
> Objective is to dominate the mainstream market
> Target market: white and black males, 25–35 years,
LSM 3–8
Carling Black Label targets the macho braves –
> Positioned as ‘refreshment and reward for hard work’
> A stronger beer that rewards strength of character
and is a badge of manhood
> Target market: black males, 25–45 years, LSM 4–6
Redds targets the feminists and cool egocentrics –
> Positioned as ‘when you have to be cool’ and ‘crisp
refreshment’
> Apple-flavoured fruit ale
> Target market: females, 18–25 years, LSM 8–10.
Figure 6.2 South African Breweries’ personality segments
The use of psychographics allows the marketer to move
beyond the simple demographic description of a market to a
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description that offers more insight into the needs and
behaviour of a target market. Psychographic variables can
be used individually to segment markets or can be
combined with other variables to provide more detailed
descriptions of market segments.
5.5 Benefit segmentation
Benefit segmentation is the process of grouping customers
into market segments according to the benefits they expect
of a product. Most types of market segmentation are based
on the assumption that this variable and customers’ needs
are related. Benefit segmentation is different from other
segmentation criteria because it groups potential customers
on the basis of their needs or wants rather than on some
other characteristic, such as age or gender. The snack-food
market, for example, can be divided into six benefit
segments, as shown in Table 6.2, namely the nutritional
snackers, the weight watchers, the guilty snackers, the party
snackers, the indiscriminate snackers and the economical
snackers. Table 6.2 is an illustration of how different
segmentation criteria, such as lifestyle segmentation and
benefit segmentation, can be used to segment a specific
market, in this example, the market for snack food.
Customer profiles can be developed by examining
demographic information associated with people seeking
certain benefits. This information can be used to match
marketing strategies with selected target markets. For
different segments the marketing mix (the 4 ‘P’s) can be
adapted to appeal to the needs of that segment. For
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instance, for the economical snacker market segment, the
price of snacks is important, so marketers have to price the
product carefully. In our promotion and advertising, we
have to make sure we convey a message of good value for
money. For the nutritional snacker, marketers have to use
the product component of the marketing mix to appeal to
this market segment. Snacks with nutritional ingredients
that are tasty, naturally healthy and without artificial
ingredients would appeal to the nutritional snacker. The
promotion and advertising message should emphasise the
goodness of the ingredients even if these benefits come with
a price premium.
Table 6.2 A multi-variable benefit segmentation of the snack-food market
EXAMPLE >> Cold Water Omo is targeted at people who pursue a very
specific benefit – to be able to wash their clothes in cold water. Nashua also has
a very clear idea of the benefits a specific market segment seeks when it says:
‘Saving you time. Saving you money.’ Nokia is a firm that uses its product strategy
brilliantly to appeal to different need segments. It appeals to those who want no
more than functionality (the ‘practical segment’) with the Nokia 105 and Nokia
106. Those who see a cellphone as a fashion accessory or to whom music is
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important can buy the Nokia Asha, and businesspeople are targeted with the
Nokia Lumia. When Samsung advertises its Ch@t222Plus app it says: ‘Socialize.
Entertain. Connect.’
6. Qualifying and determining bases for
segmentation
LO5
Some marketers distinguish between a qualifying and a
determining basis, or dimension, when considering
segmentation.30 A qualifying dimension is a consideration
that, as the word suggests, qualifies a consumer for a specific
target market. Age, for instance, is a qualifying dimension
for the marketers of motor vehicles. If a consumer has not
reached the minimum age to qualify for a driver’s licence, he
or she does not qualify to be in the target market for the
Volkswagen Polo, for instance. Following the Muslim faith is
a qualifying dimension in WesBank’s targeting efforts (see
Reader 34 ‘Car finance tailored for Muslims’). Many older
people are not familiar with modern technology and, in fact,
actively avoid products with a high-technology component.
So age can be a qualifying dimension for high-tech products,
such as computer modems. Having a smartphone is a
qualifying dimension for using many of the ‘apps’ on the
market today, including QR codes.
A determining dimension, on the other hand, is one that
will eventually determine a consumer’s buying decision. A
determining dimension, therefore, ‘swings’ the final
decision and will be related to the seller’s competitive
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advantage. For many buyers of computer software,
compatibility will be a determining dimension. In other
words, if a customer has to buy a newer version of a software
package later, will it be compatible with the existing
programmes, documents or files?
The basis for segmenting markets will naturally change
when offline firms begin looking at customers on the
Internet. In cases where variables such as geography were of
primary importance in the past, the Internet service
provider (ISP) domain might now be considered.
Alternatively, new variables such as Internet access speed or
computing power may become important. Traditional firms
that are new to the Internet will find that online
segmentation can yield one of the following four different
scenarios (depicted in Table 6.3).31 These four scenarios are
based on two different dimensions. The first dimension
focuses on whether the market size changes and the second
dimension focuses on whether the actual criteria to segment
markets change when firms move to the Internet.
Table 6.3 Segmentation scenarios for firms moving online
>> Technology in action
The promised land of marketing – a market segment
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of one?
As discussed in this chapter, the rationale behind
segmenting the market is to identify commonalities
among groups of consumers which influence their
response to marketing messages. However, although
we may share some characteristics with other
consumers, we are all unique individuals, so the most
effective market segment technique would be to target
each individual as a discrete market segment. Although
this may have seemed an impossible dream a few years
ago, the Internet with its technology allows us to
customise the messages for individual tastes and
preferences. For example, when Kalahari.com’s
customers log onto the website of Kalahari.com, they
are usually greeted with a personalised web page which
gives them recommendations on goods and services in
which they have shown interest on past visits to the
site. Although an important benefit of the Internet is its
ability to customise a business’s marketing
communications to individual tastes, customers are
now able to co-create their own products.
The customisation of products to individual
preferences is the real promise of the Internet.
Although large organisations, such as Nike, have
facilities which allow consumers to design their own
shoes and clothing, smaller businesses focusing on
niche markets are also following this trend. For
example, Footjoy, a firm based in the United States
allows golfers anywhere in the world to design their
own golf shoes and have them delivered to them at
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their homes. In many respects, this represents a shift in
power from the firm, which would traditionally design
the products and offer the consumer a number of
options, to a world in which the product is co-created.
This concept is not new – it has existed for many years
in the business-to-business (B2B) world. For example,
when Nando’s creates a new marketing campaign,
there is a partnership between the firm and the
advertising agency whereby the advertisements are cocreated.
SOURCES: Mootee, I. 2007. Web 2.0 and the new marketing. Available
http://blog.futurelab.net/2007/07
(accessed
28
March
2010);
www.kalahari.com (accessed 28 March 2010); www.footjoy.com (accessed
27 March 2010)
•
No change. Firms may find that online segmentation
does not reveal any significantly new segments and that
the relative compositions and sizes of the online
customer segments may generally be the same as the
offline segments. A good example would be a firmspecific business-to-business (B2B) site, where there
may be a few opportunities to significantly increase the
size of the market and the segmentation variables
remain approximately the same. In a business-toconsumer (B2C) context, this situation may occur if all or
most of a firm’s offline customers are regular Internet
users and exhibit many of the same needs and buying
behaviours when using the Internet. Moving online for a
firm, then, becomes simple in the sense that the online
and offline marketing strategies remain largely the same.
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•
A typical example is Exclusive Books with its online
website, www.exclus1ves.co.za.
Market expansion. Firms may find that the
characteristics of the online segment are the same as the
characteristics of the offline segment, but that the
segment size changes. For example, a segment may
become larger due to the increased reach of the Internet.
This may happen if a firm’s offering appeals to many
consumers that were previously out of the physical reach
of the firm. Carrol Boyes is a good example of such a
firm. It started in 1989 and grew rapidly after launching
its website (http://www.carrolboyes.co.za). Before the
launch of its website, Carrol Boyes’s market was limited
to people buying from its retail shops in South African
shopping centres. After it established an online
presence, it attracted global customers.
Alternatively, segment characteristics might stay the same
while the segment size shrinks. This can only happen if a
small percentage of a firm’s normal target segment uses the
Internet.
•
Market reclassification. Online segmentation initiatives
could reveal that customer segments are different on the
Internet from the non-online markets – either slightly or
significantly. This difference may be due to the Internet’s
ability to augment a firm’s offering (such as better
service delivery or customisability) and hence create
online customers that are more demanding or
discriminating. Typical examples of this include Pick n
Pay online shopping (http://www.pnp.co.za/shop/PnP)
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•
and the Woolworths online grocery service
(http://www.woolworths.co.za). These services allow
customers to buy from these retailers online. This
convenience is not only a luxury for working people with
busy schedules, but also provides the two retailers with a
competitive advantage over their competitors.
Reclassified expansion. Naturally, it is more likely that
firms will experience a combination of the previous two
scenarios, so that segments may change both in terms of
size and characteristics. This complicated scenario
makes Internet marketing strategy all the more
important because targeting and positioning play a
crucial role in online success. A good example is Dell’s
website (http://www.dell.co.za), which allows
customers, instead of buying its computers at retailers
such as Incredible Connection, to buy online, with the
opportunity to customise a computer on the basis of a set
of questions and requirements. Allowing customers to
take more control of the process of choosing and
customising a computer creates a competitive advantage
for Dell over other computer manufacturers.
7. Steps in segmenting a market
LO6
The purpose of market segmentation, in both consumer and
business markets, is to identify marketing opportunities.
Figure 6.3 traces the steps in segmenting a market.
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Figure 6.3 Steps in segmenting a market
1
2
3
Select a product category or market for study. Define
the overall market or product category to be studied –
one in which the firm already competes, a new, but
related, market or product category, or a totally new one.
For instance, Coca-Cola carefully studied the bottled
beverage market before deciding to target sportspeople
with its own energy drink, Powerade. The same applies
to the mineral water market before it introduced
BonAqua.
List the potential needs in this market or product
category. This is a brainstorming session to identify as
many needs as possible. The idea is to identify the
reasons why consumers buy the product and can include
needs such as money-saving, lower calorie intake, safety
and user-friendliness. The list must be as exhaustive as
possible, emphasising customer needs, benefits and
satisfaction.
Choose a basis or bases for segmenting the market.
This step requires managerial insight, creativity and
market knowledge. There are no scientific procedures for
selecting segmentation variables (see the section ‘Bases
for segmenting consumer markets’, discussed earlier).
These segmentation variables may be behavioural
variables, geographic variables, demographic variables
or psychographic variables. However, a successful
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segmentation scheme must produce segments that meet
the four basic criteria discussed earlier in this chapter:
substantial, identifiable, accessible and responsive.
4 Select segmentation descriptors. After choosing one or
more bases, the marketer must select the segmentation
descriptors. Descriptors identify the specific
segmentation variables to use. For example, if a firm
selects demographics as a basis of segmentation, it may
use age, occupation and income as demographic
descriptors. This step ought to lead to segments that are
homogeneous within, but heterogeneous among other
different segments.
5 Profile and analyse homogeneous segments. The
profile of individual segments resulting from Step 4
should include the segments’ size, expected growth,
purchase frequency, current brand usage, brand loyalty
and long-term sales and profit potential. This
information can then be used to rank potential market
segments by profit opportunity, risk, consistency with
the firm’s mission and objectives and other factors of
importance to the firm. Once profiled, the substantial,
identifiable, accessible and responsive criteria must
again be considered. For instance, the profile must
indicate whether the segment is different from other
potential segments and will respond to a unique
marketing mix compiled to appeal to that segment’s
specific needs. The profile must also indicate whether
the market segment is large enough to pursue profitably.
6 Identify the determining dimensions. A determining
dimension is the dimension that will eventually
determine a consumer’s decision to buy or not to buy. A
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7
determining dimension is related to the seller’s
competitive advantage. A determining dimension must
be identified for each potential segment. Fuel
consumption and affordability may be the determining
dimensions in the economy or bottom end of the
passenger vehicle market. The marketer must decide:
can we deliver that? Can we compete with other firms
that may target the same market segment? Do we have a
competitive advantage in this segment? If a firm cannot
deliver on the determining dimension(s), then that
segment should not be targeted. If Absa, for example,
cannot deliver on ‘wealth creation’ then it should not
enter the private banking market. This step is the final
‘reality check’ before a market segment is targeted.
Name and select target markets. The last step in the
segmentation process is to name individual segments.
Selecting target markets may not be regarded as part of
the segmentation process, but a natural outcome (see
the section ‘Strategies for selecting target markets’). This
is a major decision that influences, and often directly
determines, the nature of a firm’s marketing mix. This
topic is examined in greater detail later in this chapter.
READER 34 >> Car finance tailored for Muslims
There are about 350 000 Muslim families in SA. Both Wesbank (assetfinancing) and Sanlam (Sanlam Private Investors) target this market segment.
WesBank has created an Islamic vehicle-financing product that will meet all
the requirements of the Sharia, or Islamic law. In terms of the law, Muslims
are not permitted to enter into agreements that involve interest charges, nor
are they able to take out insurance cover. They have to pay cash for goods.
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The new scheme involves a plan in which the current price of a vehicle and
future interest rates and insurance will be factored into a monthly repayment.
In effect, it is a rental plan in which the customer owns the vehicle at the end
of the repayment period.
Chris de Kock, general manager of WesBank marketing, says the product
meets the demands of Islamic law as well as those of the South African
judicial system. It will create a demand from the Muslim community and
others who want to move away from interest-based banking. It is expected that
the new product will earn at least R20 million a month in new business.
Sanlam expects to generate R1,8bn of new investment from this market
segment.
SOURCE: Robertson, D. 2005. Car finance tailored for Muslims. Sunday Times business section, 9 May
2005, p. 4: Thomas, S. 2010. Sanlam and Islam, Financial Mail, 13 November, p. 78
After market segmentation the next stage is to design,
implement and maintain appropriate marketing mixes. The
marketing mix (or 4 P’s) has been described as product,
distribution, promotion and pricing strategies intended to
bring about mutually satisfying exchange relationships with
target markets. Chapters 8 to 13 explore these topics in
detail.
8. Strategies for selecting target
markets
LO7
So far, this chapter has focused on the market-segmentation
process, which is only the first step in deciding which
segment to approach in order to market a product. The next
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task is to choose one or more target markets. A target market
is a group of people for whom the firm designs, implements
and maintains a marketing mix intended to meet the needs
of that group, resulting in mutually satisfying exchanges.
The three general strategies for selecting target markets are
undifferentiated targeting, concentrated targeting and
multi-segment targeting. Table 6.4 describes the advantages
and disadvantages of each targeting strategy.
WEBSITE
Visit the Spur website at www.spur.co.za.
Describe the different market segments
targeted by Spur restaurants. How would
you describe Spur’s targeting strategy?
8.1 Undifferentiated targeting
A firm using an undifferentiated targeting strategy essentially
adopts a mass-market philosophy, viewing the market as
one big market with no individual segments. The firm then
uses one marketing mix for the entire market. In other
words, a firm that adopts an undifferentiated targeting
strategy assumes that all individual customers have similar
needs that can be met with a single marketing mix. An
example of undifferentiated marketing is the tap water used
daily in South African homes and businesses. The various
local city councils do not grade water into high, medium or
low grades for use within homes and businesses. If they did,
and they varied the price charged for the water depending
on its quality, this would be an example of differentiated
marketing. Thus a single marketing mix, which serves the
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needs of the entire market, is required.
Table 6.4 Advantages and disadvantages of target marketing strategies
Targeting
strategy
Undifferentiated
targeting
Concentrated
targeting
Advantages
Potential savings on
production and
marketing costs
•
•
Concentration of
resources
Can better meet
the needs of a
narrowly defined
segment
Allows some firms
to better compete
with larger firms
Stronger
positioning
•
Greater financial
success
Economies of scale
in production and
marketing
•
•
•
•
•
Multi-segment
targeting
Disadvantages
•
•
•
•
Unimaginative product
offerings
Firm more susceptible
to competition
Segments too small,
or changing
Large competitors may
more effectively
market to niche
segment
High costs
Cannibalisation
The first firm to enter an industry (such as Xerox, IBM
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and Coca-Cola) often uses an undifferentiated targeting
strategy initially. With no competition, the firm may not
need to tailor marketing mixes to the preferences of
individual market segments. Most online pre-owned carbuying firms (e.g. http://www.autotrader.co.za or
http://www.mccarthycallacar.co.za, to name only two) are
currently practising a mass-market, or undifferentiated,
strategy, because they offer consumers a similar wide choice
of second-hand cars and fairly similar services.
At one time, Coca-Cola used this strategy with a single
product and a single size of its familiar contour bottle.
Marketers of commodity products, such as flour and sugar,
are also likely to use an undifferentiated targeting strategy.
One advantage of undifferentiated marketing is the potential
for saving a lot of money on production and marketing costs.
Because only one item is produced, the firm should be able
to realise economies of scale benefits due to mass
production. Also, marketing costs may be lower when there
is only one product to promote and a single channel of
distribution. Too often, however, an undifferentiated
strategy emerges by default rather than by design, reflecting
a failure to consider the advantages of a segmented
approach. The result is often sterile, unimaginative product
offerings that have little appeal to anyone.
>> Strategy
Another problem associated with undifferentiated
targeting is that it makes the firm more susceptible to
competitive inroads. The Holiday Inn group lost a large
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share of the hotel market to competitors, such as City
Lodge, which successfully targeted the more priceconscious value-for-money market, before it changed
to a multi-segment targeting strategy. Using an
undifferentiated strategy, a firm, therefore, faces the
continuous risk of innovative segmenters ‘chipping
away’ at the various segments of the combined target
market by offering more attractive marketing mixes to
more homogeneous sub-markets. IBM saw this happen
very quickly when it launched personal computers.
Apple took the segment that wanted an easy-to-use
computer. Toshiba took travellers who wanted laptop
convenience. Compaq appealed to those who wanted
the fastest machines. Dell attracted customers who
wanted reliability at a low price. A South African firm
that is facing a similar situation is Pick n Pay, which is
facing pressure from niche retailers such as Mr Price
and Queens Park (clothing), Clicks (cosmetics) and
Spar (food) continuously chipping away at Pick n Pay’s
market.32
You might think a firm that produces an unexciting product
like toilet tissue would adopt an undifferentiated strategy.
However, this market has industrial segments and
consumer segments. Industrial buyers want an economical,
single-ply product sold in boxes of a hundred rolls. The
consumer market demands a more versatile product in
smaller quantities. Within the consumer market, the
product is further differentiated as coloured or white,
designer print or no print, cushioned or non-cushioned and
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economy-priced or luxury-priced.
Selati, a producer of sugar, has differentiated its sugar
products into four sub-brands: ‘light brown crystal sugar’,
‘pure white crystal sugar’, ‘pure white icing sugar’ and ‘pure
white castor sugar’ to appeal to the different needs of its
market.
8.2 Concentrated targeting
With a concentrated targeting strategy, a firm selects a
market niche (one segment of a market) for targeting its
marketing efforts. The financial firm SASFIN uses a
concentrating strategy by targeting its financial services
exclusively to the SME sector. uBank does the same by
targeting ‘industrial workers’.33 Because the firm is
appealing to a single segment, it can concentrate on
understanding the needs, motives and satisfactions of that
segment’s members, and on developing and maintaining a
highly specialised marketing mix. Some firms find that
concentrating resources and doing a better job of meeting
the needs of a narrowly defined market segment is more
profitable than spreading resources over several different
segments.
>> Strategy
For example, Mercedes-Benz competes only in one
niche of the motor-vehicle market. Pep Stores targets
only the bottom end of the clothing market. In a similar
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fashion, Pam Golding targets the top end of the
residential property market. Small firms often adopt a
concentrated targeting strategy (also called niche
marketing) to compete effectively with much larger
firms. For example, specialised retailers, such as
Sportsman’s Warehouse (sports equipment), Dulce’s
(ice cream) and Hi-Fi Corporation (electronic goods),
are a growing group of niche retailers. These relatively
small, independent operators count on personal
service and product selection, rather than on price, to
differentiate themselves from large discounters such as
Makro and Game.
Some firms, on the other hand, use a concentrated strategy
to establish a strong position in a desirable market segment.
Porsche, for instance, targets a very upmarket vehiclemarket segment – ‘class appeal, not mass appeal’. There are
risks, however, associated with a concentrated targeting
strategy. Motor-vehicle manufacturers such as Toyota and
Volkswagen are well positioned for both good economic
conditions (more demand for luxury models, such as the
Lexus and the Audi respectively) and poor economic
conditions (demand shifting to entry-level cars such as the
Yaris and the Polo). Niche manufacturers, however, such as
Fiat and Mercedes-Benz (only upmarket, luxury vehicles),
are more exposed to the impact of environmental changes,
such as the risk of declining disposable income, a severe
recession or increasing petrol prices. Concentrated targeting
thus violates the old adage, ‘Don’t put all your eggs in one
basket.’ If the chosen segment is too small or if it shrinks
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because of environmental changes, the firm may suffer
negative consequences.
A concentrated strategy can also be disastrous for a firm
that is not successful in its narrowly-defined target market.
Do you remember how many video shops sprang up in
South Africa in the mid-1980s? Many of them are not around
anymore. In the United States, when Head and Shoulders
shampoo was introduced, several small firms were already
selling anti-dandruff shampoos. Head and Shoulders was
introduced with a large advertising campaign, and the new
brand captured more than half the market immediately.
Within a year, several of the smaller firms that had been
concentrating on this market segment went out of business.
The key to successful concentrated targeting, or niche
marketing, is specialisation. The firm has to specialise along
market, customer, product or marketing-mix lines. The
following are several specialist roles open to a niche
marketer.34
•
End-use specialist. These firms specialise in serving one
type of end-use customer. For example, Reuters provides
financial market information and news to professionals,
and many private banks in South Africa specialise in
providing sophisticated investment advice to wellheeled clients.
• Vertical-level specialist. The firm specialises at some
level of the production/ distribution cycle. For example,
the Dutch-based Anglo-Italian firm, EVC, is Europe’s
leading manufacturer of polyvinylchloride (PVC), and
Country Homes’ niche is as a middleman between
owners of country cottages and people who want to hire
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them for holidays.
• Customer-size specialist. The firm concentrates on
selling to small, medium or large firms. Fuji gained its
initial success in the photocopying market by
specialising in the needs of small firms neglected by
Xerox. Similarly, many regional advertising agencies
specialise in serving medium-sized clients that cannot
afford the high fees of national advertising agencies.
• Specific-customer specialist. The firm limits its selling
to one or a few large customers. There are many firms
like this in the motor industry, such as Unipart, for
example, which devotes most of its time to BMW/Rover.
Atlantis Diesel Engines near Cape Town had the state as
its almost exclusive customer at one stage.
• Geographic specialist. The firm sells only in a certain
locality, region or area of the world. uBank provides its
financial services almost exclusively in rural and mining
communities and Choppies does the same with
groceries.
• Product or feature specialist. The firm specialises in
producing a certain product, product line or product
feature. Rolls-Royce, for instance, is the only supplier of
tilt-thrust jet engines to airlines.
• Quality-price specialist. The firm operates at the low or
high end of the market. For example, Hewlett Packard
specialises in the high-quality, high-price end of the
hand-calculator market, whereas Tring International
sells very cheap CDs.
• Service specialist. The firm offers one or more services
not available from any other firm. An example is the
American Space Programme NASA’s ability to recover
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and repair satellites.
Niche marketing carries a very significant risk, in that the
market niche may dry up or be attacked. Porsche was hit by
both of these threats when the demand for luxury cars
declined in the early 1990s and Honda, Toyota and Mazda
all attacked the sports car market.
8.3 Multi-segment targeting
A firm that chooses to serve two or more well-defined
market segments and develops a distinct marketing mix for
each uses a multi-segment targeting strategy. Toyota has a
model that appeals to almost every conceivable market
segment, ranging from the bottom of the range Yaris to the
Lexus for the luxury market. South African Breweries
markets a range of nine different locally bottled beers – each
one with a different taste and flavour, alcohol content and
packaging. Each one is developed for a different target
market.
Some firms use different promotional appeals, rather
than completely different marketing mixes, as the basis for a
multi-segment strategy. For example, different target
markets are likely to be attracted to Colgate’s various
shampoos: for normal hair, for dandruff, for oily hair, for dry
hair, etc. Yet the basic marketing strategy (e.g. the shape of
the bottle, the distribution strategy, the price strategy)
remains the same. Although the basic product may be
similar, the names and product attributes are designed to
meet different wants.
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>> Strategy
Tsogo Sun (previously known as Southern Sun) uses
the multi-segment strategy very effectively. It competes
in different market segments with its Intercontinental
Hotels and Resorts and Holiday Inn Crowne Plaza
hotels (both in the luxury segment); the Holiday Inn
and the Holiday Inn Garden Courts (middle-income
markets); the Holiday Inn Express (convenience and
value for money); Southern Sun Resorts (hospitality
and tourists in search of scenic beauty); and its
Formula 1 and Formula Inn hotels compete in the
economy-market segment.
Multi-segment targeting offers many potential benefits to
firms, including higher sales volume, higher profits, larger
market share and economies of scale in manufacturing and
marketing. Yet multi-segment targeting also involves higher
costs. Before deciding to use this strategy, firms should
compare the benefits and costs of multi-segment targeting
with those of undifferentiated and concentrated targeting.
Increases in the following costs need to be taken into
account:
•
Product design costs. A multi-segment targeting
strategy sometimes results in different products for
different market segments. It may involve nothing more
than a package or labelling change, or it may require a
complete redesign of the product itself. An example of a
slight modification is packaging Coca-Cola in various
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sizes and types of containers, such as 340 ml cans, 1,5litre bottles and 2-litre plastic bottles. By contrast,
Compaq Computer incurred major costs in developing
both desktop and laptop computers and will incur even
more if they enter the tablet market. Creating different
products with unique features sought by different
segments of the market can be very expensive.
• Production costs. Total production costs mount as a
firm develops and markets different products for
different market segments. Each manufacturing run may
require a retooling of production equipment, during
which time expensive production lines are idle. The
result is higher costs for the manufacturer, and
marketers have to charge their customers higher prices
to compensate – which may be hard to do in a very
competitive market.
• Communication costs. If a firm produces a different
product for each market segment it must develop
separate marketing communication strategies for each
segment. Significant expenditures of human and
financial resources are required, as each communication
campaign will require unique advertising (TV, radio,
print); its own promotional material (pamphlets,
coupons); and even the use of different media (more
personal selling, for instance), in some cases. South
African Breweries, for instance, has a separate marketing
communication strategy for each of its brands and even
uses a separate advertising agency for each brand.
• Inventory costs. The more market segments a firm tries
to serve, the higher the inventory costs are likely to be.
With inventory costs averaging between 20 and 30 per
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•
•
•
cent of inventory sales value, a multi-segment targeting
strategy can be very expensive. Firms like Toyota and
Volkswagen must spend millions of rands on keeping an
adequate inventory for all their models, some of which
may not even be on the market any more.
Marketing research costs. An effective market
segmentation strategy relies on accurate, detailed
market information about consumer demographics;
consumer reaction to various product designs or
advertising appeals; and consumer interests, attitudes
and opinions, and so on. Collecting this information can
be a time-consuming and expensive process.
Management costs. A multi-segment targeting strategy
requires extra management time. As the number of
segments increases, so does the number of decisions
that need to be made. Management must co-ordinate
the marketing mix for each targeted market segment.
Cannibalisation. Cannibalisation occurs when the sales
of a firm’s new product reduce the sales of one of its
existing products. For example, when South African
Breweries launched Miller Draft it hoped that the new
product would expand its sales and grow the beer. If
however, Miller drinkers simply switched from the ranks
of current drinkers of other SAB brands to Miller,
cannibalisation has occurred. M-Net has found that
introducing DStv has not really grown its market.
Instead, its new DStv subscribers are by and large its
existing analogue subscribers.
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9. Contrasting target marketing
strategies
LO8
Table 6.5 illustrates that in the target market approach, what
the firm decides upon influences all aspects of the firm’s
marketing strategies, and the marketing mix (the 4 ‘P’s) in
particular. The product strategy for each target market will
be different. In the case of an undifferentiated strategy, the
product mix will be wider (trying to satisfy many different
needs), whereas at the other extreme, namely concentrated
targeting, the product mix will be limited to relatively few
products or brands.
Table 6.5 Contrasting target marketing approaches
The distribution strategies of a firm will also be strongly
influenced by the targeting strategy used. Undifferentiated
targeting involves intensive distribution (see Chapter 10),
which means that almost as many intermediaries (retailers
and wholesalers) as are prepared to stock the product are
allowed to do so. The distribution is as wide as possible,
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necessitating many intermediaries in a wide geographic
area. Undifferentiated targeting also means that firms bring
their products within easy reach of the target market and, by
implication, reduce travelling time, for instance.
Concentrated targeting, on the other hand, implies
exclusive distribution. The intermediaries are, therefore,
limited and potential buyers have to make an effort to reach
retail outlets. The product, in such a case, will often be one
that carries a price premium. The media that will be used for
marketing communication purposes will not be a massmedia approach, but one that offers maximum exposure to
the target market. In the case of cameras, for instance, the
medium will be camera magazines, such as Camera and
Image (Ci), or sponsorship of a photographic club, rather
than advertisements in mainstream media, such as YOU
and Huisgenoot.
Table 6.5 summarises the advantages of segmentation,
namely:
•
•
•
•
•
The ability to define and, therefore, satisfy consumer
needs more accurately
Better utilisation of scarce resources
More opportunities to build long-term relationships with
customers
More accurate or detailed objectives
Enhanced performance assessment?
Proponents of segmentation will, therefore, argue that these
benefits all contribute to enhanced profitability. The
disadvantage of segmenting is that it can result in limited
market coverage, leading to missed opportunities and
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limited growth potential.
Once a firm has segmented its market and decided on the
market segment(s) it will target, the next step is to decide
how it wants to be positioned in each targeted market.
10.Positioning
LO8
Positioning follows a firm’s decision about its target market.
The term positioning refers to developing a specific
marketing mix to influence potential customers’ overall
perception of a brand, product line or firm in general. In
other words, a position is the place that a product, brand or
group of products occupies in consumers’ minds in relation
to competing offerings. Positioning assumes that consumers
compare products on the basis of important features.
Marketing efforts that emphasise irrelevant features are,
therefore, likely to misfire.
Crystal Pepsi and a clear version of Coca-Cola’s Tab
failed in the United States because consumers perceived the
‘clear’ positioning as more of a marketing gimmick than a
genuine consumer benefit.35
Effective positioning entails assessing the positions
occupied by competing products, identifying the important
dimensions underlying these positions and choosing a
position in the market where the firm’s marketing efforts will
have the greatest impact.
Positioning is a crucial concept in marketing. We believe
it is such a critical concept that the whole of Chapter 7 is
devoted to the concept of positioning and its use as a
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competitive strategy.
<<< LOOKING BACK
Many firms seem to think that targeting younger market
segments is appropriate because ‘they are the market of the
future’. Such firms argue that if they can build brand loyalty
amongst this market segment today they will be a loyal,
lucrative segment in the future. Successful market
segmentation depends on four basic criteria. First, a market
segment must be substantial: it must have enough potential
customers to be viable. Second, a market segment must be
identifiable and measurable. Third, members of a market
segment must be accessible to marketing efforts. Fourth, a
market segment must respond to particular marketing
efforts in a way that distinguishes it from other segments.
The over-40s market meets all four criteria and the fact they
are often debt-free implies that they have more disposable
income than many younger market segments, which makes
this segment attractive for many products and brands.
SUMMARY
1
2
The characteristics of markets and market segments.
A market is composed of individuals (or organisations)
with the ability and willingness to make purchases to
satisfy their needs or wants. A market segment is a group
of individuals with similar product needs as a result of
one or more common characteristics.
The importance of market segmentation. Before the
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1960s, few businesses targeted specific market segments.
Today, segmentation is a crucial marketing strategy for
nearly all successful firms. Market segmentation enables
marketers to tailor marketing mixes to meet the needs of
particular population segments. Segmentation helps
marketers identify consumer needs and preferences,
areas of declining demand and new marketing
opportunities.
3 Criteria for successful market segmentation.
Successful market segmentation depends on four basic
criteria. First, a market segment must be substantial (i.e.
it must have enough potential customers to be viable).
Second, a market segment must be identifiable and
measurable. Third, members of a market segment must
be accessible to marketing efforts. Fourth, a market
segment must respond to particular marketing efforts in
a way that distinguishes it from other segments.
4 Bases (variables) commonly used to segment
consumer markets. There are five commonly used
bases for segmenting consumer markets. Geographic
segmentation is based on region, size, density and
climate characteristics. Demographic segmentation
consists of age, gender, income level, ethnicity and
family life-cycle characteristics. Psychographic
segmentation includes personality, motives and lifestyle
characteristics. The benefit sought is a segmentation
basis that identifies customers according to the benefits
they seek in a product. Finally, usage segmentation
divides a market by the amount of product purchased or
consumed.
5 Qualifying and determining dimensions. A qualifying
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dimension is a consideration that, as the word suggests,
qualifies a consumer for a specific target market. A
determining dimension, on the other hand, is a
dimension that will eventually determine a consumer’s
buying decision.
6 The steps involved in segmenting markets. Seven steps
are involved when segmenting markets: (1) select a
market or product category for study; (2) list the
potential needs of the market; (3) choose a basis or bases
for segmenting the market; (4) select segmentation
descriptors; (5) profile and analyse homogeneous
market segments; (6) identify the determining
dimensions; (7) name selected target markets. These
steps are followed by designing, implementing and
maintaining appropriate marketing mixes.
7 The pitfalls of alternative strategies for selecting target
markets:
• Undifferentiated targeting –
> Unimaginative targeting of product offerings
> Firm more susceptible to competition.
• Concentrated targeting –
> Segments too small or changing
> Large competitors may more effectively market to
niche segment.
• Multi-segment targeting –
> High costs
> Cannibalisation risk.
8 Alternative strategies for selecting target markets.
Marketers select target markets using three different
strategies: undifferentiated targeting, concentrated
targeting and multi-segment targeting. An
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9
undifferentiated targeting strategy assumes that all
members of a market have similar needs that can be met
with a single marketing mix. A concentrated targeting
strategy focuses all marketing efforts on a single market
segment. Multi-segment targeting is a strategy that uses
two or more marketing mixes to target two or more
market segments.
How and why firms implement positioning strategies
and how product differentiation plays a role.
Positioning is used to influence consumers’ perceptions
of a particular brand, product line or firm in relation to
those of competitors. The term ‘position’ refers to the
place that the offering occupies in consumers’ minds. To
establish a unique position, firms use product
differentiation, which involves emphasising the real or
perceived differences between competing offerings.
Products may be differentiated on the basis of attribute,
price and quality, use or application, product user,
product class or competitor. Positioning follows the
selection of a target market.
DISCUSSION AND WRITING QUESTIONS
1
2
3
Describe market segmentation in terms of the historical
evolution of marketing.
Choose magazine advertisements for five different
products. For each advertisement, write a description of
the demographic and psychographic characteristics of
the targeted market.
Ask all your classmates to complete the VALS
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4
5
6
questionnaire at www.sri-bi.com/VALS/presurvey.shtml
and then to submit their reports to you. Describe the
psychographic segments present in your class, including
a description of the size of each segment.
A Belgian entrepreneur, Henri Thijssen, has developed a
‘robotic lawnmower’.36 Develop a targeting and
positioning strategy for his product.
Describe the nature of multi-segment targeting. Describe
a firm not mentioned in this chapter that uses a multisegment targeting strategy.
Identify reasons why Nedbank has abandoned its multisegment strategy.
STRATEGY READER >> How far does the promised land
of social media marketing extend?
Mark Beard is a Knysna-based entrepreneur who, along with other businesses,
has a small, but thriving, car dealership known as Autolink Knysna
(http://www.autolinkknysna.co.za/). After some time working in the corporate
sector (and in so doing acquiring the skills to run a successful business), Mark
purchased Autolink Knysna from the founder of the business in 1997. Mark’s
passion for cars and his ability to understand his customers’ needs saw him
turn the venture into a successful and – Mark hoped – sustainable business.
However, the credit crunch in 2008 and the subsequent recession had a
severely negative impact on the motor industry as a whole. Mark realised that
if Autolink Knysna was to survive, he would have to reconsider the way he
marketed his business.
At the ski boat club in Knysna one Friday night, Mark overhead some
colleagues talking about the use of the social media for marketing small
businesses. This phenomenon was growing – at the end of 2009, Facebook
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had more than 350 million accounts; and in South Africa alone 2,6 million
people had signed up with Facebook. What concerned Mark though was
whether Facebook, although it might be a viable option for large corporations
in urban America, was a feasible marketing option for a business selling
second-hand cars in a small town near the tip of Africa. Consequently, one
breezy Knysna afternoon in March 2010, Mark started researching the
possibility of using Facebook as a way to improve the marketing of his
products.
During his investigation, Mark came across an article entitled ‘One Café
chain’s Facebook experiment’, published in Harvard Business Review in March
2010, which argued that Facebook’s fan pages are an effective marketing
tool. The study based this conclusion on an experiment in which the
customers of Dessert Gallery (DG), a popular US-based café chain, were
encouraged to join the fan page of DG. The research found that fans of DG
(compared with the non-fan DG customers) made 36 per cent more visits to
DG’s cafés each month; spent 45 per cent more of their eating-out dollars at
DG; spent 33 per cent more at DG; and had a 14 per cent higher emotional
attachment to the DG brand.
Although the results seemed promising, Mark was sceptical. First of all, he
pointed out (remembering his first-year statistics course) that the results
revealed correlations rather than a causal relationship (between the
customers joining the fan page of DG and increased marketing effectiveness).
Nevertheless, if the Facebook fan page was successful, it would allow Mark to
segment his market and allow a more focused marketing strategy. What was
also attractive about this option was the fact that, other than the time spent
setting up the Facebook fan page, there were no costs associated with this
marketing strategy.
Always on the lookout for a good deal, Mark set up the Facebook fan page
and started his viral marketing campaign by sending invitations to eight
friends on Facebook. A month later, Mark looked at the group page and
noticed that the number of members of the group had grown to 64. This was
exciting, thought Mark, but would it ultimately translate into increased sales
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for Autolink Knysna?
SOURCE: Dholakia, U.M. & Durham, E. 2010. One Café chain’s Facebook experiment. Harvard
Business Review, March 2010, p. 26
QUESTIONS
1
2
Do you think that Mark’s strategy will result in increased returns for
Autolink Knysna?
What advice would you give Mark about the use of social media as a
marketing medium?
KEY CONCEPTS
Behavioural segmentation: segmenting a market on the basis of consumers’
knowledge of, attitude towards, use of or response to, a product.
Benefit segmentation: the process of grouping customers into market segments
according to the benefits they seek from a product.
Cannibalisation: a situation that occurs when sales of a new product cut into
sales of a firm’s existing products.
Concentrated targeting strategy: a strategy used to select one segment of a
market for targeting marketing efforts.
Demographic segmentation: segmenting markets by age, gender, income,
ethnic background and family life cycle.
Family life cycle: a series of stages determined by a combination of age, marital
status and the presence or absence of children.
Geodemographic segmentation: segmenting potential customers into
neighbourhood lifestyle categories.
Geographic segmentation: segmenting markets by region of the country or
world, market size, market density or climate.
Lifestyle segmentation: segmenting a market on the basis of how consumers
spend their time, their beliefs and their socio-economic characteristics.
Market: people or firms with needs or wants and the ability and willingness to
buy.
Market segment: a subgroup of people or firms sharing one or more
characteristics that cause them to have similar product needs.
Market segmentation: the process of dividing a market into meaningful,
relatively similar, and identifiable segments or groups.
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Micro-marketing: developing a marketing strategy tailored to prospective
buyers who live in small geographic regions, such as neighbourhoods, or who
have very specific lifestyle and demographic characteristics.
Multi-segment targeting strategy: a strategy that chooses two or more welldefined market segments and develops a distinct marketing mix for each.
Niche: one segment of a market.
Position: the place that a product, brand or group of products occupies in
consumers’ minds in relation to competing product offerings.
Positioning: developing a specific marketing mix to influence potential
customers’ overall perception of a brand, product or firm in general.
Psychographic segmentation: market segmentation on the basis of personality,
motives, lifestyles and geodemographics.
Segmentation bases (variables): characteristics of individuals, groups or firms.
Target market: a group of people/businesses for which a firm designs,
implements and maintains a marketing mix intended to meet the needs of that
group, resulting in mutually satisfying exchanges.
Undifferentiated targeting strategy: marketing approach that views the market
as one big market with no individual segments and thus requires a single
marketing mix.
Usage-rate segmentation: dividing a market by the amount of product bought or
consumed.
80/20 principle: a principle that holds that 20 per cent of all customers generate
80 per cent of the demand.
REFERENCES
1
2
3
4
5
6
7
8
9
Fontyn, Y. 2010. The perfect fit for all. Financial Mail, 24 September, p. 77.
City Lodge Corporate Report, Supplement to the Financial Mail, July 2012.
http://www.internetworldstats.com (accessed 22 July 2010).
Rice, F. 1995. Making generational marketing come of age. Fortune, 26 June
1995, pp. 110–114.
Lactose-intolerant cats. Food & Beverage Reporter Online, May–June 2000, p.
44.
Kotler, P. 2000. Marketing management (tenth Millennium edition). London:
Prentice Hall, p. 267.
x $ = ? Brandweek, 31 January 1994, pp. 18–24.
Chaffey, D., Ellis-Chadwick, F., Johnston, K. & Mayer, R. 2006. Internet
marketing: Strategy, implementation and practice (third edition). Harlow:
Prentice Hall, p. 183.
The McVites case study. Food & Beverage Reporter Online, January/February
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10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2001, p. 51.
Nielsen. 2013. Brand familiarity reigns king around the world consumer.
Available from http://www.nielsen.com/us/en/insights/news/2013/brandfamiliarity-reigns-king-around-the-world.html (Accessed 17 July 2014).
Unilever SA corporate report. 1998. Supplement to Financial Mail, 23
October 1998, p. 36.
Jacobson, C. 2000. Teba Bank opens to look after SA’s rural poor. Sunday
Times, 8 October 2000; Theba Bank website, www.tebabank.co.za/index.asp
(accessed 19 July 2010).
Mainland, B. 2012. Why you should segment your target market by
generation. Available from http://www.dynamicbusiness.com.au/ (Accessed
on 17 July 2014).
Grail Research. 2011. Consumers of Tomorrow: Insights and Observations
About Generation Z. Available from
http://www.grailresearch.com/pdf/ContenPodsPdf/Consumersof_Tomorrow_Insig
(Accessed 17 July 2014).
Woman’s wing. Femina, October 1998, p. 148.
New Ford Mustang designed to attract more female buyers. Marketing News,
3 January 1994, p. 27; Warner, F. 1994. Midas increases bid to attract women.
Brandweek, 14 March 1994, p. 5; Weisz, P. 1994. There is a whole new target
market out there: It’s men. Brandweek, 21 February 1994, p. 21.
Nedbank: Become a client. 2014. Available from:
https://www.nedbankprivatewealth.com/south-africa/become-a-client
(Accessed on 10 December 2014).
Mateme, M. 2001. Going against the herd. Financial Mail, 23 February 2001,
p. 79.
It’s raining millionaires. Finweek, 11 October 2007, p. 46; MoneyWeb website
(accessed 14 March 2014).
Morris, E. 1993. The difference in black and white. American Demographics,
January 1993, pp. 44–46.
Mwsan, N. 2009. L’Oréal sets its sights on the African woman, Business Day
electronic edition, 30 April 2009.
Bizcommunity online newsletter, www.bizcommunity.com, 8 February 2005.
New segment lifestyle magazines launched. Bizcommunity online newsletter
www.bizcommunity.com (accessed 9 October 2008).
Huisman, j. 2014. Levi Strauss sets sights on black middle class. Business Day,
18 November, p. 2.
University of Cape Town, Unilever Institute of Strategic Marketing. 2013. 4
Million and Rising presentation. Cape Town: University of Cape Town.
Mafokomedia. 2014. Quick knowledge. Available from
http://www.mafokomedia.co.za/news.html (Accessed on 10 December
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27
28
29
30
31
32
33
34
35
36
2014).
Ibid.
Taylor, A. 1995. Porsche slices up its buyers. Fortune, 16 January 1995, p. 24.
Adapted from Wells, W.D. & Tigert, D.J. 1971. Activities, interests and
opinions. Journal of Advertising Research vol. 11 (August), pp. 27–35.
Perreault, W.D. & McCarthy, E.J. 1996. Basic marketing. Chicago: McGrawHill, p. 103.
Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. 2003. Internet
marketing: Building advantage in the networked economy (second edition).
Boston: McGraw-Hill, pp. 107–109.
Joubert, M. 2000. Better in the old days. Financial Mail, 25 February 2000, p.
65.
Cranston, S. 2010. Heading above ground. Financial Mail, 15 October, p. 25.
Kotler, P. 2000. Marketing management (tenth Millennium edition). London:
Prentice Hall Europe, p. 247; Kotler, P. 1996. Marketing management (ninth
edition). Englewood Cliffs: Prentice Hall, pp. 493–494.
Triplett, T. 1994. Consumers show little taste for clear beverages. Marketing
News, 23 May 1994, pp. 1, 11.
Sunday Times, 23 August 2007, p. 9.
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CHAPTER
07
Positioning the firm and its
products
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
3
4
5
6
7
8
9
10
11
12
13
Describe the nature of positioning.
Describe the typical undesirable outcomes if a firm fails to
position itself or its products properly.
Justify the role of differentiation in establishing a competitive
advantage and in a positioning strategy.
Explain the classification of industry types based on competitive
advantages.
Discuss the bases for differentiating firms, products and brands.
Discuss the bases that can be used to position products.
Describe the process of positioning a new product or brand.
Justify or provide reasons why a brand may need to be
repositioned.
Describe the process of repositioning a product or brand.
Describe the need for repositioning in the maturity phase of the
product life cycle.
Describe the development of a positioning strategy.
Discuss the typical positioning errors that firms make.
Critically evaluate the different tools used in positioning or
repositioning.
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14 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
15 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice
Kulula humour earns its place
‘In case you have two children, choose the one you love
the most to help him or her first.’ ‘Ladies and
gentlemen, welcome to Cape Town. You can disembark
in a moment. Except for the hunk in 13A, who is
welcome to stay,’ one flight attendant said upon
landing, leaving everyone scouting the plane only to
realise there’s no row 13. These are the type of funky,
humorous air steward announcements that budget
airline Kulula has used to position itself away from its
boring, conservative competitors. ‘Humour has been
part of Kulula from day one,’ said Heidi Braurer, the
airline’s marketing chief. ‘With a tiny budget, we
needed to be seen,’ she said. Since launching in 2001 as
Africa’s first low-cost carrier, Kulula has become South
Africa’s number two carrier, powered by ad campaigns
that have costumed ordinary flyers as cape-wearing
superheroes, under its slogan ‘Now anyone can fly’.
Their planes could be painted with cows, or arrows
marking the nose and tail. And they never hesitate to
turn to news headlines for inspiration. The airline’s
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name means ‘it’s easy’ in Zulu, she said, and the
original idea was to make flying simple, at a time when
the non-budget SAA dominated routes. Over the last
decade, Kulula has claimed 20 percent of the domestic
market and transports 2,4 million passengers a year,
with several no-frills challengers following it into the
skies. The flight crew’s outlandish announcements
have become Kulula’s brand, helping passengers forget
that they have to pay for their snacks. Last year it
offered to pay ‘lobola’, a groom’s traditional wedding
gift for his bride’s family, for Prince William to marry
Kate Middleton. The question posed to passengers:
‘How many cows do you think Kate is worth?’
SOURCE: Business Report, 26 February 2012
QUESTIONS
1
2
How is Kulula perceived by consumers?
How does Kulula differ from other airlines?
1. Introduction
The term positioning refers to developing a specific
marketing mix to influence potential customers’ overall
perception of a firm, product or brand. In marketing terms,
positioning refers to the place that a firm, product, or brand
occupies in consumers’ minds in relation to competing
offerings. Positioning is a particularly valuable strategy for
the marketers of consumer products.
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The concept of positioning dates back to the late 1960s
and early 1970s, referred to as the ‘positioning era’, when it
was popularised by a series of articles published by Al Ries
and Jack Trout. Positioning was approached from a
psychological perspective, with the emphasis that ‘…
positioning is not what you do to the product, but what you
do to the mind of the prospect’.1 Accordingly, the ultimate
marketing battleground was believed to be the mind of the
consumer, and the better the understanding of how the
mind works, the better the understanding of how
positioning works.2
Today, at the start of the 21st century, the consumer’s
mind is still the primary battleground, bombarded with
information about firms, products, services and brands. In
trying to simplify their buying decisions, consumers
mentally organise these firms, products, services and brands
into categories – in other words, position them in their
minds. It is also important to recognise that marketers deal
with mainly rational consumers who will try to maximise
their satisfaction for any given level of input (expenditure).
In other words, consumers will purchase those products and
brands that offer them the most satisfaction – that is, the
best-positioned products and brands.
2. Planning a positioning strategy
Marketers should not leave to chance the positioning of
their firms, products or brands. Instead, marketers need to
plan unique positions that will afford their products and
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brands the maximum advantage in selected target markets.
They also have to design marketing mixes to establish and
support these planned positions. Thus, marketers plan
positions that distinguish their products from competing
brands and give them the greatest advantage in that market.
In the motor-vehicle market, the Toyota Yaris and Honda
Civic are positioned on economy, Mercedes and Audi on
luxury, Porsche and BMW on performance. Volvo positions
powerfully on safety and Toyota positions its fuel-efficient
hybrid Prius as a high-tech solution to the energy shortage.
‘How far will you go to save the planet?’, the Prius
promotional material asks. Goodyear tyres are positioned as
being prestige tyres with the slogan ‘because not all tyres are
the same’. Engen says, ‘with us you are number one’.
OUTsurance promises that ‘you will always get something
out’ and Tracker Alert says they are ‘taking back tomorrow’.
Standard Bank promises to move forward, FNB asks how the
bank can help clients, and by contrast, Absa’s ‘Today,
Tomorrow, Together’ emphasises nurturing lasting
relationships.
Unilever markets three brands of margarine: Stork, Flora
and Rama. Unilever has to plan a unique position in the
minds of consumers for each of them. Stork, for instance, is
positioned as a ‘preparation brand’. Unilever wants to
inspire people to prepare food from scratch more often (as
opposed to buying pre-prepared food), and reminds them
that the best ingredient for the job is, of course, Stork.
Unilever uses the tagline: ‘Cook from scratch. Create more
than food’ to support this positioning.3
South African Breweries (SAB) also carefully plans the
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positioning of each of its brands and utilises the marketing
mix to support and sustain that positioning. For instance, in
2001, Castle Lager was positioned as ‘the friendship brew’.
Every Castle Lager advertisement, be it a television,
magazine or newspaper advertisement or a billboard,
supported and strengthened its positioning as ‘the
friendship brew’. However, in 2004 SAB realised that the
slogan had not had as much impact on the market as it had
hoped, and starting downplaying the emphasis on ‘the
friendship brew’ in its advertisements about Castle Lager in
favour of an emotional appeal about what is great about
South Africa. Now the slogan is: ‘It all comes together with a
Castle.’
3. The nature of positioning
LO1
Positioning assumes that consumers compare products on
the basis of important features. Marketing efforts that
emphasise irrelevant features are, therefore, likely to fail. For
example, Crystal Pepsi and a ‘clear’ version of Coca-Cola’s
Tab failed in the United States because consumers
perceived the ‘clear’ positioning as more of a marketing
gimmick than a genuine consumer benefit.4
Effective positioning necessitates assessing the positions
occupied by competing products, identifying the important
dimensions underlying these positions and choosing a
position in the market where the firm’s marketing efforts will
have the greatest impact. If all competitors are marketing
large, five-seat passenger vehicles that appeal to luxury
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needs, why not build small, economy cars? If major
competitors are all stressing low prices, why not introduce a
prestige brand? If your major competitors are colas, perhaps
emphasise that your product is an ‘uncola’.
Hewlett Packard clearly believes that flexibility is a
dimension particularly important to consumers and a need
that other computer manufacturers fail to satisfy. Hewlett
Packard is positioned as the flexible computer because
consumers can decide on their own configuration of
computer that will best satisfy their needs. Similarly, CocaCola realised that Diet Coke, although not deliberately
positioned as a women’s drink, was consumed mostly by
females. Although men were equally health-conscious, and
interested in a low-calorie drink, their reluctance to
consume Diet Coke left a gap in the market. Consequently,
Coca-Cola Zero, using essentially the same ingredients as
Diet Coca-Cola, was launched and positioned as a ‘Men’s
Diet Cola’, in so doing preventing competitors from
occupying this position in the market.5
Regardless of how positioning is defined, there is little
doubt about its importance. It has been argued that the
position of a product is its real source of competitive power
and the key to product success, and that an effective
positioning strategy is critical in accomplishing the firm’s
marketing and business objectives.
3.1 The consequences of failing to select a
position
LO2
Failure to select a desired position in the market and to
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develop a marketing action plan designed to realise and
hold this position may result in one of several undesirable
outcomes.
•
•
•
•
In other words, the firm or its products or brands:6
Are pushed into an undesirable position where they face
head-on competition from stronger competitors. Lion
Lager, before it was taken off the market, was pushed
into an undesirable position by the strong Castle Lager
brand
Are pushed into an undesirable position which nobody
else wants, because there is little customer demand
there. The retailer Diskom was pushed to a position
‘somewhere between the urban and the rural market’
where nobody wants to be7
Are positioned in a way that is so fuzzy that nobody
knows what their distinctive features really are. Fair Lady
magazine faced this situation in the late 1990s, before it
was repositioned
Have no position at all in the market because nobody
has heard of them. Namibian Breweries’ Tafel Lager may
be facing this situation.
An example of the first problem (facing head-on
competition from a stronger competitor) is the situation that
South African wines face in the United States. There, South
African wines compare well with other wines in terms of
taste and price, but images of crime, violence, famine and
jungles still loom in the minds of American consumers. As
Americans associate wine with romance, they find it hard to
believe that South Africa can produce good-quality wine.
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Also, South African wine marketers’ failure to position their
wines appropriately has led to direct competition with
American, French and Chilean wines.8
>>Strategy
Another example of poor positioning that led to
undesirable direct competition is Woolworths’
experience in the 1990s, when it followed an
international upmarket trend by introducing higherpriced, designer-type fashions in its clothing
departments. This move, however, was met with
unprecedented resistance, particularly from female
customers. Many women reasoned that at such high
prices, they may as well buy their clothing at more
exclusive fashion boutiques. Woolworths experienced a
consequent drop in earnings of 38 per cent, losing its
competitive positioning as a result of having to
compete with fashion boutiques. It could not, however,
match the exclusiveness of fashion boutiques. Where
the firm in the past took advantage of buying clothing
in large quantities, enabling long manufacturing runs,
which kept prices affordable but quality high, it now
had to contend with high-fashion goods made in short
runs with imported materials, which were subject to
currency fluctuations. After returning to its previous
position of a narrow range of high-quality fashionable
clothing at consistently good prices, sales at
Woolworths recovered. This experience clearly
illustrates that Woolworths needed to find the right
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positioning in the mind of the consumer by balancing
perceptions of quality, price and fashion to maintain an
effective position in the market.9
4. Differentiation – the cornerstone of
positioning
LO3
It is true that most profitable strategies are based on
differentiation – offering consumers something they value
that competitors do not have. This differentiation is
normally (but not always) what we have earlier described as
a competitive advantage. It is indeed the cornerstone of the
positioning strategy.
Differentiation is the process of identifying something
that is different about a firm or its products. The
differentiating variable (price, quality, product attribute or
image, to mention but a few) is not necessarily a competitive
advantage, however. The differentiating variable has to be
evaluated against at least four criteria:
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•
Is the differentiating variable or characteristic desired
by consumers? If not, it is not a competitive advantage.
Unleaded fuel, for example, is certainly a characteristic
many consumers desire. Similarly the success of the iPod
was based on the desirable differential advantage of
seamless downloading of music from a dedicated store,
iTunes, to a mobile player that produced better sound
quality than its rivals.
• Can we sustain the advantage over an extended period
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•
•
of time? If not, it is not a competitive advantage. For
instance, in the fuel industry having the only unleaded
brand proved to be a competitive advantage that was not
sustainable and was soon copied. LG advertises ‘the
world’s first curved OLED television’ – but for how long
will it be a unique product feature?
Can we manufacture and market the product at a
price consumers will be prepared to pay? If not, it is
not a competitive advantage. Fuel firms have succeeded
in marketing unleaded fuel at prices that can be
described as affordable.
Is it profitable? If not, it is not a competitive advantage.
If the answer to all these questions is yes, then the
differentiating variable can be described as a competitive
advantage and it can (and should) form the basis of the
subsequent positioning strategy.
As pointed out earlier, consumers, in their selection of
products and services, opt for those that provide them with
the most value to maximise their need satisfaction (see the
Reader 35 ‘Consuming interest – bottled water’). Therefore,
it is particularly important that marketers understand the
needs and shopping processes of potential buyers.
Marketing research information (see Chapter 5) and a sound
grasp of consumer behaviour (see Chapter 3) are, therefore,
critical inputs into planning differentiation and
consequently the positioning strategy. This information will
enable a firm to deliver better value than competitors offer
and as a consequence, win over and retain customers. A
firm gains a competitive advantage if it succeeds in
positioning itself as providing superior value to selected
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target markets. The competitive advantage may come about
from various sources, such as lower prices than competitors,
or superior benefits that justify higher prices. However, it is a
prerequisite that if a firm positions its products or services as
offering the best quality and service, it must at all times
deliver the promised quality and service. Differentiating the
firm’s product to such an extent that it will give consumers
more value than the competitors’ products is the foundation
on which a firm can build its positioning. It is important to
realise, however, that a product should not only be different
– it should be different in a way that is important to
consumers. Competing in a very competitive environment
Nedbank has chosen to position themselves as ‘green bank’.
Only time will tell whether this positioning is sufficiently
important to South African consumers.
READER 35 >> Consuming interest – bottled water
How do you even begin to choose when confronted with the selection of
bottled water available in South Africa? Your best guarantee of consistent
quality is the stamp of the South African National Bottled Water Association
(SANBWA). Membership of SANBWA requires that the water meet international
hygiene standards: it will have been bottled in hospital-theatre-like conditions
and tested regularly to ensure that pH levels and mineral composition are in
order.
Christine Le Mesurier of the H2O Waterbar in the V&A Waterfront bases her
choices on quality, taste and beneficial properties. Water should have a pH of
seven or higher (anything much lower will be too acidic). Then there’s the
mineral content. Mineral waters are drawn from deep within the ground and
contain the minerals of the rock strata through which they filter; spring waters,
like Valpré, Caledon and Chamonix, come from near the surface and have a
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lower mineral content. ‘Spring waters are good for detoxing as the body
doesn’t have to contend with a great deal of mineral absorption’, says
Christine. ‘Some people want the energy lift that a high magnesium count
gives; others are after the benefits of calcium.’ Waters like Mountain Falls
from Hermanus and Paarl’s Aqua d’Or have a balanced mineral content,
whereas those like Valvita or Karoo are high in minerals. Heart Foundationendorsed Blue is low in sodium, as is Drakenstein from Paarl. And
Franschhoek’s La Vie won the South African Airways’ tender on taste. If this
weren’t enough to absorb, oxygenated waters, like Super Aqua, are said to
have energy-increasing capabilities.
SOURCE: Warrington, J. 2000. Consuming interest: Bottled water. House and Garden, 2000, p. 27
EXAMPLE >> What is important to consumers when they buy a fridge? An
advertisement for Whirpool’s fridge/freezer combination says: ‘Listen to forty
thousand women telling you what matters most, and you’re bound to come up
with the perfect fridge. With rounded lines, smooth contours for easy cleaning,
extreme flexibility allowing you to adjust the inside, and a no-frost feature so the
freezer never needs defrosting.’ Caltex tries to differentiate itself in the
competitive fuel market by positioning its unleaded Vortex brand as a
‘performance-enhancing fuel’. According to Caltex, the differentiation is that
Vortex provides maximum power, enhanced acceleration, and better drivability
because it prevents foreign deposits going into the car’s fuel intake system. Shell
V-Power, on the other hand, differentiates its fuel with Vaporon Combustion
Boosters which give enhanced vapour action. This leads to fuel being burned
more efficiently, which leads to enhanced performance. Shell V-Power is
consequently differentiated by ‘power when you need it’. The question is: are
these two brands (Caltex Vortex and Shell V-Power) sufficiently differentiated from
each other?
A drink such as Energade, for instance, is positioned in such a way that
consumers view it very differently from other competitive energy drinks. The
product clearly projects an image of not only being a thirst quencher, but also
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that it replenishes important minerals and vitamins that the athlete’s body needs
for proper functioning and rapid recovery after strenuous exercise.
5. Classifying industries according to their
LO4
potential for differentiation and a
competitive advantage
The opportunities for a firm to differentiate its product(s) or
brands and gain a competitive advantage are not always
abundant. In some industries it can be very difficult to
differentiate a firm’s marketing offer. The Boston Consulting
Group identifies four types of industries (Table 7.1 illustrates
the four types), which are classified according to the number
of competitive advantages and the size of those advantages
that are possible in each category, as follows:10
•
Firms in volume industries typically have considerable
scope to establish significant competitive advantages.
The airline industry is an example of a volume industry.
In this industry a firm can strive for low costs (as do
Virgin Atlantic and Kulula) or differentiate by means of
the quality of the service it offers (as British AirwaysComair does). It is also possible to be a winner on both
price and quality. In industries of this nature,
profitability is closely related to the firm’s size and
market share. It is for this reason that so many major
airlines form global alliances to build market share.
South African Airways, for instance, is a partner in the
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Star Alliance, which contains 27 full members, including
United Airlines and Swissair. Star Alliance competes with
two other alliances, namely Sky Team and One World.
Most of the industry leaders, such as British Airways and
Singapore Airlines, are able to offer both high-quality
services and low operating costs.
• Products that offer few potential competitive advantages
– each of which (if they exist at all) is too small to be of
significance – are characteristic of stalemate industries.
The established steel and bulk-chemicals industries are
examples of stalemate industries. In these industries, it is
difficult or even impossible for firms to differentiate their
products or have meaningfully lower costs. Firms that
compete in low-cost labour markets, such as Asian
countries, sometimes succeed in these industries despite
the challenges because they are able to lower labour
input costs to some extent. The size (and, therefore,
volume output and economies of scale) of modern
plants in Europe and America is not sufficient to counter
their high labour costs, leading to poor differentiation.
• Fragmented industries offer many opportunities for
differentiation, but each opportunity is small. Service
industries are good examples of fragmented industries.
Fast-food firms and restaurants are good examples of
fragmented industries. International franchised outlets,
such as Hard Rock Café, Planet Hollywood, McDonald’s,
and KFC, are popular and successful all over the world,
but they have a small share of the market relative to
market leaders in other industries. And in fragmented
industries profitability is not closely related to size or
market share.
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•
Specialised industries are characterised by many
opportunities to differentiate in a way that produces a
high return. The pharmaceutical industry is a specialised
industry with firms that are highly successful. A large
portion of the world’s more successful firms – such as
Merck, Pfizer and Norvartis - are market leaders for
particular medical treatments. Examples of other
specialised industries are publishing and scientific
instruments.
A study of successful US firms, called the Profit Impact of
Marking Strategy (PIMS) study, found that firms with the
lowest return on investment compete in commodity markets
where there is no differentiation.11 The coal industry market
is an example of such a market. The successful firms are
those that offer superior quality in differentiable markets.
Car manufacturers such as BMW, Mercedes and Toyota, for
instance, are examples of firms that succeed in
differentiating their products and brands. Therefore, there is
empirical evidence that successful differentiation is
profitable.
Table 7.1 A classification of industry types based on differentiation and
competitive advantage
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SOURCE: Adapted from Kotler, P., Armstrong, G., Saunders,
J. & Wong, V. 1996. Principles of marketing (European
edition). London: Prentice Hall Europe, p. 40
The opportunities for differentiation are limited in some
industries. Creative firms, however, always seem to discover
some means of differentiating themselves from the rest.
Petrol is a product in a stalemate industry, namely the oil
industry. Filling up the car with fuel and attending to tyre
pressure and radiator water levels have always been a chore
to most people. Recently, however, we have witnessed the
transformation of service stations into retail outlets that are
not only easy to use, but also pleasant to visit. Service
stations have now gone beyond providing ordinary
functions and levels of service. The addition of an ATM, a
24-hour convenience shop and, in some cases, a fast-food
restaurant, now makes a visit to a service station more
pleasant.
Competitive advantages (and the positioning on which
they are based) may unfortunately have a limited lifespan
for any firm. Some differential or competitive advantages are
quickly copied or imitated by competing firms. In the
financial services industry in particular, successful ideas are
quickly replicated by competitors. Examples are the use of
computer-aided quotations in the life-insurance industry
and telephone selling of short-term insurance.
For a firm to retain the initiative that flows from its
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competitive advantage, it is necessary to continue
identifying new potential advantages for consumers and
then introduce them one by one to keep competitors off
balance. The idea is thus to introduce a series of advantages
that will enhance a firm’s positioning – and, hopefully,
market share – over time. Part of the success of market
leaders such as Canon, Hewlett Packard, Sony and Gillette
can be ascribed to the continuous introduction of new
improvements to existing products. Cellphone marketers do
the same, continually adding new features, such as video
players, voice commands, multi-media messaging services
and new ‘apps’. Many of these firms suggest that their true
competitive advantage is the market knowledge,
technological expertise, creativity and entrepreneurship that
allow them to continually and quickly develop new,
innovative products, and thus retain their differentiation –
their competitive advantage.
6. Bases for differentiation
LO5
As shown earlier, firms need first to find a means of
differentiating their product or brand on a sustainable basis
and then to base their positioning strategy on that
differential, or competitive advantage. A firm can
differentiate its product from that of its competitors in a
number of ways. The typical bases available to a firm for
differentiation are related to the product’s features or
attributes, accompanying service(s), personnel and image.
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6.1 Product differentiation
Product differentiation is a positioning strategy that some
firms use to distinguish their products from those of their
competitors. Some gymnasiums now target young,
professional females by providing them with a social
environment where they can both exercise and do business
at the same time – similar to what a round of golf is to their
male counterparts. These gymnasiums want to move away
from the perception that gymnasiums are only for out-ofshape woman of a certain age and negate the negative
perception of a gym with heavy, bulky, off-putting
equipment ill-suited to their needs. For this reason they
have installed elliptical equipment with woman with a
smaller stride instead of huge plates and bars and lots of
dumbbells, balls, balancing equipment and body-weight
exercises. Women are also more likely to prefer group
exercise classes, stretching, yoga, boot camps and cardiovascular exercises.
Bleaches, aspirin, unleaded petrol and some soaps,
however, are differentiated by such relatively trivial means
as packaging, colour, smell or ‘secret’ additives. In these
cases, the marketer attempts to convince consumers that a
particular brand is distinctive and that they should choose it
instead of a competing brand. Product differentiation can be
difficult for some products. For instance, many consumers
do not see much difference in various brands of salt, milk or
building sand, for example.
A firm has the choice of offering either a standardised
product or one that is highly differentiated. Although
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standardised products – such as steel and aspirin – are
difficult to differentiate, some firms manage to differentiate
successfully. The Disprin CV 300 aspirin with platelet
aggregation-inhibiting properties is an example of a welldifferentiated aspirin. On the other hand, cars, cellphones,
CD players and clothing are products that can be
differentiated along a range of characteristics. The major
characteristics that are used for product differentiation
include features, product performance, durability and
reliability.12
6.1.1 Features
Features or attributes are product characteristics that
enhance the product’s basic function. Most products lend
themselves to being offered with various features. A motorvehicle manufacturer, for instance, can offer optional
features, such as automatic transmission, air conditioning
and leather seats. The key issue here is to decide which
features are to be standard and which to make optional. It is
possible that a specific feature will appeal to a group of
additional buyers who may be persuaded to buy the product
provided more than just the standard features are offered.
Features are competitive tools that can be used to
differentiate a firm’s product. The Japanese have become
known for the continuous improvement and addition of
new, innovative features to products such as cameras,
calculators, video recorders and watches. Cellphone
manufacturers have added features such as SMS technology,
Internet access and games to their products in recent years.
A firm that succeeds in introducing a new feature that
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consumers appreciate will gain a competitive advantage – at
least in the short term. An example is the sports goods
manufacturer Adidas, which claims that its ‘ForMotionTM
technology (used in its running shoes) in the Supernova
Control (shoe) channels the energy of your heelstrike. It
adapts to your individual running style for a smooth
transition, keeping the momentum of your running going.’
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Marketing research can play an important role in
identifying new features that can be added to a product.
Current users of a product, especially recent buyers, can be
approached and asked questions such as the following:
•
•
What has been your experience or use of the product?
Are there any shortcomings?
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•
•
•
•
What do you regard as the best features?
What features could be added that would enhance the
usefulness of the product and increase the satisfaction
you get from the product?
How much would you be prepared to pay extra for each
feature?
How do you feel about the following features that were
mentioned by other customers?
The answers to these questions can serve as input into the
development of new features that a firm may add to its
products. The firm can decide which of the features should
receive more attention by calculating the customer value
and the cost to the firm of each potential feature. If the
customer value exceeds the cost to the firm by a
predetermined margin, the feature can be further analysed
and researched in respect of market size and related issues
(a process similar to new product development – see
Chapter 9).
6.1.2 Performance
Performance refers to the levels at which a product’s primary
characteristics function. A good example is personal
computers. If a Mecer has faster processing capabilities and
a larger memory than a Hewlett Packard in a specific price
class, it could be argued that the Mecer performs better.
Buyers of personal computers would normally compare the
performance features of different brands and be prepared to
pay more for better performance as long as the higher price
does not exceed the higher perceived value.
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EXAMPLE >> The advertisement for the Peugeot 206 HDi 2l diesel model
says: ‘Over 700 km on a single tank. Winner of the Total Economy Run.’
GlaxoSmithKline has used a performance-based differentiation for its new
Aquafresh Flex tooth-and-tongue brush. The firm claims the brush removes five
times more bacteria than normal brushing. For its new toothpaste (Aquafresh
Extreme Clean) it uses a feature-based differentiation approach by pointing out
that the toothpaste has a ‘micro-active foaming action’.
When products are introduced to the market for the first
time, a firm can decide on a specific performance level, or
one of four levels of performance – namely low, average,
high and superior. Not all products lend themselves to being
marketed at different performance levels, but where it is
possible this can serve as a good basis for differentiation.
Managing a product’s quality level over time is also closely
linked to performance. There are three performancemoderating approaches that can be adopted by a firm:
quality improvement, quality maintenance and quality
adulteration. Quality improvement is the typical strategy of
market leaders, such as BMW and Seiko, which continually
improve their products. The second approach is to keep the
product at the initial quality level unless obvious
opportunities or mistakes occur. The third approach is to
reduce product quality over time. With this approach a firm
will reduce quality in order to offset rising costs and hope
that consumers will not notice the deterioration.
A manufacturer of refuse bags that reduces the thickness
of the bags by 25 per cent is an example of the latter
approach. Another example is bakeries that reduced the
weight of their loaves of bread from 800 g to 700 g but kept
them the same size by adding more air and yeast to the
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bread mix. The loaf size was unchanged, but the quality was
reduced.13
6.1.3 Durability
Durability is the measure of a product’s expected operating
life. The motor vehicle manufacturer Volvo claims that its
vehicles have the highest average lifespan of any motor
vehicle and that this warrants a premium price. Many
consumers, subject to some qualifications, are prepared to
pay more for a durable product. The typical qualifications
are that the extra price charged must not be excessive and
that the product must not be subject to high fashion or
technological obsolescence. The Duracell battery is an
example of a product that sells at a premium price because it
is more durable than competing batteries.
6.1.4 Reliability
Reliability is a measure of the probability that a product will
not malfunction or fail within a specified time period. A
Mercedes-Benz will, therefore, be more reliabile than a
Daewoo if its chance of not malfunctioning in some
important way within a month is 90 per cent compared with
75 per cent. Many consumers are willing to pay more for a
product that has established a reputation of reliability.
German cars and Japanese cameras are examples of
products that have managed to establish a reputation for
reliability over many years. The ACDelco car battery is
advertised under the heading ‘absolute reliability’.
6.1.5 Reparability
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Reparability is a measure of the probability of being able to
fix a product that malfunctions or fails. Products such as
motor vehicles, motorbikes, televisions and video players
that are made of standard parts that are easily replaced and
have high reparability. Ideal reparability refers to a situation
where users can fix the product themselves with little or no
cost or time lost. In such a situation, a user would simply
remove the defective part and replace it with a new part.
With certain items of office equipment – such as a
photocopier, for instance – it is possible to include a
diagnostic feature that allows the service staff of the
manufacturer/supplier to fix a breakdown over the phone by
advising the user how to fix it.
6.1.6 Style
Style is a subjective measure that describes how the product
looks and feels to the buyer. Many car buyers are prepared
to pay a premium price for a car with an extraordinary
appearance. The sports models of BMW and Audi are typical
examples. Some firms have outstanding styling reputations –
such as Alfa Romeo cars; Bang & Olufsen stereo equipment;
Swatch watches; and Gillette shaving equipment.
Exceptional styling has the advantage of creating product
distinctiveness that makes it hard for competitors to copy.
Style is not limited to highly visible products, however. In
the market for small kitchen appliances, German and Italian
manufacturers have succeeded in creating very appealing
products.
Packaging is a component of the style of consumer
products. Attractive, stylish packaging enhances the
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appearance of many food products, cosmetics, toiletries and
small consumer appliances. Packaging is a powerful
communication tool. It is capable of ‘turning the buyer on or
off’ and can have a profound impact on market share and
sales. For example, when Appletiser introduced a longer,
sleeker, 275 ml bottle with a set of sophisticated pressuresensitive labels, it resulted in a 14 per cent increase in sales
volume.14
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6.1.7 Reseller brands
Marketing an ‘own brand’ has the advantage of being able to
establish a label that ensures continuity at a specific quality
level. Woolworths ensures that its clothing fashion brands
offer the consumer a fashionable assortment of
merchandise at a consistent value-for-money price. An
interesting contrast with the advantage of an own brand of
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high quality, however, is provided by PEP Stores. This
retailer, which supplies the lower end of the market, takes a
low-key approach to branding. An exception is PEP Stores’
Student Prince schoolwear brand name, which has been
successfully branded as schoolwear of high quality.
6.1.8 Product range
The product range offered by a marketer is an important
source of differentiation. In the retailing arena, PEP Stores
has proved itself virtually recession-proof, thanks to a
product range that is basic and low in fashion content. In
times of recession, the higher-income segment tends to
trade down, increasing the sales of PEP Stores, and in times
of economic upswing the lower-income group can afford to
buy more at lower prices.15
To summarise: when a product perspective on
positioning is taken, it ought to be based on a clear
understanding of consumers’ wants and needs. Product
positioning encompasses the following meanings of the
word ‘position’:16
•
•
•
Position as place (what place does the product occupy in
the market?)
Rank (how does the product fare against competitors in
various evaluative dimensions?)
Mental attitude (what are the consumers’ attitudes
towards the given product?)
6.2 Differentiation based on services
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accompanying the product
The services that accompany a product can also be used to
differentiate the product offering. Consider the example of
car-rental firms: how can Avis, Hertz, Budget and Imperial
differentiate themselves and compete with each other if they
use exactly the same vehicles to rent to their customers at
more or less the same rates? The answer is by means of
superior service delivery. Products that cannot be
differentiated by physical means or that have to compete in
a fiercely competitive market are especially likely to benefit
from differentiation by means of accompanying services,
such as delivery and installation.
6.2.1 Delivery
Delivery refers to how well a product or service is delivered
to a customer. Speed, accuracy and reliability are all part of
the delivery process. Some products, such as bigger
household appliances (a fridge, for instance), are mostly
delivered to the home of the buyer. In such cases, a
guaranteed fast delivery service would be a basis for
differentiation. Scooters’ promise to deliver pizzas within
39 minutes is an example.
Direct retailing firms also offer overnight delivery at a
price below the overnight tariffs of couriers in an attempt to
differentiate themselves from their competitors. Online
customer service is enhanced by facilitating customer
feedback by e-mail 24 hours a day – even if telephone
operators and customer-service personnel are not available
– and the ability to respond more rapidly (in real time) to
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customer concerns.
Other examples are Pick n Pay and Woolworths who
differentiate their services from other traditional food
retailers by their online grocery shopping facility. These
retailers capitalise on their offline strengths by having added
very easy customer online ordering and delivery options.
Other online services, such as online banking and stock
trading, are differentiated both by the features they offer and
the service-consumption experiences.
6.2.2 Installation
Installation includes all the activities that have to be
undertaken to make a product operational at its place of
intended use. Large and heavy equipment, such as lifts,
mainframe computers and commercial ovens, are usually
marketed with installation costs included in the price.
Various consumer products, such as washing machines,
dishwashers and audiovisual equipment, as well as products
consisting of a number of components that need to be
assembled before they can function (such as automatic
garage doors), also present the opportunity to offer
installation as a basis for differentiation.
6.2.3 Customer training
Customer training refers to training the customer or the
customer’s employees to use the firm’s equipment properly
and efficiently. A firm such as General Electric, for example,
not only sells and installs expensive X-ray equipment in
hospitals, but also takes responsibility for training the staff
who will operate it. Buyers of Elna sewing machines are
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offered free training sessions to learn how to use the
machines. The marketers of the software program Oracle
train new users to help them learn how to use the system,
and various microwave manufacturers offer microwave
cooking classes to buyers.
6.2.4 Consulting service
A consulting service is advice offered to buyers of a product
for free or at a low price. Cellphone firms, Internet service
providers and firms that sell computer software use this
strategy. Most Internet service providers have toll-free
telephone numbers that can be used to solicit the advice of
their in-house experts. The service is usually available by
telephone, e-mail or fax.
6.2.5 Repairs
Repairs refer to the quality and variety of repair services
available to buyers of the firm’s product. Caterpillar, the
manufacturer of heavy construction equipment, such as
front-end loaders, claims to provide better and faster repair
services anywhere in the world than its competitors. The
manufacturers of motor vehicles, domestic appliances,
woodwork tools and various other products offer repairs as
part of the product guarantee. The backward route that the
product follows from the buyer to the manufacturer for
repairs is known as the reverse marketing channel.
6.2.6 Miscellaneous services
In addition to the services mentioned above, a firm may
offer a variety of other services that add value to its products.
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Better guarantees or maintenance contracts and patronage
awards, such as frequent-flyer programmes or the
accumulation of points – such as First National Bank’s eBucks scheme, are examples of differentiation using
miscellaneous services. Highly specialised personal services,
like ‘do-it-yourself’ websites, allow users to conduct
activities such as transferring phone services and making
international phone calls online (e.g. Skype). Websites such
as iTunes and Microsoft, which offer digital downloads of
music and software, build on the desire of users to help
themselves.
6.3 Personnel differentiation
By carefully selecting and training staff to be more
competent than competitors’ staff, firms can gain a
competitive advantage. Well-known firms such as
McDonald’s and Disney invest a lot in their staff to ensure
that they are customer-orientated at all times. Staff working
at UShaka entertainment park in Durban are known to be
friendly and upbeat. Rovos Rail enjoys an excellent
reputation largely because of the grace of its employees.
GoldReef City in Johannesburg, Ratanga Junction in Cape
Town and UShaka in Durban theme parks all train their staff
to ensure that they are competent, courteous and friendly –
from the hotel check-in agents to the monorail drivers, to
the ride attendants, to the people who sweep the streets.
Each employee understands the importance of
understanding customers, communicating with them
cheerfully and responding quickly to their requests and
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problems. Each employee is carefully trained to ‘make
people happy’. Research indicates that better-trained
personnel exhibit the following six characteristics:17
•
•
•
•
•
•
Competence: the possession of the required skill and
knowledge
Courtesy: showing friendliness, respect and
consideration
Credibility: trustworthiness
Reliability: consistency and accuracy in the performance
of the service
Responsiveness: a quick response to customers’ requests
and problems
Communication: the ability to understand and
communicate clearly with the customer.
Indeed, the importance of people as a source of
differentiation to gain competitive advantage is reflected in
the business philosophies and annual reports of selected
groups of South African retailers:18
•
•
•
•
Edgars – ‘People … are the ones who make the difference
in our performance.’
Foschini – ‘Crucial to our continued success is the
calibre of our people.’
PEP Stores – ‘We have always recognised that our people
are the key to our success.’
Woolworths – ‘We believe in the people that work in
Woolworths … employee empowerment … might prove
to be our most valuable strategic advantage into the
future.’
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•
Specialty Stores – ‘Our real assets are not reflected on our
balance sheets. For our real assets are the wonderful
people in this group …’
These firms all regard their employees as their key success
factor and most valued asset. This acknowledgement also
explains the emphasis placed on training, developing the
potential of all employees and opportunities for them to
share in the firm’s success.
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6.4 Image differentiation
Although buyers may regard competing products and their
accompanying services as similar, the images they portray
may differ. The cigarette market offers a number of
examples of image differentiation. Many cigarettes taste the
same, and are also sold in the same way. Despite this, Peter
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Stuyvesant has created for itself a ‘jet set’ image with the
cigarette-smoking public, and is perceived as such all over
the world. Tempest Car Hire has carefully cultivated an
image as an affordable car-rental firm with its consistent
message of ‘ridiculously low rates’ in its advertising
campaigns.
Ideally, an image should fulfil various roles. In the first
instance, it must convey a single message in a distinctive
way that establishes a brand’s major characteristic and
positioning. A good image sets a brand or a firm apart from
competitors’ images. Furthermore, an image must deliver
emotional power that appeals to both the hearts and minds
of buyers. Castle Lite, for instance, is positioned as a
premium beer that appeals to the individualism of a young
up-and-coming market.
Dedicated creative work over long periods of time is a
prerequisite for developing a strong image for a brand or a
firm. Most well-known brands have continually established
their images over time through the use of all the available
marketing communication media and tools. To establish its
‘Just do it’ slogan, Nike used symbols, written and audiovisual media, events sponsorships and sports stars to convey
the message to its market.
Image is a complex factor and it is defined in a variety of
ways. As far back as the 1950s, a shop’s image was described
as a force which is ‘… the store personality … the way in
which the store is defined in the shopper’s mind, partly by
its functional qualities and partly by an aura of psychological
attributes’.19 Image can also be described as a set of
expectations. A firm may, for example, be seen as innovative
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or conservative, specialised or broad-based, discountoriented or upmarket. In the online world, the marketing
strategy often revolves around the firm’s image and product
information available on the web. As the first Internet book
retailer – and one of the pioneer online retailers in any
category – Amazon.com captured an early lead in online
book sales. The firm has grown substantially since its
inception in 1995; today Amazon is recognised as a leader
on the web. If a firm is first to provide the product or service,
the ‘brand’ can potentially become synonymous with the
product as the best online provider. South African online
competitors,
such
as
Exclusive
Books
(http://www.exclus1ves.co.za) find it difficult to a degree to
compete with Amazon, since Amazon.com’s brand is known
around the world and has become associated with a variety
of other products in addition to books. Amazon’s strong
image definitely helped the firm attain ‘ownership’ of a
product – in this case, online buying.
The impressions and images that consumers have about
the firm, whether true or false, real or imagined, guide and
shape consumer behaviour. Therefore, all firms need to
identify the strengths and weaknesses of their image and
take action if necessary to improve it, because image
represents to the consumer a composite picture of the firm –
it is one of the most powerful tools in attracting and
satisfying consumers. An image, however, has to be actively
managed and continually adapted because markets and
consumers’ perceptions are not static, but change over time.
The typical elements, media and occasions that a firm has
at its disposal in order to develop and build an image are the
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following:
•
Symbols. When a firm or a brand has a strong and wellknown image, it is immediately recognised by the
audience or people exposed to it. Firms endeavour to
design their corporate and brand logos specifically for
instant recognition. The Dettol sword shown on the
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packaging and labels projects the protective nature of
the product. Sanlam uses a pair of hands and Old Mutual
uses anchors to portray the stability and protection
offered by their products. The dog on Husky pet food is
‘clever, healthy and active’ as a result of eating Husky
dog food. The Mercedes Benz trident and circle is one of
the most powerfully positioned symbols, designating
quality and safety.
• Written and audio or visual media. All advertisements,
promotions and publications, including the websites,
stationery and business cards of a firm must
communicate the personality of the firm or the brand.
For instance, the slogan ‘Let your fingers do the walking’
and the walking logo of Yellow Pages have been viewed
on television, heard over the radio and seen at sports
meetings sponsored by Yellow Pages.
• Events. Sponsoring events can result in a very positive
image for a firm. Castle Lager is well known for
sponsoring cricket and soccer in South Africa. Pick n Pay
has generated a great deal of goodwill and a positive
image by sponsoring road-safety programmes and the
Argus cycling race. Bakers’ mini-cricket development
programme helps create an image of community
involvement and responsibility for Bakers.
• Atmosphere. The physical facility in which the firm
manufactures or delivers its products or services can be a
very powerful tool for projecting an image. The physical
facility in which a service is produced and consumed is
known as the ‘servicescape’ and includes exterior
attributes, such as signage, parking and landscaping, as
well as interior attributes, such as layout, decor,
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equipment and lighting. Similarly, a website can be
differentiated by providing visitors with a positive
environment to visit, search, purchase, and so forth.
Visitors want a website that is easy to download, portrays
accurate information, clearly shows the products and
services offered and is easily navigated. If customers
view the home-page and like what they see, they are
more likely to view additional pages and ultimately
become paying customers. Cape Town’s Two Oceans
Aquarium at the Victoria and Alfred Waterfront has
created a wonderful atmosphere for its visitors, using
layout, decor, equipment and lighting. The atmosphere
makes it feel as if you are walking on the bottom of the
Atlantic Ocean when you enter the aquarium.
Retailers are known to make a big effort to project and create
a desired image among customers. A retailer’s image,
however, depends on several factors. The type of customer,
shop location, price levels, services offered, merchandise
mix, advertising and the characteristics of the physical
facilities are some of the factors responsible for creating
such an image. Generally, the components of retail image
ought to be considered on a broad basis. Convenience, for
example, means different things to different people. It may
relate to a convenient location in relation to one’s home,
work or other outlets. Or convenience may relate to parking,
accessibility, business hours, internal layout and vertical
transport – or even the means of payment.
An analysis of the images that various South African
clothing retailers wish to project shows that about half of the
retailers build their firm’s image on ‘high quality’ and ‘good
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value for money’. This is closely followed by the
‘fashionableness of the merchandise’. It is significant that
within each retail group different images are projected. For
example, in the case of Specialty Stores (consisting of
Milady’s, Mr Price and The Hub), an image of ‘fine classic
fashion’, ‘no-nonsense fashion’ and ‘good value’
respectively are emphasised by the three retailers.
Shop atmosphere has a very important influence on
image. Creating and maintaining an image depends heavily
on a firm’s atmosphere. For store-based retailers such as
clothing retailers, atmosphere is closely linked to the firm’s
physical characteristics used in developing its image and in
drawing customers to the store. In this sense, atmosphere is
also understood to be the psychological feeling the customer
experiences when visiting the shop, or even the ‘personality’
of the shop.20
The atmosphere of a building is reflected in its tone or
mood, and it can be controlled to create the desired image.
If a retailer, for instance, wants to differentiate itself as
‘contemporary and modern’, it is important to choose the
appropriate building and interior design, layout, colours,
materials and furnishings to reflect these qualities.21 A good
example of atmosphere contributing to a specific image is
that of Mr Price. The atmosphere at Mr Price outlets has
been described as ‘… electric. The decor is simple and
honest. Windows are spontaneous, sparking high-voltage
looks, attitudes and statements’. The staff are said to be
‘bouncy, creating a buzz, playing cool music, laughing and
just oozing atmosphere’.22 The retail atmosphere may
further influence consumers’ enjoyment of shopping in
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terms of the time spent browsing and examining the
retailer’s products, their willingness to converse with staff
and to use such facilities as dressing rooms. It can also
influence the likelihood of consumers spending more
money than originally planned (impulse buying).
Image, therefore, is a powerful tool available to a firm and
one must remember that when competing products look the
same, buyers may perceive a difference based on the image
of the firm and its brands.
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7. Bases for positioning products
LO6
In the preceding sections we have seen that firms have many
different bases on which to differentiate a marketing offer.
This differentiation is the basis on which a positioning
strategy is built – differentiation is not positioning in itself.
Often, however, firms are restricted in the number of
options available to them for positioning a product.
Over time, certain bases have been favoured for positioning
and may include:23
•
Attribute. A product is normally associated with an
attribute or product feature. For example, Windhoek
Lager is positioned as a ‘natural beer with no additives or
preservatives’ used in the brewing process. Its
advertisements refer to ‘made of the right stuff ’and
‘100% pure beer’ to support that positioning. The South
African firm Conlog hopes to market a television that is
‘theft-proof’. These are product attributes according to
which the product is positioned in a market in relation to
its competitors. Another good example is MercedesBenz, which uses product features to support its
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positioning of quality and safety. One of its
advertisements says: ‘Why have motoring journalists
called our Electronic Stability Programme the biggest
breakthrough yet in safety? Well, imagine you were
following a heavy-duty truck. Suddenly its tyre bursts.
You break and swerve violently to avoid it. Amazingly
there is no drama. No skidding. No loss of control. ESP
has responded to the emergency by automatically
regulating your breaking and engine output. Now,
imagine the scenario without this safety feature.
Mercedes-Benz drivers need not bother, since we’re the
only manufacturer to offer ESP as standard on our entire
range.’ Dunhill Light and Kent have chosen to position
its cigarettes in terms of their lightness and taste.
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•
Benefit. A consumer benefit is something a consumer
gains as a result of a product attribute or product feature.
Benefit positioning is generally a stronger basis for
positioning than attribute positioning because of its
customer orientation in answering the question, what
will the product/service do for me? Knorr markets its
Light and Tasty soup in the following terms: ‘It’ll fill you
up without the [fat] rolls’, and ‘staying in shape has never
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been this tasty’. Bostik emphasises ‘no nails, no screws’
when advertising its Montage brand of glue. Hush
Puppies shoes will keep your feet dry in ‘driving rain,
pounding hail and anything nature unleashes’. The Polo
website focuses on how its products shape an entire
lifestyle. Its products are much more than a tie or a jacket
– they are designed to help adventure, style and culture.
Another example is Annique beauty care products that
emphasise the benefits of health and a perfect body.
• Price and quality. This positioning base may focus on
high price as a signal of quality or emphasise low price as
an indication of value. Pierre Cardin clothing, Gino
Ginelli ice cream, Alpha Romeo cars and Michel
Herbelin watches are all positioned as expensive, but
high-quality, products. While Woolworths is known for
its high quality garments, Pep Stores and Mr Price are
known for unbeatable prices and might become fierce
competitors, similar to how Woolworths surpassed
Edgars.
• Use or application. Focusing on use or application can
be an effective means of positioning a product with
buyers. Orange juice is often positioned as a breakfast
drink, and sparkling wine as a drink for celebrations.
Similary, Graca wine is positioned as a wine to be
enjoyed at all kinds of fun occasions. Various
manufacturers of 4x4 vehicles emphasise the usefulness
of their vehicles for discovering otherwise inaccessible
outdoor terrains. Epson says its printers can be used for
network printing, for printing large volumes and for
colour printing. Also think of Campbell’s positioning of
soups for cooking purposes, via their Campbell’s
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Kitchen.
• Product user. This positioning base focuses on a
personality or type of user. The retailer Sport ’n Surf is
‘where the real surfers shop’, while Dooleys Lemon Ale is
‘for the elegant woman’.
• Product class. The objective here is to position the
product as being associated with a particular category of
products. An example is to position a margarine brand
relative to butter. Margarine is positioned as a lowercost, healthier alternative to butter, whereas butter
provides better taste and wholesome ingredients.
Canderel sweetener uses this approach to position itself
against sugar. Hansa aims to position itself as a pilsener.
The marketers of Red Bull say: ‘It’s not a soft drink’, and
Vivitar (marketers of cameras) says ‘we’re the point &
shoot people’. A museum or planetarium that is
traditionally regarded as an educational institution may
elect to position itself as a tourist attraction.
• Competitor. Positioning against competitors is part of
any positioning strategy. The Avis rental car positioning
as number two exemplifies positioning against specific
competitors. BMW would find it useful to position its
cars directly against those of Mercedes Benz, its closest
rival in South Africa. PSG Asset Management says: ‘In the
race to the top we’ve simply left the rest behind.’ Law
firm DLA Cliffe Dekker Hofmeyr positions themselves as
the No. 1 law firm for merger and acquisition (M&A)
deals (see advertisement on page 247).
• Origin. Some firms want to be associated with a certain
geographical region or origin. Examples are Scotch
whisky, Perrier water (French) and Audi’s Vorsprung
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•
durch Technik (German).
Technology. Positioning on the basis of technology
shows that a firm is on the cutting edge of contemporary
developments. First National Bank emphasis the use of
technology in their service delivery and has introduced
services such as PayPal, Instant Accounting and eWallet.
The website of South African Airways offers various tools
to allow customers to manage their flight arrangements,
access their frequent flier account (SAA Voyager), and do
personalised travel planning and their own seat selection
when booking overseas flights. In addition, SAA offers
flight status notifications via text message, e-mail or
voicemail to any receiving device. The manufacturer of
electronic products Bosch (see advertisement on page
247) positions their washing machine on technology
considerations when it says: ‘Water saving technology to
make a splash about. Our new 8 kg washing machine
uses exactly the right amount of water for every load.
And not a drop more’.
It is not unusual for a marketer to use more than one of
these positioning bases simultaneously. Ericsson, for
instance, bases the positioning of its cellphones on size
(attribute) and ease of use (use/application). The
Woolworths food section is based on both price/quality and
user (i.e. buyers who want nutritious, convenient, easy-toprepare meals).
In addition to the abovementioned bases for positioning,
the Internet has also given rise to new positioning choices
that are worth examining.24 Table 7.2 shows appropriate
online positioning strategies, using the dimensions of
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customer similarity and focus of effort.
Table 7.2 Positioning strategies for firms moving online
•
•
Blanket positioning. In the first scenario, the target
segment does not change and appropriate positioning is
fairly simple. A good strategy would probably borrow
entirely from existing offline positioning strategies
because the objective is to appeal to the same group of
customers. Additionally, the offering would be
positioned with the added advantage of the Internet,
such as convenience and access. Most South African
firms follow this approach, which is adopted
characteristically by first entrants to the online
environment. In this case, firms see a website as an
extension of their existing media strategies. The website
of retailer Game, for instance, offers nothing extra to the
online customer, except easy access to existing
promotional material and the contact details of the
various shops.
Beachhead positioning. In the second scenario, in
which the target segment is a subsection of the larger
offline segment, the positioning is similar – but may be
more focused towards the smaller group. A positioning
strategy here might emphasise more of the value-added
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advantages of the Internet. This positioning assumes that
the smaller segment puts more value on the Internet’s
extended capabilities for convenience and access. The
positioning of ExclusiveBooks.com, for instance, is
almost the same as for the offline retailer, except that
consumers have more control over the purchase
function over and above access to all the books offered
within the chain.
• Bleed-over positioning. The third scenario assumes that
the target segment is composed of both existing
customers and a new type of customer. This positioning
would resemble the offline offering, but also make the
online offering attractive to new types of customers. Such
a positioning strategy will try to appeal to previously
different segments. For example, Standard Bank Internet
banking emphasises online beneficiary payments and
future-dated payments (appealing to the traditional
offline segment) while simultaneously stressing the
ability to tailor banking services online through a portal
where one can change customer PIN numbers and
profile details, and even engage in online investment
activities.
• New-opportunity positioning. The last scenario
repositions the offering entirely, attempting to capture
the attention of a completely new target segment.
Arguably, such a positioning strategy is more effective if
previous offline positioning strategies have not yet
affected the new segment’s perception of the offering.
This works, for instance, when increased geographic
reach allows a firm to communicate with new and
different customers over the Internet, giving the firm a
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chance to build a new position. A good example of a firm
pursuing an opportunity in a new segment that was not
previously targeted online is NetFlorist, which has a
range of flowers and gifts.
8. The process of positioning a new
product or brand
LO7
To position a new product or brand, a firm needs to know
two things. Firstly, it must establish which attributes of a
product are important to consumers, and, secondly, it has to
know how the competing brands are perceived by
consumers in terms of those attributes. Westfalia Fruit is
entering the edible oil market with its range of avocado oils.
Its positioning is based on ‘amazing goodness’. But to be
effective, the firm needs to understand how it is perceived
relative to other edible oils such as sunflower oil and olive
oil in terms of health benefits and usage benefits (cooking,
baking, drizzling, dipping, frying and roasting).
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A positioning (or perceptual) map is a means of
graphically displaying in two dimensions the location of
products, brands, or groups of products in consumers’
minds. Such a map displays the psychological distances
between products or brands, and is a very useful tool for
developing a positioning strategy. Toothpaste, for instance,
may have a number of attributes that are important to
different consumers. Some consumers may regard the
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plaque-fighting ability of a toothpaste as its most important
attribute. Others may prefer a toothpaste that prevents tooth
decay or ensures fresh breath. All the consumer preferences
must be determined before a firm can proceed with
positioning its own product or brand. Let’s assume that a
toothpaste manufacturer undertook marketing research and
identified the following attributes of toothpaste as the ones
that are important to consumers. The sequence of the
attributes also indicates their ranking in terms of
importance to consumers:
•
•
•
•
•
Prevention of tooth decay
Plaque-fighting ability
Fresh breath
Ability to whiten teeth
Gum protection.
From this list, it can be seen that preventing tooth decay and
plaque-fighting ability were found to be the two most
important attributes that consumers want in a toothpaste.
Consumers can now be asked in a survey to indicate the
ideal combination of tooth decay prevention and plaquefighting ability they want in a toothpaste by rating the
importance of the two attributes on a five-point scale. The
firm now knows what consumers prefer with respect to
these two major attributes, and this information can now be
used to draft a consumer preference map (see Figure 7.1
(A)).
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Figure 7.1 (A) Consumer preference map
Figure 7.1 (A) illustrates a hypothetical distribution of
consumer preferences for the two toothpaste attributes.
Each of the dots represents a particular combination of
preferences (as expressed by consumers during interviews)
for the two attributes.
Figure 7.1 (A) shows that there are four distinguishable
segments in the toothpaste market, namely:
•
Those consumers who want a toothpaste with a high
tooth-decay-prevention capability, but do not care at all
about plaque fighting – those in quadrant 1
• Those consumers to whom both tooth decay prevention
and plaque fighting are important– those in quadrant 2
• Those consumers for whom average tooth-decayprevention capability and average plaque-fighting
capability are satisfactory – those in quadrant 3
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•
Those consumers who want a toothpaste with a high
plaque-fighting capability, but who do not care at all
about tooth-decay-prevention capability – those in
quadrant 4.
Next the firm must establish how all the brands of
toothpaste currently competing in the market are perceived
by consumers in respect of the two attributes. Consumers
are asked to rate the prevention of tooth decay and plaquefighting abilities of all the existing brands of toothpaste on a
five-point scale. Figure 7.1 (B) is a product-position map
that illustrates how existing brands are perceived by
consumers in terms of their ability to prevent tooth decay
and fight plaque.
Figure 7.1 (B) shows that there are three brands competing
in this market, namely:
•
•
•
Brand A is a toothpaste with a high tooth-decayprevention capability, but is rated low on plaque-fighting
capability and is placed in quadrant 1
Brand B is rated low on both tooth-decay-prevention
capability and plaque-fighting capability and is placed in
quadrant 3
Brand C is rated highly for its plaque-fighting capability
but low on its tooth decay prevention capability, and is
placed in quadrant 4.
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Figure 7.1 (B) Product/brand position map
It is also important to realise that the ratings in Figure 7.1 (B)
are based on consumers’ perceptions of the brands, and not
on the objective characteristics of the brands. Once the firm
has all the consumer preferences and current product
positions, it can compile a map that combines consumer
preferences and product positions. Figure 7.1 (C) is an
illustration of such a combined map.
Figure 7.1 (C) shows that:
•
•
Brand A appeals directly to those consumers who want a
toothpaste with a high tooth-decay-prevention
capability, but do not care at all about plaque fighting –
those in quadrant 1
Brand C appeals to those consumers who want
toothpaste with a high plaque-fighting capability, but
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•
•
who do not care at all about tooth-decay-prevention
capability – those in quadrant 4
Brand B does not quite succeed in satisfying the needs of
those consumers for whom average tooth-decayprevention capability and average plaque-fighting
capability are satisfactory – those in quadrant 3
There is no brand that attempts to satisfy the needs of
those consumers to whom both tooth-decay prevention
and plaque fighting are important – those in quadrant 2.
It is now possible to establish which existing products meet
consumers’ preferences in respect of the two attributes. The
combined map also clearly identifies gaps in the market. For
instance, Figure 7.1 (C) shows that there is not a brand that
targets the needs of those consumers to whom both toothdecay prevention and plaque fighting are important (those
in quadrant 2). In other words, this gap exists because there
is a market segment that wants toothpaste with a particular
combination of the two attributes, but none of the existing
products or brands satisfies such preferences.
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Figure 7.1 (C) Positioning map for toothpaste (hypothetical)
When entering a new market, a firm has one of two
positioning options: position close to an existing competitor
or away from competitors. In other words, it can decide
whether to position its product in a gap where there is no
competition or position right next to an existing brand and
fight for market share. If the firm decides to go for a gap it
must meet three conditions. In the first instance, it must be
able to manufacture a product that will be perceived by
consumers as having the combination of attributes desired
by them. Secondly, the firm must be able to market such a
product at a price that the market is willing to pay. The third
condition is that the gap must have a sufficient number of
consumers to make the strategy profitable. If the firm can
succeed in meeting these three conditions, it will offer a
product that will satisfy the needs of a hitherto unsatisfied
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segment of consumers – which should be profitable. The
strategy to position away from existing competitors has the
obvious advantage of limited direct competition, but the
disadvantage of uncertainty in terms of whether there will
be sufficient demand.
To some extent, Cell C tried to position itself away from
Vodacom and MTN when it entered the cellphone market.
Cell C offers packages that are both more flexible and
cheaper than those of the two established operators.
The retailer Stuttafords, basically the only truly
department store left in South Africa, has positioned itself
away from other competing retailers. Marco Cicoria, the
CEO of Stuttafords says: ‘I can’t be an Edgars, Woolworths or
Truworths. I don’t have the [sales] volumes, IT systems or
the people. I am not in the [sales] volume game’, he says. ‘I
am in the margin game.’ With a chain of only 13 shops, what
Stuttafords can afford to have is service. Cicoria plans to
introduce old-fashioned service: tailors, corsetiers and a
personal dresser are waiting in the wings.25
The alternative for the firm is to position the product
close to a competing brand. This approach might work if the
firm can convince the market that, for example, its
toothpaste brand has the combination of attributes that
most dentists recommend, or a similarly convincing appeal.
If the firm cannot claim such differentiation or any other
important difference, it will compete head-on against the
(often dominant) brand currently occupying that position in
the market. To be able to compete effectively, the firm must
have the financial – and other – resources to fight for market
share. In other words, it will have to ‘out-market’ established
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competing firms.
The footwear firm Converse has decided to position away
from its competitors with the slogan ‘Shoes are boring, wear
sneakers’. When the bookshop Facts & Fiction launched, it
was positioned close to Exclusive Books, but was unable to
differentiate itself sufficiently and failed.
The advantage of positioning close to the existing
products or brands is that the volume of demand is known.
However, it is an expensive option because substantial
marketing resources have to be committed in order to take
on well-established, well-entrenched competitors.
Regardless of the strategy option favoured, for a brand to
be successfully positioned, it must be perceived as having
attributes that a large enough segment of consumers regard
as important and desirable, or which are not offered by
existing competing products. When a product is positioned
successfully, it occupies a clear, distinctive and desirable
place in the minds of target customers.
9. Repositioning a product or brand
LO8
Repositioning is a process whereby product or brand
elements are realigned to enhance the satisfaction of the
needs and wants of a market or market segments. No matter
how well a product or brand is positioned in a market
initially, the firm may have to reposition it at a later stage.
The purpose of repositioning is mainly to increase the sales
volume and profitability of an existing brand or product by
matching the needs and wants of the market more
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effectively with the product or brand attributes. There are
five typical reasons why a product may be in need of
repositioning:
•
•
•
•
•
The product was originally not positioned correctly –
there was a mismatch between product and market (see
the example of the Brandy Foundation, below)
Competitors positioned products nearby and as a result
market share is divided among too many products.
Smirnoff Ice is a good example. When Smirnoff Ice was
launched in 2002, it revolutionised the ready-to-drink
alcoholic beverages market. The brand’s share has since
dropped to just 12 per cent of the market and it was
taken off the market because ‘there are now about 12
imitators and the clutter is slowing down category
growth’26
Customer tastes and preferences shifted and left the
firm’s brand with inadequate demand (see the KFC
example, below)
Factors in the macro-environment (e.g. recession,
changing demographics, changing attitudes) that are
beyond the control of the firm cause consumers to
purchase cheaper versions or reduced quantities of the
product. The newspaper the Sowetan had to reposition
owing to the changing demography of its readership
Research and technology create breakthroughs with
profit potential that can be exploited if the firm or
product is repositioned. With the Internet, many firms
are repositioning themselves, and many have
transformed themselves into global firms.
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Repositioning is a useful strategy when a firm needs to
change consumers’ perceptions of a brand. Because people
are becoming increasingly health-conscious, Kentucky Fried
Chicken, for example, is trying to reposition itself to attract
more health-conscious customers. The strategy includes
gradually changing the franchiser’s name to KFC, reducing
dependence on the word ‘fried’, and adding grilled, broiled
and baked chicken items to the menu.
Changing demographics, declining sales, or changes in
the social environment often motivate firms to reposition
established brands (see Reader 36 ‘Renamed Teba seeks
clients in wider market’). For example, the changing
demographics of the primary market for snacks and an
eroding market share compelled the US firm Frito-Lay to
reposition its top-selling brand, Fritos, after 58 years of
successfully targeting all ages. The repositioning effort
includes making major changes in the Fritos logo and
packaging, focusing on consumers between the ages of 9
and 18, and launching a major new radio and TV advertising
campaign.
READER 36 >> Renamed Teba seeks clients in wider
market
TEBA Bank has changed its name to uBank as the medium-sized lender
abandons a 35-year history of serving mainly mine workers and begins to lay
siege to the broader market. CEO of uBank, Mark Williams, said on Friday the
bank, which has about 500 000 customers, would be expanding its customer
base over the next 18 months. The bank, which is owned by a trust jointly
managed by the National Union of Mineworkers and the Chamber of Mines,
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had been implementing a five-year transformation strategy that recently
culminated in the name change, driven by the decision to extend its services
beyond the niche traditional market. Mr Williams said uBank would grow its
footprint by opening branches and expanding delivery channels to cover the
major urban and metropolitan areas. Before, uBank had predominantly
focused on local and migrant mine workers. ‘Our expanded customer base is
growing every month and we would like to close the gap (with competitors)
quite significantly in terms of our numbers. Over the next 18 months we are
talking of growing into the millions,’ Mr Williams said. The bank will be
competing with rivals – particularly Capitec and African Bank – who are also
expanding particularly into the unbanked market, where experts estimate that
as many as 10 million people do not have access to banking services.
Capitec Bank, with about 2,5 million customers by the end of last month and
a branch network of more than 400, is using its low-fee structure and
paperless banking to woo customers. The growth of this market is seen as key
to the expansion of income for banks once these customers become eligible
for such high-fee earning products as vehicle and personal loans. Mr Williams
said he was not worried about competition because uBank was not necessarily
going ‘head-to-head’ with rivals. It had a different and unique business model
more suited to the lower end of the market, including illiterate rural
customers.
These were customers who would be ‘frightened’ to visit the branches of
the larger banks where they felt intimidated, he said. ‘How do we differentiate
ourselves? Our customers are our owners because the depositors are the
beneficiaries of the trust that owns the bank. There is a balance between
serving customers well and getting a reward and deploying that reward to the
trust that owns us,’ he said. ‘Our profile is fundamentally different from our
competitors’. We have been operating in a worker environment for the past
30 years and we have a significant rural base as our market. Our profile as an
institution and being black-owned as well as our products make us uniquely
competitive,’ said Mr Williams.
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SOURCE: Kamhunga, S. 2010. Renamed Teba seeks clients in wider market. Business Day Companies
Section, 11 October, p. 1
In 2009, Carling Black Label managed to topple Castle Lager
as South Africa’s top brand of beer as well as becoming the
beer with the largest market share in South Africa. Although
Carling Black Label was described as South Africa’s
favourite beer in the late 1960s and early 1970s, its relevance
to the market faded and by the early 1990s, this product’s
market share had dropped to single figures. At this point,
SAB considered dropping Carling Black Label from its stable
of brands. However, SAB accepted a proposal from its
advertising agency, Ogilvy & Mather, and the brand was
repositioned from the (now irrelevant) icon of its heyday,
the cowboy, to a modern, urban blue-collar worker. This
repositioning strategy allowed the brand to be revitalised.
The reason for the success of this repositioning was that the
repositioned brand embraced the new, emerging social
changes that took place in South Africa in the 1990s.
However, in order to maintain relevance to the mass market,
the positioning of the brand has had to be tweaked from
time to time, moving the emphasis from the hardworking
blue-collar worker to the hardworking (and successful)
white-collar worker.27, 28
Research conducted by the Brandy Foundation has
shown that brandy has an image of either a ‘get-drunkquickly’ drink; or of ‘rich old men in smoking jackets, lying
lazily in reclining chairs and dipping bulbous noses into
balloon glasses, in cold castles in Europe’. The Brandy
Foundation is determined to change these images and to
reposition brandy in the South African market. It wants to
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position brandy as a sophisticated, elegant, stylish drink, by
(among others) increased barrel maturation and creative
packaging. It also wants to emphasise purity and quality in
its promotion and will specifically target women during this
repositioning campaign.29
Yahoo! is a good example of the need for repositioning
during the life cycle of an online business. Yahoo! started life
as a network of Internet guides. Soon it sought to attract new
customers and keep them coming back to the site, and was
perceived as the first place to go when looking for anything
online. To accomplish its objective, Yahoo! repositioned
itself from online guide to web portal. Now content from
Yahoo!’s site and its partners’ can be downloaded by PCs
and PDAs and other wireless devices. Furthermore, it invites
users to set up customised webpages through My Yahoo!
Other features to draw traffic include Yahoo! chat and
Yahooligans! Its brand message, distribution arrangements
and content partnerships combine to position the site.
Yahoo! made the repositioning official in 2004 by changing
its tagline from ‘search engine’ to ‘life engine’.
Similarly, Amazon has repositioned itself within the last
few years. Originally, Amazon was positioned as the world’s
largest bookstore. Today, it promises the ‘earth’s biggest
selection’ of a variety of products from music to electronics
and more. And Facebook, which was not even a player
several years ago, has already repositioned by moving away
from its ‘social networking for students’ position. Facebook
now hosts many business-page profiles and offers a myriad
of third-party applications.
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10. The repositioning process
LO9
To reposition a product or brand, a firm has to go through
the first two phases of the positioning exercise again – it has
to determine what consumer preferences are and how
existing products, including its own, are perceived by
consumers.
The orange-squash drink Oros had to be repositioned
recently. Before it repositioned, it had a very good idea of
how the market perceived Oros and its competitors’
products: research revealed that mothers were concerned
about the quality of Oros. They were looking for quality
reassurance – the ‘fun for the kids’ image was not enough.
Although Oros had an image of affordability, it could not
compete with the quality and goodness associated with pure
fruit juice. It was decided that mothers had to be reassured
about its quality, while retaining and enhancing children’s
enjoyment of Oros. Once the firm has this kind of
information, it can decide whether there are positions, or
segments, available in which to position its own brand or
product. Regardless of which position is available to the
firm, the organisation has to consider the following four
factors for repositioning:
•
•
The first factor is whether the firm is able to manufacture
a product that will be perceived by consumers as having
the combination of desired attributes
The second factor is whether the firm is able to
manufacture and market the product at a price that
consumers are prepared to pay
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•
•
The third factor is the cost of repositioning the brand to
the particular position or segment. The cost of
repositioning includes possible changes to the product’s
attributes, packaging, advertising, sales promotion and
any other costs that may have to be incurred to achieve
the repositioning. The repositioning of Diskom cost R24
million. The further a brand needs to be repositioned
from its present position, the higher the repositioning
costs tend to be. This increase in costs has to do with
convincing the target market that the product does
possess the new attributes assigned to it. Generally, a
greater repositioning distance necessitates a higher level
of convincing
The fourth factor is the income that the product will earn
in the new position. The income to be earned depends
on the number of consumers in that particular segment;
their usage and purchase rate of the product; the
number of competitors and strength of the competition
in the segment; and the price that the firm can demand
for its product.
If a number of positioning alternatives are available to the
firm, every position as mentioned above has to be evaluated.
In some instances, a firm may be better off in terms of profits
creating a new brand rather than repositioning the present
brand.
10.1 Repositioning in the maturity phase of
LO10
the product life cycle
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Products and brands in the maturity phase of the product
life cycle face market conditions typified by increasing
competition as new competitors enter the market, with a
resultant drop in sales and market share. Therefore, the firm
needs to re-establish the product’s differentiation and
positioning. Several opportunities for positioning and
repositioning products and brands in the maturity phase of
the product life cycle have been identified and utilised over
time. Some of the better-known examples are as follows:
•
•
•
•
Promoting more frequent use of the product by
current customers: Orange juice has been successfully
re-positioned as a drink for more occasions than just
breakfast.
Identifying new target markets for the product:
Johnson’s baby shampoo was repositioned to appeal to
all members of the family. The fuel firm Sasol wants to
reposition and rebrand to facilitate international
expansion. The arms manufacturer Denel wants to reposition to widen the scope of its business to get
involved in the non-defence market, such as airline
refurbishing.
Identifying new uses for the product: Baking soda has
been positioned for a number of new uses in recent
years, including its use as an air freshener. Oxo Spread is
promoted as a beefy spread that can be used as a spread,
in cooking and as a hot drink.
Adding new ingredients or removing old ones: The
washing-powder market has experienced numerous
repositionings of washing powders. Toothpastes have
fluoride added to reposition them as products that fight
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tooth decay.As mentioned earlier, positioning is not so
much about the actual nature of the product but what
the consumer’s think about the product.
READER 37 >> City Lodge ‘refreshes its brands to
differentiate offerings’
JSE-listed City Lodge Hotels is undertaking an ‘evolutionary’ brand and logo
refreshment exercise, starting with its recently-opened Town Lodge Gaborone.
CEO Clifford Ross said the aim of the exercise ‘is to become more relevant and
attractive to our existing guests and to attract new guests who can identify
more effectively with our offerings’. City Lodge said it had embarked on the
exercise to ‘refresh’ its four individual brands – Courtyard, City Lodge, Town
Lodge and Road Lodge. The roll-out of the exercise started with the group’s
website, stationery and its new Town Lodge Gaborone. City Lodge said its new
marketing message, ‘small things that make a difference’, would be
communicated across TV, digital mobile and social media marketing
platforms, along with the new logos and brand identities. Among the changes
was the group’s tree logo, which had been ‘modernised to reflect physical
changes made to hotels across the four brands over the years’. The four brand
logos were altered to differentiate offerings across the groups ‘and to show the
linkage between the individual logos and the ‘new’ City Lodge Hotel group’.
‘For example, it is now “Road Lodge – by City Lodge Hotels” and “Town
Lodge – by City Lodge Hotels”’. City Lodge and Courtyard also had their own
new-look brand identities with the word ‘hotel’ added, the group said.
SOURCE: Nick Hedley, N. 2013. City Lodge ‘refreshes its brands to differentiate offerings’. Business
Day, 6 August, p. 12
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•
Rebranding a product: The petroleum firm BP has
recently rebranded its products. The firm’s global
expansion necessitated reconsidering the brand’s image.
After some research, it discovered that the name BP was
associated with dirt, as BP was part of the ‘old’ economy
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and an oil giant. Management consequently decided to
move away from this undesirable image. It repositioned
and rebranded the firm as a progressive, global energy
group. BP wanted to emphasise that it markets not only
petrol and oil, but also other energy products such as
natural gas and chemicals. It also wanted to move away
from the direct association with Britain and pointed out
that it is a global firm with interests in almost every
continent in the world. The rebranding of BP also had to
support its image as an ethical energy firm. But
rebranding is an expensive exercise. Besides the cost of
the brand equity destruction, BP spent $7 million on
research and development and $100 million on
implementation and support. In South Africa Vodacom
spent R200m in its re-branding from the earlier blue
livery to red (the ‘going red’ campaign). Auditing firm
PricewaterhouseCooper’s rebranding can be seen in the
advert on the left.
For a repositioning exercise to be successful, a number of
prerequisites need to be met:
•
•
•
•
•
A clear vision of the new position
All stakeholders must believe in what the brand stands
for
Management must lead with conviction and
commitment
Everyone involved must ensure that the brand lives up to
its promise
There must be a good fit between image and reality.
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READER 38 >> Lafarge South Africa announces new
brand positioning
In 2013, Lafarge South Africa (a building cement producer) has announced
the repositioning of the international Lafarge Group’s global master brand to
reflect the increasing shift to urbanisation taking place throughout the world.
The new brand signature ‘Building better cities’ pledges Lafarge’s commitment
to help create sustainable cities and rural developments that are desirable
environments for all people. The new brand signature is more than a slogan: it
conveys both the force of the Group’s ambition and of its strategy. It expresses
Lafarge’s vision, gives its actions both meaning and clarity, and marks its
difference. ‘It is our ambition to contribute to building better cities,’ says
Lafarge Industries and Lafarge Mining Chairman, Nonkqubela Mazwai, ‘The
solutions we propose contribute to constructing cities that can provide
everyone with decent housing, cities that are more compact, cities that are
more durable, cities that are better connected, and let’s not forget – cities
that are more beautiful!’ concludes Mazwai. The firm is no longer only a
producer of materials but also a supplier of solutions, located close to its
markets and customers. ‘Building better cities emphasises our position as a
solution provider with innovative products, the expertise and the unparalleled
technical support of the Group,’ says Lafarge South Africa’s Country CEO,
Thierry Legrand. ‘By contributing towards building better cities, we will sustain
growth and improve the lives of people. The brand repositioning builds on the
firms’ established reputation: it represents a pledge to customers that Lafarge
South Africa can be relied on to help provide innovative solutions for the
diverse challenges that are continually being presented by construction.’
SOURCE: InfrastructureNews. 2013. Lafarge South Africa announces new brand positioning. Available
from http://www.infrastructurene.ws/2013/04/16/lafarge-south-africa-announces-new-brandpositioning/ (Accessed 29 July 2014)
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11. Development of a positioning
strategy
LO11
A firm usually has a number of alternative strategies
available on which to base its positioning strategy. The
problem is usually not one of finding differences to focus on.
Instead, the challenge usually lies in identifying brand or
product differences that are meaningful or worthwhile to
exploit. Another decision, namely how many differences
should be promoted, has also been the topic of many
positioning debates. Some experts contend that firms
should aggressively promote only one benefit to the target
market, whereas others maintain that they should position
themselves on more than one differentiating factor. The
former maintain that if only one attribute – such as quality,
price or technology – is chosen, the firm can tout itself as
‘number one’ on that attribute. A firm that focuses on one of
these positions, and consistently delivers on it, will probably
become best known and remembered for it because buyers
tend to remember ‘number one’ better, especially in an
over-communicated environment.30 Consider, for example,
the low-price positioning of Pep Stores and the quality
positioning of Woolworths.
Positioning on more than one factor may, however, be
necessary if two or more firms are claiming to be the best on
the same attribute. For instance, several cigarette brands
claim to be ‘light’, including Cartier, Vogue, Dunhill and
Benson & Hedges. Positioning on ‘lightness’ is no longer a
differentiating factor and, therefore, dubious as a basis for
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positioning. As a result, marketers of these brands now also
use other positioning variables. Chesterfield Lights are
positioned as ‘Classic American taste in a light cigarette’;
Cartier Vendôme is positioned as ‘Light with the luxury
pearl tip’; and Vogue Luxury Slims as ‘Long and slim for
mildness with extra taste’.
In a situation where the mass market is fragmented into
many small segments, some firms aim to broaden their
positioning strategies to appeal to more segments. This
strategy is used by the various trading divisions of some of
South Africa’s major retailers. Mr Price, for example, sells
casual wear mainly on a price basis to the youth market.
Milady’s, on the other hand, directs its classic fashion at the
working woman, and The Hub is positioned as a family
department store. Yet all three of these retailers belong to
the Specialty Group.
A differentiating factor is worthy of use as a positioning
factor when it is:
• Important and delivers a highly valued benefit to target
buyers
• Distinctive, in that competitors do not offer the same
differentiating factor, or the firm can offer it in a more
distinctive way
• Superior to other ways in which customers might obtain
the same benefit
• Communicable and visible to buyers
• Pre-emptive, so that competitors cannot easily copy the
difference
• Affordable to buyers
• Profitable – in other words, the firm can introduce the
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difference profitably.31
10.1 Typical positioning errors
LO12
A firm should be careful not to make too many claims for its
products or brands: it is possible that the market may not
believe the claims. This could lead to the loss of the
product’s distinct positioning. Besides the dangers
associated with a failure to position described earlier, there
are four main positioning errors that firms should avoid
when formulating a positioning strategy. These errors are:32
•
•
•
Under-positioning. Under-positioning occurs when
buyers do not sense anything special about the
difference being promoted. The brand is perceived as
just another entry in an already crowded market. Underpositioning occurred when Pepsi introduced its clear
Crystal Pepsi in 1993 and customers didn’t see ‘clarity’ as
an important benefit in a soft drink.
Over-positioning. When consumers have too narrow an
image of a brand it can be described as over-positioning.
A consumer may have the perception that a retailer such
as Woolworths sells only high-priced goods, although it
may also offer very affordable goods. Bata Toughees
shoes were (almost too well) positioned as school shoes
for children. Finding the positioning too restrictive, the
firm now tries to convince consumers that Bata
Toughees can be used as a normal, everyday shoe.
Confused positioning. Buyers have a confused image of
a brand (see Reader 39: ‘Mixed brand messages’)
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because the firm makes too many claims for it or
changes its positioning too often. Simba’s Lays claims
that its potato chip is ‘the world’s number-one, bestselling, most popular, spectacularly thin, unbelievably
light, amazingly crispy, impossibly irresistible, real
potato chip …’
In the US Miller Genuine Draft suffered as a result of
confused positioning (as shown by the ever-changing
taglines below), and continued to lose market share
(shown in brackets):
> 2001 ‘Never miss a genuine opportunity’ (2,6%)
> 2002 ‘Pure MGD’ (2,2%)
> 2003 ‘Keep what’s good’ (2,2%)
> 2004 ‘Good call’ (2,0%)
> 2005 ‘Various changes’ (1,8%)
> 2006 ‘Beer. Grown up’ (1,6%)
> 2007 ‘Experience is golden’ (1,5%).33
Another example of confused positioning happened
to Michelob, a US beer brand. In the 1970s, Michelob ran
advertisements featuring successful young professionals
that confidently proclaimed, ‘Where you’re going, it’s
Michelob’. The firm’s next ad campaign trumpeted,
‘Weekends were made for Michelob’. Later, in an
attempt to bolster sagging sales, the theme was switched
to, ‘Put a little weekend in your week’. In the mid-1980s,
managers launched a campaign telling consumers that
‘The night belongs to Michelob’. In 1994, the public was
told, ‘Some days are better than others’, which went on
to explain that ‘A special day requires a special beer’.
That slogan was subsequently changed to ‘Some days
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•
were made for Michelob’. Pity the poor consumers!
Previous advertising campaigns simply required that
they look at their calendars or out of a window to decide
whether it was the right time to drink Michelob. By the
mid-1990s, they had to figure out exactly what kind of
day they were having as well. After receiving so many
different messages, consumers could hardly be blamed if
they had no idea when they were supposed to drink the
beer. Predictably, sales suffered. From a high in 1980 of
8,1 million barrels, sales dropped to just 1,8 million
barrels.34 Another example of confused positioning is
stationary film CNA (see Reader 39 ‘Mixed brand
message’).
Doubtful positioning. Buyers may find it hard to believe
brand claims in view of the product’s features, price or
manufacturer. The firm’s history and its other products
may make it difficult to believe that it can produce a
product with such attributes. It was pointed out earlier
that Americans associate wine with romance and can
hardly believe that South Africans can produce goodquality wine. Another example of a doubtful positioning
was Avis’s original positioning of ‘Being the best’ which
was changed to ‘we try harder’, which was changed in
2012 when the company rolled out a new ad campaign
and a new tagline: ‘It’s Your Space,’ targeted at busy
business travellers.
It sometimes happens that products or brands ‘loose’ their
position due to ill-considered decision-making. Products or
brands positioned on the basis of luxury are particularly
susceptible to this problem. As Colin Cowie, a marketing
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consultant says: ‘Real luxury cannot be purchased on every
street corner’. To illustrate how luxury has lost its lustre in
recent years he uses the example of Louis Vuitton, which
moved production of its bags from France to China and
opened its own stores. ‘It made much bigger profits but that
affected perceptions of luxury’ he says. ‘Luxury is not mass
manufactured. Is there anything luxurious about a Dolce &
Gabbana men’s jacket that is sold in hundred countries and
heaven knows how many stores and outlets?’ he asks.35 The
luxury motor vehicle Ferrari is determined not to fall into
this trap. It recently announced that it will cut production by
4 per cent to ‘… to preserve its exclusivity’. Its total
production for the year will be less than 7 000 vehicles.36
READER 39 >> Mixed brand message
Sir, any time I go into a CNA I am reminded that senior management appears
unsure of what business they are in. Is it books? Not really a patch on
Exclusive Books. Is it stationary? Mmm, not really that either, Walton’s has a
bigger selection, as do Game and Makro. The toy section doesn’t exactly
threaten Toys R us either. Now I notice, the till lanes are overflowing with
chocolate displays, but not as big a selection as Pick n Pay. CNA
management: tell us why we should visit the stores. What does CNA have that
can buy greater customer loyalty? Not sure? Well then send me a consulting
fee for pointing out the obvious: you need a different product mix and
message to own a brand space in the minds of your consumers.
SOURCE: Letter to Business Day, 28 February 2012, p. 10
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12. Tools and approaches to facilitate
positioning
LO13
The risks involved in positioning or repositioning a product
or service can be extremely high. The technique of
perceptual mapping (or positioning maps) may be used to
substantially reduce those risks (see Figure 7.1(c)).
Positioning maps help examine the position of a product in
relation to competing products. They help marketing
managers to:
•
•
•
•
•
Understand how competing products or services are
perceived by various consumer groups in terms of
strengths and weaknesses
Understand the similarities and dissimilarities among
competing products and services
Understand how to reposition a current product in the
perceptual space of consumer segments
Position a new product or service in an established
market
Track the progress of an advertising or marketing
campaign on the perceptions of targeted consumer
segments.37
It must be kept in mind, however, that a positioning map is
no more than an aid to decision-making. It cannot replace
the manager or his or her market experience and market
knowledge.
Marketing managers can use a variety of different
approaches to facilitate a positioning or repositioning – in
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essence manipulating the marketing mix to realise the
positioning objectives.
Finally, we have to remind ourselves that positioning
assumes that consumers compare products on the basis of
important features. Effective positioning requires an
assessment of the positions occupied by competing
products, determining the important dimensions
underlying these positions, and choosing a position in the
market where the firm’s marketing efforts will have the
greatest impact. As we said, many approaches can be used
to facilitate positioning, including advertising, packaging
and slogans. Advertising slogans are powerful tools for
creating a position in the consumer’s mind. Many South
Africans will immediately remember slogans such as
Toyota’s ‘everything keeps going right’, which changed to
‘Moving Forward’, Nissan’s ‘life’s a journey, enjoy the ride’
and British Airways’ ‘the world’s favourite airline’.
<<< LOOKING BACK
Kulula has been very successful in positioning itself as a fun
flying experience and uses humour effectively, both in its
marketing communication material, its staff uniforms and
its onboard interactions to facilitate that positioning. The
airline clearly positioned itself away from its boring,
conservative competitors. In fact, Kulula is one of South
Africa’s most successful positioning case studies of the past
decade.
SUMMARY
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1
The nature of positioning. Positioning assumes that
consumers compare products on the basis of important
features. Effective positioning entails assessing the
positions occupied by competing products, determining
the important dimensions underlying these positions
and choosing a position in the market where the firm’s
marketing efforts will have the greatest impact.
2 The typical undesirable outcomes if a firm fails to
position itself or its products properly. A firm or
product that does not position effectively is pushed into
an undesirable position where it faces head-on
competition from stronger competitors; or is pushed into
an undesirable position which nobody else wants
because there is little customer demand there; or its
positioning is so fuzzy that nobody knows what its
distinctive features are; or it has no position at all in the
market because nobody has ever heard of it.
3 The role of differentiation in establishing a
competitive advantage and in a positioning strategy.
Differentiation is the process of identifying ‘something’
that is different about a firm or its products. Once it has
been established that the ‘something’ is desired by
consumers, it can then be described as the firm’s or
product’s competitive advantage. The competitive
advantage then forms the basis of the firm’s positioning
strategy.
4 The classification of industry types based on
competitive advantages. Different industries can be
classified as fragmented, specialisation, stalemate or
volume, depending on the size of the advantage and the
number of approaches to achieve the advantage.
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5
The bases for differentiation of firms, products and
brands. Firms, products and brands can be
differentiated in terms of product attributes, service,
personnel and image.
6 The bases that can be used to position products. Firms,
products and brands are typically positioned in terms of
product attribute, benefit, price and quality, use or
application, product user, product class and competitor.
7 The process of positioning a new product or brand. To
position a product or a brand, a firm needs to know two
things. First, it must establish what attributes of a
product are important to consumers. Secondly, it has to
know how the competing brands are perceived by
consumers in terms of those attributes. It must then
decide whether it wants to position close to or away from
existing competitors.
8 The argument that positioning a service tends to be
more demanding than positioning a product. Services
are indeed more difficult to position than a physical
product. The most important reason is that a service is
intangible and, therefore, difficult to ‘illustrate’ to
consumers and to associate with variables, such as
product attributes.
9 Positioning alternatives available to firms. Alternatives
are used to strengthen an existing positioning, search for
an unoccupied position or reposition the product or
brand.
10 Reasons why a product/brand may need
repositioning:
• A product was originally not positioned correctly, e.g.
there was a mismatch between product and market
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•
Competitors introduced products nearby and,
therefore, caused market share to be divided among
too many products
• Customer tastes and preferences shifted, leaving the
firm’s brand with inadequate demand
• Factors in the macro-environment (e.g. recession,
changing demographics, changing attitudes) that are
beyond the control of the firm cause consumers to
purchase cheaper versions or reduced quantities of
the product
• Research and technology produce new
breakthroughs with profit potential that can be
exploited if the product is repositioned.
11 The process of repositioning a product or a brand. To
reposition a product or a brand, a firm has to go through
the first two phases of the positioning exercise again. The
firm has to determine what consumers’ preferences are
and how existing products, including its own, are
perceived by consumers. Once the firm has this kind of
information, it can decide whether there are ‘positions’
or segments available in which to reposition its own
brand or product. No matter which position is available
to it, the firm also has to consider whether the
repositioning can be sustained, whether consumers will
be prepared to pay for the new positioning and whether
it will be profitable.
12 Repositioning in the maturity phase of the product life
cycle. This repositioning can be achieved by promoting
more frequent use of the product, identifying new
markets, identifying new uses of the product, adding new
ingredients or rebranding the product.
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13 The development of a positioning strategy. A firm
usually has various strategies available on which to base
its positioning strategy. The problem is usually not one of
finding differences to focus on – the challenge usually
lies in identifying brand or product differences to exploit
that are meaningful or worthwhile.
14 The typical positioning errors that firms make. Four
errors are typically made:
• Under-positioning: Occurs when buyers don’t sense
anything special about the difference being
promoted. The brand is perceived as just another
entry in an already crowded market
• Over-positioning: Occurs when consumers have too
narrow an image of a brand
• Confused positioning: Occurs when buyers have a
confused image of the brand because the firm makes
too many claims or changes the brand’s positioning
too often
• Doubtful positioning: Occurs when buyers find it
hard to believe the brand claims in view of the
product’s features, price or manufacturer.
15 Tools to facilitate positioning or repositioning. The
risks involved in positioning or repositioning a product
or service can be extremely high. The technique of
perceptual mapping may be used in order to
substantially reduce those risks. Perceptual mapping
helps managers, among others, to understand how
competing products or services are perceived by various
consumer groups in terms of their strengths and
weaknesses; to understand the similarities and
dissimilarities among competing products and services;
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and to understand how to reposition a current product
in the perceptual space of consumer segments.
DISCUSSION AND WRITING QUESTIONS
1
2
3
4
A friend of yours has opened a small grocery shop in a
wealthy suburb. Advise him on the dangers of poor
positioning.
As the product manager of ‘Healthy Orange Juice’,
suggest strategies you will use to reposition orange juice
as an all-day drink.
Your firm will soon enter a new market segment. Advise
your CEO on the dangers of positioning too close to the
dominant brand in the market.
Draw a positioning map of the four dominant cellphone
service providers in South Africa: Vodacom, MTN, Cell C
and Virgin Mobile. Based on your analysis, advise Cell C
on a repositioning strategy.
STRATEGY READER
repositioned
>>
Sowetan
revamped,
The daily newspaper the Sowetan has embarked on a major repositioning
exercise. The Sowetan said that it will in future have a new, fresh look and
aims for more aspirational content for readers who are ‘in the know’ and on
the move. The relaunch initiative was taken after research conducted by the
paper confirmed that the contemporary black community’s Living Standards
Measurements have moved up and that change is required. The revamped
design and content include a different layout design for the front page with all
the headline news stories being reflected through the personality involved in
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the story.
Key changes also include additional shorter articles, more informational
news, educational articles aimed at children, more information on technology,
coverage on a greater range of sports, respected thought leaders and
columnists and a more upmarket and aspirational entertainment section.
Enver Groenewald, Avusa Media’s general manager for advertising revenue
and strategic communications, said: ‘We are now in the new space to reflect
the aspirations, hopes and dreams of our readers. Because we want to be a
respectable face of our society and a model of a different kind of journalism,
we have done away with the toko-loshes and all that jazz to ensure that our
content resonates in the new spectrum of the readers’ minds.’
Sowetan executive editor, Fikile-Ntsikelelo Moya, said: ‘Our readers have
evolved from the narrow confines of our previous social and political past. We
now want to offer them a newspaper that not only knows where they have
been, but to be their co-traveller on their way to the top, where they know they
belong.’
SOURCE: Adapted from: Da Silva. 2009. Sowetan revamped, repositioned. Bizcommunity online
newsletter, 4 June 2009.
QUESTIONS
1
2
Why did the Sowetan reposition itself?
Do you think the reasons for the repositioning are valid?
KEY CONCEPTS
Attribute: a product feature.
Benefit: something a consumer gains as a result of a product attribute or product
feature.
Communication: the effort to understand the customer and to be clearly
understood by the customer.
Competence: the possession of the required skill and knowledge by employees.
Competitive advantage: something offered by a firm that is valued by
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consumers and that competitors do not have.
Competitor positioning: assessing the positions occupied by competing
products and choosing a position in the market where the firm’s marketing
efforts will have the greatest impact.
Confused positioning: a positioning phenomenon that arises when buyers have
a confused image of the brand because the firm makes too many claims or
changes the brand’s positioning too often.
Consulting service: advice offered to buyers of a product for free or at a low
price.
Courtesy: friendliness, respect and consideration shown by employees.
Credibility: the trustworthiness of employees.
Customer training: refers to training the customer or the customers’ employees
to use the firm’s equipment properly and efficiently.
Delivery: refers to how well the product or service is delivered to a customer.
Doubtful positioning: a positioning phenomenon that arises when buyers may
find it hard to believe the brand claims in view of the product’s features, price or
manufacturer.
Durability: a measure of a product’s expected operating life.
Features: product characteristics that enhance the product’s basic functioning.
Image differentiation: differentiating a firm or product by means of a distinct
image or perceptions.
Installation: includes all the activities and tasks that have to be undertaken to
make a product operational at its place of intended use.
Miscellaneous services: in addition to its standard services, a firm may offer a
variety of other services that can add value to its products.
Origin positioning: a positioning strategy adopted by a firm that wishes to be
associated with a certain geographical region or origin.
Over-positioning: a positioning phenomenon that occurs when consumers have
too narrow an image of a brand.
Perceptual map: a positioning tool that displays the psychological distances
between products or brands.
Perceptual mapping: a means of graphically displaying, in two or more
dimensions, the location of products, brands or groups of products in
consumers’ minds.
Performance: the levels at which a product’s primary characteristics function.
Personnel differentiation: differentiating a firm or product on the basis of the
superior skills and attitude of its personnel.
Positioning: in marketing terms, refers to the place that a firm, product or brand
occupies in consumers’ minds in relation to competing offerings.
Price and quality positioning: a positioning strategy that focuses on either high
price as a signal of quality or emphasises low price as an indication of value.
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Product class positioning: the product is positioned in order to be associated
with a particular category of products.
Product differentiation: a positioning strategy that some firms use to
distinguish their products from those of competitors. The distinctions can be
either real or perceived.
Product user: positioning base focusing on a personality or type of user.
Rank: how the product fares against its competitors in various evaluative
dimensions.
Rational consumers: consumers who try to maximise their satisfaction for any
given level of input (expenditure).
Reliability: consistency and accuracy in the performance of a service by
employees; also a measure of the probability that a product will not malfunction
or fail within a specified time period.
Reparability: a measure of the probability of fixing a product that malfunctions
or fails.
Repairs: the quality and variety of repair services available to buyers of the firm’s
product.
Repositioning: a process whereby product or brand elements are realigned to
enhance the satisfaction of the needs and wants of a market or market segments.
Responsiveness: a measure of the speed of employees’ response to customers’
requests and problems.
Style: a subjective measure that describes how the product looks and feels to the
buyer.
Under-positioning: a phenomenon that occurs when buyers do not sense
anything special about the difference being promoted.
Use or application positioning: a strategy that emphasises uses or applications
as a means of positioning a product with buyers.
REFERENCES
1
2
3
4
5
Kotler, P. 1984. Marketing management: Analysis, planning, implementation
and control (5th edition). London: Prentice Hall, p. 273.
Ries, A. & Trout, J. 1981. Positioning: The battle for the consumer’s mind.
New York: McGraw-Hill, p. 2.
Lowe Bull cooks up a new image for Stork. Bizcommunity online newsletter,
11 June 2008. Available, www.bizcommunity.com.
Triplett, T. 1994. Consumers show little taste for clear beverages. Marketing
News, 23 May 1994, pp. 1, 11.
Witepski, L. 2008. Zero to look forward to. Journal of Marketing (South Africa)
October/November 2008, p. 8.
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6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Lovelock, C.H. 1984. Services marketing: Text, cases and readings. New
Jersey: Prentice Hall, p. 135.
Mathews, C. 2001. New Clicks to rebrand Diskom. Business Day, 10
September 2001.
Suein L. & Hwang, L. 1994. Americans may toast new South Africa, but they
don’t use South African wine. Wall Street Journal, 27 September 1994, pp. B1
and B11.
Ireton, C. 1992. Woolworths returns to its strong points. Sunday Times, 16
August 1992, p. 4; Crotty, A. 1992. Wooltru: Strategy troubled in parts.
Finance Week, 20–26 February 1992, pp. 59–61.
Adapted from Kotler, P., Armstrong, G., Saunders, J. & Wong, V. 1996.
Principles of marketing (European edition). London: Prentice Hall Europe,
pp. 401–402; Kotler, P. 2000. Marketing management (10th Millennium
edition). London: Prentice Hall, p. 288.
Buzzell, R.D. & Gale, B.T. 1987. The PIMS principle: Linking strategy to
performance. New York: The Free Press.
Adapted from Kotler, P. 2000. Marketing management (10th Millennium
edition). London: Prentice Hall, pp. 288–292; Garvin, D.A. 1987. Competing
on the eight dimensions of quality. Harvard Business Review November–
December 1987, pp. 101–109.
Guaranteeing the loaf. Food & Beverage Reporter Online November–
December 1999, p. 20.
www.appletiser.co.za (Accessed 22 April 2010).
What makes Pepkor the largest retailer in Africa? Marketing Mix December
1991, p. 67.
Wind, Y.J. 1990. Positioning analysis and strategy. In: G. Day, B. Weitz, R.
Wensley (eds). The interface of marketing and strategy. Greenwich: Jai Press,
p. 387.
Adapted from Parasuraman, A., Zeithaml, V.A. & Berry, L.L. 1985. A
conceptual model of service quality and its implications for future research.
Journal of Marketing 49 (Fall), pp. 41–50.
Edgars Group, 1996 Annual Report, p. 2; Foschini, 1996 Annual Report, p. 7;
Pep Stores Limited, 1987 Annual Report, p. 10; Wooltru Limited, 1995 Annual
Report, pp. 16, 24; Specialty Stores Limited, 1996 Annual Report, cover.
Martineau, P. 1958. The personality of the retail store. Harvard Business
Review 36(1), p. 47.
Berman, B. & Evans, J.R. 1995. Retail management: A strategic approach (6th
edition). Englewood Cliffs: Prentice Hall, p. 550.
Lusch, R.F. 1982. Management of retail enterprises. Boston: Kent Publishing,
p. 457.
Specialty Stores Limited, 1996 Annual Report, p. 26.
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23 These bases for positioning were provided by David W. Cravens, Texas
Christian University, Texas, USA.
24 Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. Internet
marketing: Building advantage in a networked economy (2nd edition).
Boston: McGraw-Hill, p. 112.
25 Planting, S. 2009. Reviving a grande dame. Financial Mail, 12 June 2009, p. 50.
26 Smirnoff Ice taken off the market. Business Day, 15 October 2002.
27 www.themarketingsite com (Accessed 16 April 2010).
28 www.bizcommunity.com (Accessed 20 April 2010).
29 Sinclair, R. 1997. Brandy sheds its hard-drinking image. Financial Mail
special report, 16 May 1997, p. 79.
30 www.Mediatoolbox.co.za/pebble, 2006 (Accessed 20 April 2010).
31 Adapted from: Kotler, P. 2000. Marketing management (10th Millennium
edition). London: Prentice Hall, p. 298.
32 Adapted from: Kotler, P. 2000. Marketing management (10th Millennium
edition). London: Prentice Hall, p. 301.
33 www.brogan.com/blog/pssst-miller-genuine-draft-your-answer-is-not-anew-slogan/ (Accessed 27 August 2008).
34 Keller, K.L. 2000. The Brand Report Card, Harvard Business Review, January,
pp. 147–157.
35 Fleeced and loving it. Financial Mail, November 22 – November 27, 2013, p.
63.
36 Clark, J. 2013. Ferrari says bigger is not better as it cuts production. Business
Day, 10 May, p. 20.
37 Jain, S.C. 1997. Marketing planning & strategy (5th edition). Cincinnati:
South-Western College Publishing, p. 350.
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PART
02
Implementing marketing mix strategies
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CHAPTER
08
Product decisions
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Define the term ‘product’.
Distinguish between different product levels.
Classify consumer products according to a given set of criteria.
Describe the nature of different consumer products and relate
them to the marketing relevance of each classification.
Distinguish between the terms ‘product item’, ‘product line’ and
‘product mix’.
Describe the benefits of organising related items into product
lines.
Distinguish different types of adjustments to product items, lines
and mixes.
Articulate the value of branding by referring to its objectives and
benefits.
Identify the features common to effective brand names.
Distinguish between the following branding strategies: generic
and branded products, between manufacturers’ brands and
private brands and between individual brands and family brands.
Set out an argument in favour of co-branding.
Distinguish between a brand name and a brand mark.
Describe the legal implications of branding in South Africa.
Explain the marketing-related value of packaging and labelling.
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15 Describe how and why product warranties are important
marketing tools.
16 Illustrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
17 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice
Many boardrooms still don’t
understand how brand values work
South African brands have a lot of growing up to do if
they are to succeed in an increasingly competitive
market. Interbrand Sampson chairman Jeremy
Sampson says while directors of large companies are
starting to take marketing seriously, most fail to
understand the value of their brands. ‘Marketers need
to communicate more with the other members of the
executive suite,’ says Sampson. ‘One of the methods is
through measurement and analytics. It makes
marketing and the brand accountable, but also
educates the rest of the business about the importance
of branding and marketing.’
A recent global study by the Interbrand group found
that many leading companies around the world owe
much of their value to the success of their brands. The
same is true of listed SA companies, but directors often
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don’t understand this. Local mobile giant MTN recently
became the first African brand to make it into Millward
Brown BrandZtop 100 brands. Interbrand has also
studied MTN. ‘When we valued it, we found that over
one-third of its market capitalisation was brand value,’
Sampson says. ‘Often another third is intellectual
capital such as patents and copyright, which means
that less than one-third is tangible.’
He adds: ‘Twenty years ago people used to measure
companies by bricks and mortar, but that’s swung
around since the 1990s, when intellectual capital
started to come into play.’
SOURCE: Zweli Mogata, Z. 2012. Many boardrooms still don’t understand
how brand values work. Financial Mail, 22 June, p. 62
QUESTIONS
1
2
Can the value of an intangible asset such as a brand be measured?
How do you interpret the statement: ‘Marketers need to communicate
more with the other members of the executive suite. One of the
methods is through measurement and analytics. It makes marketing
and the brand accountable, but also educates the rest of the business
about the importance of branding and marketing.’
1. Introduction
The product offering, the heart of a firm’s entire marketing
effort, is usually the starting point in creating a marketing
mix. A marketing manager cannot set a price, design a
marketing communication strategy or create a distribution
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channel until the firm has a product to sell. Moreover, an
excellent distribution channel, a persuasive marketing
communication campaign and a fair price have no value if
they are associated with a poor or inadequate product
offering. The product is the physical manifestation of the
firm’s efforts to satisfy customer needs.
2. What is a product?
LO1
A product may be defined as anything, both favourable and
unfavourable, that a buyer receives in an exchange –
normally for money. A product may be a tangible product
like a pair of shoes, a service like a haircut, an idea like ‘don’t
litter’ or ‘drive safely’, or any combination of these three.
Packaging, style, colour, options and size are typical
examples of product features. Just as important are
intangibles, such as service, the seller’s image, the
manufacturer’s reputation and the way consumers believe
others will view the product that they have bought.
To most people, the term ‘product’ means a tangible
product. However, from a marketing perspective, services
and ideas are also products. The marketing process
identified in Chapter 1 is the same whether the entity
marketed is a product, a service, an idea or some
combination of these. A variety of other entities can also be
marketed, from an image to sports stars to politicians.
Special efforts are made these days to market countries
(Brand SA and Proudly South African) and even cities
(Johannesburg is marketed as ‘a world-class African city’).
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From a marketing perspective, they are all products.
3. Product levels
1
LO2
In planning a product and product strategy, the marketer
needs to think in terms of five levels of the product. Each
level adds more customer value than the previous level, and
the five levels constitute a customer value hierarchy (see
Figure 8.1). The most fundamental level is the core benefit –
the fundamental service or benefit that the customer buys.
The core benefit is directly linked to the most basic or
fundamental need that the buyer wants to satisfy. A car
buyer buys ‘private transport’. The purchaser of a Red Bull
drink is buying ‘energy’. The buyers of Energade buy
‘rejuvenation and replenishment’. Someone who buys an
iPhone or Samsung Galaxy are buying more than a wireless
mobile phone, e-mail and web-browsing device, or personal
organizer. They are buying freedom and on-the-go
connectivity to people and resources. The great marketers of
our time understand consumers’ needs and see themselves
as benefit providers.
At the second level, the marketer has to convert the core
benefit into a basic, tangible product. A car buyer – to
continue the example – buys a roof, windows, a steering
wheel, a colour, etc. At this level, the manufacturing
department and the marketing department have to cooperate closely to ensure that the basic tangible product is
able to offer the need-satisfaction benefits that consumers
want. The mobile phone (iPad or Samsung Galaxy) is the
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basic or tangible product. Its name, parts, styling, features,
packaging and other attributes have all been combined
carefully to deliver the core benefit of staying connected.
At the third level, the marketer prepares an expected
product – a set of attributes and conditions that buyers
normally expect and agree to when they purchase this
product. For example, the car buyer expects the car to start
when the ignition key is turned, windows that wind down,
windscreen wipers that clean the window, and so forth.
At the fourth level, the marketer prepares an augmented
product that not only meets the customers’ desires and
expectations, but sometimes exceeds them. Exceeding
expectations is a way of differentiating a product and
establishing a competitive advantage. A car manufacturer,
for example, augments its product by including a radio, an
air conditioner and a warranty. Product augmentation
focuses the marketer’s attention on the entire process of
how buyers buy and consume products. In other words, it is
a holistic assessment of the way a purchaser of a product
goes through the buying and consumption process and links
this to the satisfaction of specific pre-purchase needs. If
done this way, it is likely that the marketer will identify many
opportunities to augment its basic product in innovative and
competitively effective ways. The marketers of luxury motor
vehicles, such as Mercedes-Benz, BMW and Lexus, realise
all too well that some people want to be seen to buy ‘the
right labels’. Therefore, they try use their marketing
activities to link their products to perceptions of status and
prestige. Both Apple and Samsung must offer more than just
a communication device with the iPhone and Samsung
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Galaxy respectively. It must provide consumers with a
complete solution to mobile connectivity needs. Thus, when
consumers buy one off these brands, the respective firm and
its dealers are giving buyers a warranty on parts and
workmanship, instructions on how to use the device, quick
repair services when needed, and a toll-free telephone
number and Web site to use if they have problems or
questions.
The fifth level deals with the potential product. This level
includes all the augmentations and transformations that the
product might undergo over time. At this level, the marketer
addresses the possible future evolution of its product with a
view to increasing customer satisfaction and thereby also
differentiating the product from those of competitors. In the
future, motor vehicles will increasingly make use of
computer technology. Possibly the most exciting thing about
smartphone technology is that the field is still wide open. It’s
an idea that probably hasn’t found its perfect, real-world
implementation yet. Every crop of phones brings new
designs and new interface ideas. No one developer or
manufacturer has come up with the perfect shape, size or
input method yet. The next ‘killer app’ smartphone could
look like a flip phone, a tablet PC, a chocolate bar or
something no one has conceived of yet. Another thought
might be that instead of waiting for handsets to come with
higher-capacity batteries, manufacturers might go one step
further and design a smartphone that runs on an alternative
power source altogether or even technology that allow
phone users to hold two phones next to each other and
transfer battery power in this way.
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The success of the online auctioneering website, eBay, is
the result of offering a series of services and service
innovations that appeal to a broad customer base, and a
thorough understanding of the different product levels.
eBay’s core benefit is summarised succinctly in its registered
trademark, ‘The world’s largest marketplace’. eBay’s whole
marketing strategy rests on the fact that it wants people to
think of eBay first when they are in shopping mode. Today,
eBay has built its brand around this core benefit, beginning
with its basic service and evolving it over time. To leap from
a versatile commerce platform to the world’s largest
marketplace, eBay provides additional services and
constantly develops new and improved products. eBay’s
efforts to augment its core service to meet the needs and
expectations of a greater spectrum of customers have largely
been successful. In general, eBay’s product augmentation
falls into two categories: additional features (Buy it Now,
Safe Harbor, eBay Direct Pay and Escrow) and additional
platforms (eBayMotors, eBayStores, eBay-LiveAuctions,
eBayShowrooms and eBayPremier). At the potential product
level, eBay can consider pre-sale support by offering
functionalities that include comparative shopping, product
selection guides or product demonstrations.2
The marketing strategies used for different products often
depend on the type of product it is. Marketers therefore
classify products into different product classes.
4. Classifying consumer products
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LO3
Products can be classified in a variety of ways. One approach
is to use durability as a classification variable to distinguish
between non-durable products (which include products
that are consumed after one or a few uses, such as soft
drinks and toothpaste) and durable products (products that
allow repeated usage, such as refrigerators and TV sets).
Another method of classification employs usage as a
classification variable. Using this approach (see Figure 8.2),
we can distinguish between consumer products and
business products (also called industrial products). The key
distinction between the two types of products is their
intended use. If the intended use is a business purpose, the
product is classified as a business or industrial product. A
business product is used to manufacture other products or
services, to facilitate a firm’s operations (e.g. a front-end
loader or lubricating oil) or to resell to other customers. In
other words, the product is bought for u