Bachelor of Commerce
in Marketing Management
(Year 2)
MARKETING MIX
Module Guide
Copyright© 2023
MANCOSA
All rights reserved, no part of this book may be reproduced in any form or by any means, including photocopying machines,
without the written permission of the publisher. Please report all errors and omissions to the following email address:
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Bachelor of Commerce
in Marketing Management (Year 2)
MARKETING MIX
List of Content ......................................................................................................................................................... 1
Preface.................................................................................................................................................................... 2
Unit 1: Introduction to Marketing ............................................................................................................................. 9
Unit 2: The Marketing Environment ....................................................................................................................... 23
Unit 3: Segmentation, Targeting and Positioning .................................................................................................. 42
Unit 4: The Marketing Mix – Product ..................................................................................................................... 64
Unit 5: The Marketing Mix – Price ......................................................................................................................... 85
Unit 6: The Marketing Distribution ....................................................................................................................... 101
Unit 7: The Marketing Mix-Promotion.................................................................................................................. 121
Unit 8: Marketing Challenges .............................................................................................................................. 150
Bibliography ........................................................................................................................................................ 160
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List of Content
List of Tables
Table 3.1: Segmentation Variables ................................................................................................................... 46
Table 3.2: multi-variable benefit segmentation of the snack-food market. ........................................................ 58
Table 6.1: Characteristics of channel members .............................................................................................. 106
Table 6.2: Criteria ranking the modes of transport .......................................................................................... 109
Table 6.3: Characteristics of retailers ............................................................................................................. 110
Table 7.1: Advantages and disadvantages of promotional media tools .......................................................... 130
Table 7.2: Public relations and organisational needs...................................................................................... 134
Table 8.1: Changes and trends in the marketing environment ....................................................................... 152
List of Figure
Figure 2.1: An enterprise’s micro-environmental factors Source: Adapted from Geel, FC.& Tait, M ............... 26
Figure 2.2: Enterprise’s macro-environmental factors ...................................................................................... 29
Figure 3.1:Target market segments .................................................................................................................. 51
Figure 3.2: Position map ................................................................................................................................... 55
Figure 5.1: Product decisions ........................................................................................................................... 68
Figure 4.2: New product development stages. ................................................................................................. 72
Figure 4.3: The Product Life Cycle model........................................................................................................ 76
Figure 5.1:Internal and external factors - pricing decisions.:............................................................................. 87
Figure 6.1: Consumer distribution channels ................................................................................................... 104
Figure 7.1: Steps in developing effective communication ............................................................................... 125
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MANCOSA – Bachelor of Commerce in Marketing Management Year 2
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Preface
A.
Welcome
Dear Student
It is a great pleasure to welcome you to Marketing Mix (MM6) To make sure that you share our passion about
this area of study, we encourage you to read this overview thoroughly. Refer to it as often as you need to, since it
will certainly make studying this module a lot easier. The intention of this module is to develop both your confidence
and proficiency in this module.
The field of Marketing is extremely dynamic and challenging. The learning content, activities and self- study
questions contained in this guide will therefore provide you with opportunities to explore the latest developments
in this field and help you to discover the field of Marketing as it is practiced today.
This is a distance-learning module. Since you do not have a tutor standing next to you while you study, you need
to apply self-discipline. You will have the opportunity to collaborate with each other via social media tools. Your
study skills will include self-direction and responsibility. However, you will gain a lot from the experience! These
study skills will contribute to your life skills, which will help you to succeed in all areas of life.
•
The module is a 15 credit module at NQF level 6.
We hope you enjoy the module.
MANCOSA does not own or purport to own, unless explicitly stated otherwise, any intellectual property rights in or
to multimedia used or provided in this Module Guide. Such multimedia is copyrighted by the respective creators
thereto and used by MANCOSA for educational purposes only. Should you wish to use copyrighted material from
this guide for purposes of your own that extend beyond fair dealing/use, you must obtain permission from the
copyright owner.
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B.
Exit Level Outcomes and Associated Assessment Criteria of the Programme
Exit Level Outcomes (ELOs)
•
Associated Assessment Criteria (AACs)
Demonstrate competence in applying the
•
Theoretical principles of marketing are examined
basic theoretical principles of marketing
to understand the problem identification and
management in problem identification and
solving in marketing management
solving and reflect on the application made
•
•
Demonstrate effective communication
Communication competence is examined to
competence with the different role players in
understand the student’s ability to apply the
the marketing management field and applying
principles of communication (oral/written) and
the theoretical principles of communication
reflect on the application made
(oral/written) and reflect on the application
made
•
Analyse and critically evaluate a marketing
•
Evaluation of marketing scenarios is examined to
scenario and develop meaningful suggestions
understand the development and design of
and advice to design and write a full marketing
marketing plans in marketing
plan
•
Organise and coordinate resources and
•
Coordination of marketing management
opportunities in the field of marketing
resources and opportunities are examined to
management by applying the relevant
understand marketing theory and reflect on its
theoretical aspects and reflect on the
application
application
•
Practice acceptable social sensitivity with
•
Theory of teamwork is examined to understand
others and work effectively in self-directed
acceptable social sensitivity with others and
marketing management teams by
effectiveness in self-directed marketing
implementing the relevant theory of teamwork
management teams
and reflect on the implementation thereof
•
Utilise appropriate e-marketing technologies in
•
expanding marketing coverage
E-marketing technologies are examined to
understand the expanding marketing coverage in
the field of marketing communication
•
•
Promote responsible local and global
Holistic application of marketing management is
citizenship through their approach towards the
examined to understand responsible local and
holistic application of marketing management
global citizenship
capabilities
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C.
Learning Outcomes and Associated Assessment Criteria of the Module
LEARNING OUTCOMES OF THE MODULE
•
Define the sphere of responsibility of
ASSOCIATED ASSESSMENT CRITERIA OF THE MODULE
•
marketing management
•
Evaluate the development of marketing
The sphere of responsibility of marketing is explained to
understand the marketing theories and concepts
•
management
Strategic marketing management is evaluated to
understand the value gained by implementing effective
strategies
•
Explain the role of needs and wants in
•
marketing
Customer needs and wants are examined to understand
how customers can be satisfied to improve customer
retention, loyalty and long-term relations
•
Explain fundamental concepts in
•
marketing
•
Identify the challenges/issues facing
Marketing concepts are explained to understand how
they can be used as strategic tools
•
marketers
Marketing challenges are examined to understand how
such challenges can be resolved through effective
marketing strategies
D.
Learning Outcomes of the Units
You will find the Unit Learning Outcomes on the introductory pages of each Unit in the Module Guide. The Unit
Learning Outcomes lists an overview of the areas you must demonstrate knowledge in and the practical skills you
must be able to achieve at the end of each Unit lesson in the Module Guide.
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E.
Notional Learning Hours
Learning time
Types of learning activities
%
Lectures/Workshops (face to face, limited or technologically mediated)
15
Tutorials: individual groups of 30 or less
0
Syndicate groups
0
Practical workplace experience (experiential learning/work-based learning etc.)
0
Independent self-study of standard texts and references (study guides, books, journal
40
articles)
Independent self-study of specially prepared materials (case studies, multi-media, etc.)
27
Other: Online
18
TOTAL
100
F.
How to Use this Module
This Module Guide was compiled to help you work through your units and textbook for this module, by breaking
your studies into manageable parts. The Module Guide gives you extra theory and explanations where necessary,
and so enables you to get the most from your module.
The purpose of the Module Guide is to allow you the opportunity to integrate the theoretical concepts from the
prescribed textbook and recommended readings. We suggest that you briefly skim read through the entire guide
to get an overview of its contents.
At the beginning of each Unit, you will find a list of Learning Outcomes and Assessment Standards. This outlines
the main points that you should understand when you have completed the Unit/s. Do not attempt to read and study
everything at once. Each study session should be 90 minutes without a break
This module should be studied using the recommended textbook/s and the relevant sections of this Module Guide.
You must read about the topic that you intend to study in the appropriate section before you start reading the
textbook in detail. Ensure that you make your own notes as you work through both the textbook and this module.
In the event that you do not have the prescribed textbook, you must make use of any other source that deals with
the sections in this module. If you want to do further reading, and want to obtain publications that were used as
source documents when we wrote this guide, you should look at the reference list and the bibliography at the end
of the Module Guide. In addition, at the end of each Unit there is a link to the PowerPoint presentation and other
useful reading.
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G.
Study Material
The study material for this module includes tutorial letters, programme handbook, this Module Guide, prescribed
textbook which is supplemented by recommended readings. The Module Guide is written based on a prescribed
textbook which is supplemented by recommended readings.
H.
Prescribed and Recommended Textbook/Readings
The textbook presents a tremendous amount of material in a simple, easy-to-learn format. You should read ahead
during your course. Make a point of it to re-read the learning content in your module textbook. This will increase
your retention of important concepts and skills. You may wish to read more widely than just the Module Guide and
the prescribed textbook, the Bibliography and Reference list provides you with additional reading.
The prescribed and recommended textbooks/readings for this module are:
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction. Global Edition, Fifteenth Edition. (2022).
Pearson.
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I.
Special Features
In the Module Guide, you will find the following icons together with a description. These are designed to help you
study. It is imperative that you work through them as they also provide guidelines for examination purposes.
Special Feature
Icon
Explanation
The Learning Outcomes indicate aspects of the particular Unit you have
LEARNING
to master.
OUTCOMES
ASSOCIATED
ASSESSMENT
CRITERIA
The Associated Assessment Criteria is the evaluation of the students’
understanding which are aligned to the outcomes. The Associated
Assessment Criteria sets the standard for the successful demonstration
of the understanding of a concept or skill.
A Think Point asks you to stop and think about an issue. Sometimes you
THINK POINT
are asked to apply a concept to your own experience or to think of an
example.
You may come across Activities that ask you to carry out specific tasks.
ACTIVITY
In most cases, there are no right or wrong answers to these activities.
The purpose of the activities is to give you an opportunity to apply what
you have learned.
At this point, you should read the references supplied. If you are unable
READINGS
to acquire the suggested readings, then you are welcome to consult any
current source that deals with the subject.
PRACTICAL
Practical Application or Examples will be discussed to enhance
APPLICATION
understanding of this module.
OR EXAMPLES
KNOWLEDGE
You may come across Knowledge Check Questions at the end of each
CHECK
Unit in the form of Knowledge Check Questions (KCQ’s) that will test
QUESTIONS
your knowledge. You should refer to the Module Guide or your
textbook(s) for the answers.
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You may come across Revision Questions that test your understanding
REVISION
QUESTIONS
of what you have learned so far. These may be attempted with the aid
of your textbooks, journal articles and Module Guide.
Case Studies are included in different sections in this Module Guide.
CASE STUDY
This activity provides students with the opportunity to apply theory to
practice.
You may come across links to Videos Activities as well as instructions
VIDEO ACTIVITY
on activities to attend to after watching the video.
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Unit
1:
9
Introduction to Marketing
MANCOSA – Bachelor of Commerce in Marketing Management Year 2
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
1.1 Introduction
•
Introduce topic areas for the unit
1.2 Marketing defined
•
Define Marketing
•
Explain the role of needs and wants in marketing
•
Describe concepts used in marketing such as demands,
marketing offers, value, exchanges and markets
1.3 Needs, wants and demands
•
Define the concept of needs, wants and demands
1.4 Sphere of responsibility of Marketing
•
Outline the sphere of responsibility of marketing
management
management
1.5 Marketing management philosophies
•
Explain the various marketing management philosophies
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction.
Global Edition, Fifteenth Edition. Pearson.
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1.1
Introduction
The commonly used phrase “the world is a global village” is of great significance to marketers. Domestic
enterprises that ignore the impact of foreign competition and foreign markets do so at their own peril. Those who
have the vision to grab the opportunities will prosper while others are likely to perish. Enterprises with members in
top management having strong marketing backgrounds have an excellent chance of success. It is essential for
you, as a Bachelor of Commerce student, to develop marketing skills in order to succeed in the highly competitive
global environment.
All of us are exposed to marketing in some form everyday but marketing is much more than advertising and selling.
Marketers must develop creative strategies to ensure that they gain as many life-long (instead of casual) customers
as possible. As you shall see in this module, the key focus of marketers is the satisfaction of customers.
1.2
Marketing Defined
According to Blythe (2006:4) there is no universally accepted definition of marketing. However, he does cite the
following definitions that are currently used:
1.2.1
Chartered Institute of Marketing (CIM)
The Chartered Institute of Marketing (in UK) defines marketing as follows:
“Marketing is the management process responsible for identifying, anticipating and satisfying customer
requirements profitably.”
Some of the key aspects of this definition are:
•
The focus is on the customer as a key to marketing. Furthermore, marketers are interested in only those
customers whose needs they can fulfil profitably
•
Identifying customer requirements and satisfying them necessitates activities such as market research and
developing new product ideas
However, Blythe (2006:5) identifies certain shortcomings of this definition. Firstly, the definition makes no mention
of other important stakeholders such as shareholders and employees. Secondly, the customers are not necessarily
the people whose needs are being met e.g. a father who buys a toy for his daughter.
1.2.2
American Marketing Association
This organisation defines marketing as “the process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods and services to create exchange and satisfy individual and organisational
objectives.”
•
Some of the key aspects of this definition are:
•
It recognises marketing as a management process
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•
The satisfaction of both organisational and individual objectives is recognised
•
It speaks of marketing being about creating exchange
Blythe (2006:6) contends that this definition, like the previous one, ignores the impact of competition.
1.2.3
Philip Kotler
Well-known marketing experts Kotler and Armstrong (2010:28) defines marketing as “the process by which
companies create value for customers and build strong customer relationships in order to capture value from
customers in return”.
Although Blythe (2006:5) views this definition as being too broad, Kotler and Armstrong (2012:30) provide an
explanation of the definition that is worth looking at as it examines some key terms that are widely used in
marketing. These terms include customer needs, wants and demand; marketing offers (products, services and
experiences); value and satisfaction; exchanges, and relationships; and markets.
1.3
Needs, wants and demands
According to Kotler and Armstrong (2012:30) human needs are the most basic concept that underpins marketing.
They define needs as “states of felt deprivation”. Human needs include physical needs (e.g. need for food, clothing
and safety), social needs (e.g. the need to be loved and accepted by others) and individual needs for knowledge
and to be able to express oneself.
Wants are the form that human needs take and are influenced by factors such as culture and personality. For
example, a person needs food but wants a hotdog and cool drink. Another person may also need food but wants
curry and rice.
The wants that people have are unlimited but their income is limited. People thus purchase products that will
provide them with the greatest value and satisfaction for their money. When wants are backed by buying power,
they become demands. Since people have unlimited wants but limited income, they will demand products whose
benefits result in the greatest satisfaction.
The companies that are successful are the ones that spare no effort in understanding customers’ needs, wants
and demands. Market research and other means are used to determine the likes and dislikes of customers and
unfulfilled customer needs. Customer enquiries are also analysed
•
Marketing offers – Products, Services and Experiences
Marketing offers (products, services and experiences) are the means through which people satisfy their needs
and wants. Kotler and Armstrong (2012:30) define a product as “anything that can be offered to a market to
satisfy a need or want”. They add that marketing offers are not limited to products objects but also include
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services, activities and benefits (example banking and airline services) which may be described as intangible
and does not offer the ownership of anything. They further state that marketing offers also include ideas,
information, organisations, places, persons and experiences
A wise marketer is one who sees a product as a solution to a need than just selling a product. Smart
marketers also create brand experiences for consumers e.g. a visit to Disney world is an experience.
•
Customer value and satisfaction
Customers choose products according to the value that they perceive the product has for them. Kotler and
Armstrong (2012:31) define customer value as the difference between the values the customer gains from
owning and using a product and the costs of obtaining the product. Customer satisfaction is dependent upon
the value delivered by the product performance compared to the buyer’s expectations. As a result of a
products performance, a customer could therefore either be dissatisfied, satisfied or even better still delighted.
Successful enterprises do whatever it takes to keep customers satisfied as this would result in repeat
purchases. Enterprises that are smart try to delight their customers by offering products that deliver more
value than they promise
•
Exchanges and relationships
Marketing occurs when people decide to satisfy their needs and wants by means of exchange relationships
(Kotler and Armstrong, 2012:31). Exchange, they say, may be described as the act of acquiring a desired
object (e.g. a product) by offering something in return (e.g. cash). They argue that marketers must go beyond
creating attracting new customers and creating transactions. The aim should be build strong long-term
relationships with customers by continually providing superior customer value
•
Markets
Kotler and Armstrong (2012:31) describe a market as “the set of actual and potential buyers of a product”.
These buyers have a common need or want that can be satisfied by exchange relationships. The size of the
market is dependent upon the number of people who have the same need, possess the resources to engage
in the exchange, and are willing to offer these resources to secure what they want
Marketers need to select the markets that they can satisfy best. By developing products and services that
can create value and satisfy customers in these markets, the result would be desirable sales and profit for
the enterprise.
Kotler and Armstrong (2010:31) add that marketing means managing markets to bring about profitable
customer relationships. Marketers must search for customers, identify their needs, develop good marketing
offers, set prices for them, promote them, and store and distribute them.
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1.4
Sphere of Responsibility of Marketing Management
Kotler and Armstrong (2012:31) consider the responsibility of marketing management to revolve around
understanding the marketplace and customer needs, designing a customer-driven marketing strategy, preparing a
marketing plan and program and fourthly building customer relationships.
Blythe (2006:13) sees the responsibility of marketing management as “the handling of specific aspects of the
marketing function. These aspects are known collectively as the marketing mix.” Initially the marketing mix
comprised the 4 Ps viz. product, price, place and promotion. Later on three more Ps (people, process and physical
evidence) were added to include the extra elements present in service industries. The result is a 7P model that will
now be briefly discussed.
Product may be described as the bundle of benefits that a supplier offers to the buyer. A product does not appeal
to everyone but will appeal to a specific group of consumers.
Price is what it costs the customer to purchase the product. Brassington and Pettitt (2000:25) quite rightly point
out that price is not simply an easy calculation of costs and profit margins. Price has to consider consumer
behaviour. Price may also serve as an indicator of quality to some buyers. Competitors may regard price as a
challenge. However, marketers have to think about the prices that they set very carefully because of its direct link
with sales and profit.
Place is the location where the exchange (sale) takes place. Choosing a place for the exchange involves far more
than moving products from where they are produced to where they will be purchased by the consumers. Marketers
must make it easy for consumers to find the goods. The channel used to distribute the products is also important.
Promotion involves the use of advertising, personal selling, sales promotion and publicity that will satisfy the
information needs of customers and will also convey a persuasive message that emphasises the benefits of owing
the product. Promotion is often seen as the glamorous aspect of marketing.
People are important to the success in marketing especially in service industries. Customer satisfaction depends
a lot on the quality and nature of the interaction between the customer and service provider. If a relationship of
trust and satisfaction develops, competitors will find it hard to break this relationship.
Process refers to the activities that culminate in the delivery of the product benefits. The consistency of delivering
product benefits for services is more difficult than for manufactured goods. Quality controls are therefore necessary
to ensure that consumers know what to expect each time they consume the service product.
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Physical evidence refers to the tangible proof that a service has been provided. The physical evidence of
service in a restaurant may include the food, the atmosphere and ambience. In the case of an insurance
company it may be the policy document.
1.5
Marketing Management Philosophies
The philosophies that have guided marketing efforts over the years have evolved from the production concept to
the marketing concept. Some marketers have even gone further to adopt a societal marketing orientation. Kotler
and Armstrong (2012:33) describes these philosophies as follows:
1.5.1
The production concept
This is one of the oldest philosophies that guide marketers. It subscribes to the view that consumers will choose
products that are available and very affordable. The focus of management is therefore to improve production and
distribution efficiency. This concept is still useful in certain situations. Firstly, if the demand for a product exceeds
the supply, ways should be found to increase production. Secondly, if the cost of the product is too high, then better
productivity is necessary to bring it down.
Brassington and Pettitt (2000:14) quote an example of a modern day production orientation. Tetra Pak, a Swedish
carton manufacturer with worldwide customers, pursued a low-cost strategy in order to achieve economies of scale.
However, it lost sight of customer need. The problem with the cartons was that it was difficult to open. However,
Tetra Pak chose to keep costs as low as possible instead of investing in technology to solve the problem. Tetra
Pak eventually lost market share because its main competitor, Norway’s Elo Pak, developed a carton with a better
spout and a plastic cap that better met the needs of the customers.
1.5.2
The product concept
According to this concept, consumers will favour products that are most desirable in terms of quality, performance
and innovative features. Enterprises that adopt this philosophy devote a great deal of effort in making continuous
product improvements. The drawback of the product concept is that it fails to recognise that consumers don’t want
products; they want solutions to problems. If the product does not solve the problem, they will not buy it no matter
how great the quality is.
Blythe (2006:8) cites the Kirby vacuum cleaner as a modern example of the product concept. The Kirby vacuum
cleaner has a whole host of features and can clean almost anything. However, its retail price is approximately ten
times that of a basic vacuum cleaner, a price that most consumers can’t or will not pay.
1.5.3
The selling concept
Many enterprises still follow the selling concept that holds the view that sales will not be enough unless enterprises
undertake aggressive selling and promotion efforts. This concept is often practised with goods that consumers
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normally don’t seek e.g. insurance policies and encyclopaedias. Enterprises that have overcapacity often practice
the selling concept. However, there are risks in attempting to sell what they manufacture rather than want the
consumers want. The focus is on creating short-term gains rather than developing long-term, profitable
relationships with customers.
1.5.4
The marketing concept
According to Kotler and Armstrong (2012:34) the marketing concept “holds that achieving organisational goals
depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than
competitors do”. The marketing concept is stated in ways such as “We’re not satisfied until you are” (GE); and “To
fly, to serve” (British Airways).
The marketing concept begins with a clearly defined market. The focus is on customer needs. All marketing
activities that affect consumers are co-ordinated. Profit is made by developing long-term customer relationships
that are based on customer value and satisfaction.
Activity 1
After studying the product concept and marketing concept, try to develop a marketing
orientated answer for each of the following companies:
Company
Product-orientated answer
Marketing-orientated answer
Kodak
We make cameras and films
We help preserve beautiful
memories
Amazon.com
We sell books and recordings
?
Hewlett-Packard
We make computer printers
?
Nordstrom
We sell clothing for families
?
Caterpillar
We make construction machinery
?
Nandos
We make flame-grilled chicken
?
Sizwe Ntsaluba Gobodo We provide audit and legal advisory
1.5.5
.
The societal marketing concept
This is the latest of the five marketing management philosophies. It expands on the marketing concept by adding
that the wellbeing of society must also be maintained or improved. With present day environmental problems,
worldwide economic problems, shortage of natural resources and inadequate social services, subscribing to the
marketing concept is not enough. Enterprises must do what is best for consumers and society in the long term. In
a nutshell, marketers must balance three factors in setting their marketing policies: company profits, consumer
wants and society’s interests.
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Many concerns have led to the societal marketing concept. An example is the high fat and salt content of fast foods
e.g. hamburgers and fried chicken. Another example is the convenient packaging that leads to waste and pollution.
Johnson & Johnson included their concerns for society in its company document. It promises honesty, integrity
and putting people before profit. The company has also backed its words with action.
Think Point 1
•
Blythe (2006:7) contends that the societal marketing concept “is difficult to implement in
practice and few companies are in a position to adopt such an altruistic approach”.
Comment on this view
Think Point 2
•
1.6
Explain why the product concept is vital for every business organization.
Self-Assessment Activities
Knowledge Check Questions
1.6.1 Discuss the importance of marketing. Consider the role that it plays in the global
economy, your country’s socio-economic system, any individual organisation and
in your life.
1.6.2 Discuss the chief advantage and possible drawbacks of the concept of
“marketing mix”.
1.6.3 Explain how the production concept is different from the selling concept by giving
examples:
Case Study 1
(Questions based on units 1, 4, 5, 6, 7 and 8 of the study module)
1.6.4 Read the following case study and answer the questions that follow:
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Pick 'n Pay – An entrepreneurial legend
Raymond Ackerman, the CEO of Pick 'n Pay, became the founding father of the modern Pick 'n Pay when he
bought a group of four supermarkets in Cape Town (South Africa) from Jack Goldin and Mark Hoffman for R620
000. By 1968 Pick 'n Pay had become a public company with 529 170 shares that were offered to the public.
This issue provided the much-needed additional working capital to start four new stores in 1969. By 1970 Pick
'n Pay was ready to take on the might of South African retailing in its own backyard when it opened its first
supermarket in Gauteng. This opening was the start of an aggressive store-opening campaign that saw Pick 'n
Pay breaking out of its regional boundaries, and paved the way to challenge the established competitors (at that
time OK Bazaars and Checkers).
Early in 1973 Pick 'n Pay realized that the supermarket, as a retail institution, was reaching maturity in South
Africa (SA) and that innovations that succeeded in Europe and USA should also be introduced in the South
African retailing scene. One such retailing vehicle that opened the road towards a growth strategy for Pick 'n
Pay was the hypermarket. The first hypermarket opened in Boksburg near Johannesburg on 19 March 1975.
Following its success, the second hypermarket opened in Brackenfell in 1977, followed by three openings in
Bloemfontein, Durban and Norwood in 1978. By 1992, 14 Pick 'n Pay hypermarkets were in operation.
By the financial year ending 28 February 1983, Pick 'n Pay’s turnover exceeded R1 billion for the first time. By
28 February 1986 Pick 'n Pay had reached the R2 billion turnover figure. Today Pick 'n Pay is the largest retail
grocery chain in SA, owning approximately 34% of the market share of the formal sector grocery market. During
the 2004 financial year, sales increased to R29,3 billion. This was reached with 428 stores. In 2004 Pick 'n Pay
also had 40 000 employees in SA and was still growing.
The different types of stores (2004) used by Pick 'n Pay are shown below:
Hypermarkets
14
Supermarkets
121
Clothing stores
3
Pick 'n Pay family stores (franchise) 121
Pick 'n Pay Mini-markets (franchise
Score supermarkets
142
Boxer superstores
Boardmans (sold in 2004)
Franklins (NSW-Australia)
45
26
77
41
The target markets of Pick 'n Pay are determined by the actual location. It operates at the upper end of the
market. It focuses on satisfying the needs and wants of its customers, providing convenient store locations and
providing a wide range of products at the best prices. Pick 'n Pay has three house brands which fulfil its promise
regarding quality and affordability viz. No Name products, Pick 'n Pay choice products and Foodhall products.
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Marketing Mix
Pick 'n Pay realizes that suppliers are also customers and therefore Pick 'n Pay strives to have ethical day-today dealings with its customers. It aligns itself with supply chain members ascribing to similar ethical and moral
codes. Pick 'n Pay also supports historically disadvantaged suppliers and service providers.
Pick 'n Pay follows a pricing strategy of discounting (low margins and high turnover). Consistent pricing across
the range is essential to keep customers content. Its pricing strategy is extremely aggressive. It is committed to
fighting cartels, monopolies and price fixing. It is still fighting for the removal of price fixing on petrol.
Pick 'n Pay uses sponsoring activities to maintain the good image of its brand name in the public view.
Promotion and social responsibility are seen as two sides of the same coin at Pick 'n Pay. Above- and belowthe-line promotion is used to communicate the Pick 'n Pay brand and to market its products. Pick 'n Pay
sponsors sporting, educational and charitable events.
Source: Cant and Machado (2005:57-63)
Questions
1 What would you regard as being the main reasons for the success of Pick 'n Pay?
2 Does Pick 'n Pay adopt the marketing concept? Motivate your answer.
3 Is there any evidence that Pick 'n Pay subscribes to the societal marketing concept? Substantiate
your answer.
4 Comment on the marketing mix of Pick 'n Pay.
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Solutions
Activity 1
The following marketing-orientated definitions are extracted from the publications and websites of the
respective companies:
Company
Product-orientated answer
Marketing-orientated answer
Kodak
We make cameras and films
We help preserve beautiful memories
Amazon.com
We sell books and recordings
We make buying the fastest, easiest, and most
enjoyable shopping experience possible
Hewlett-Packard
We make computer printers
We engineer and deliver technology solutions that
drive business value, create social value, and
improve the lives of our customers
Nordstrom
We sell clothing for families
We offer the customer the best possible selection,
quality, and value
Caterpillar
We make construction machinery
We help our customers build the world’s
infrastructure and transport its resources
Nandos
We make flame-grilled chicken
Our flame-grilled chicken is and addictive
experience for chicken lovers
SNG
We provide audit and legal advisory
Our national footprint and highly skilled workers
position us to provide innovative business
solutions to our clients
Think point 1
Whilst the marketing concept may help an enterprise to achieve its goals, it may at the same time engage in actions
that conflict with the best interests of society. However, this does not have to be the case. A firm’s social
responsibility can be quite compatible with the marketing concept. Although the investments made by a company
to meet the broader needs of society seem costly, they reflect a long-term view of customer satisfaction and
performance objectives (rather than focusing on today). To prosper in the long term, companies must satisfy its
customers’ social needs as well as their economic needs.
Think point 2
Quality of goods and services produced adds value and enhances customer satisfaction. Quality is all about
producing better and satisfying goods and services and will result in customer satisfaction, retention and long term
relationships. This will increase the firm’s competitiveness, financial values of sales and profits, leading into
organisation growth. Give practical examples that you have experienced in your life of how quality of goods and
services has added value and enhanced competitiveness of businesses.
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Self-assessment activities
1.6.1 Etzel et al. (2006:20) provides an overview of the importance of marketing.
Globally
Prior to 1994, South African enterprises had a large and secure domestic market. Since then many foreign firms
with great marketing expertise have entered the South African market bringing with them products like electronic
goods, cell phones and clothing. Added to these trade agreements that increase marketing opportunities for
enterprises from other countries, meant that competition for domestic enterprises has increased greatly. This in
turn has resulted in South African enterprises looking for new markets abroad.
Domestically
Aggressive marketing has been largely responsible for a higher standard of living. A significant portion of the labour
force is engaged in marketing activities. Consider the number of employees in retailing, wholesaling, transport,
warehousing, communication industries and those in the marketing departments of manufacturers and service
industries.
Organisationally
Marketing considerations form an important part of both the short-term and long-term planning of any enterprise.
The success of an enterprise comes from satisfying the needs and wants of customers. Although many activities
are necessary for an enterprise’s success, marketing is the only one that brings in the income directly.
Personally
Marketing occupies a great part of our daily lives. Studying marketing will enable you to be a better-informed
consumer. Marketing is probably linked to your career aspirations. The study of marketing will help you to develop
marketing skills in order to succeed in the highly competitive global environment.
1.6.2 Advantage
Brassington and Pettitt (2000:28) state that the use of the marketing mix gives an enterprise a competitive edge.
This means that the marketer is creating something unique, that consumers will recognise and value, and is
distinguishable from products of competitors. The edge can be created through one element of the mix or through
a combination of them.
Drawbacks
Firstly, according to Blythe (2006:16) the mix implies that there is a set of sharp boundaries between the elements.
In actual fact, each element impinges on every other element to some degree. Secondly, the mix does not cover
everything that marketers do e.g. it does not mention competition, managing long-term relationships with
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customers and internal marketing. Thirdly, the mix implies that marketing is something that is done to consumers
rather than seeking co-operation and interaction between consumers and the organisation. Lastly, the mix almost
totally focussed on consumers but in fact most of the marketing activity is carried out between businesses.
1.6.3 The production concept is a marketing philosophy that subscribes to the view that consumers will choose
products that are available and affordability. Products must be available at the right time, in the right place and in
required quantities to satisfy the needs and wants of consumers. The strategic focus for management is therefore
to increase production quantities and delivery. The selling concepts holds the view that sales will not be enough
unless enterprises undertake aggressive selling and promotion. The use of the promotional mix tools of marketing
if used effectively will lead to greater product awareness and increase sales. The integration of the production and
selling concepts will provide increased sales for the enterprise.
1 One major reason for its success is the growth strategy it followed.
Another reason is its policy of diversification e.g. supermarkets, hypermarkets, Score supermarkets,
clothing stores etc.
A third reason is its consumer orientation.
Its aggressive pricing strategy also contributed to its high turnover.
2 Yes.
It focuses on customer needs.
Its phenomenal growth indicates that it has been able to deliver desired satisfactions more effectively than
its competitors.
3 Yes.
It recognises the importance of social responsibility.
It sponsors various sporting, educational and charitable events.
It strives towards ethical dealings with customers.
It supports historically disadvantaged suppliers and service providers.
It is in battle with the government to remove price fixing on petrol – consumers would benefit from competition.
4 Product: Apart from manufacturer brands, it also introduced three house brands. It recognises the need of
customers for quality and affordability.
Price: Its aggressive pricing strategy has kept it competitive. The policy of discounting contributed to high
turnover.
Place: It has developed ethical dealings with supply chain members. Its stores are conveniently located
for customers. It displays social responsibility by supporting historically disadvantaged suppliers and
service providers.
Promotion: Its promotion is aimed at maintaining a good image of its brand name. It has also integrated
promotion with social responsibility.
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Unit
2:
23
The Marketing Environment
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
2.1 Introduction
•
Introduce topic areas for the unit
2.2 Classifying environmental factors
•
Differentiate between an enterprise’s micro environment and
macro-environment
•
2.3 The micro-environment
Explain the influence of the factors that comprise an
enterprise’s micro environment
•
2.4 The macro-environment
Describe the impact of the factors that comprise an
enterprise’s macro environment
•
2.5 Responding to the marketing
Explain how enterprises can influence the market environment
environment
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction.
Global Edition, Fifteenth Edition. Pearson.
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2.1
Introduction
Kotler and Armstrong (2012:90) maintain that in order to develop strong, long-term relationships with customers,
others in the company as well as external stakeholder’s marketers must have a proper understanding of the
environmental forces that affect these relationships. They add that the marketing environment “consists of actors
and forces outside marketing that affect marketing management’s ability to build and maintain successful
relationships with target customers”.
Blythe (2006:30) elaborates that since no business operates in a vacuum, decisions are made after consideration
has been given to factors such as competition, customer characteristics, supplier and distributor behaviour as well
as the legislative and social framework.
The extent to which the environment can be controlled and the extent to which the environment controls an
enterprise, depends partly on the nature of the environment and partly on the nature of the enterprise. Some
environmental factors can be controlled by managers within an enterprise while others cannot be changed and
must therefore be considered during decision-making.
2.2
Classifying Environmental Factors
Factors within the environment may be classified as being in the micro-environment or macro-environment. Kotler
and Armstrong (2012:90) describe the micro-environment as consisting of factors close to the company that
affect its ability to serve its customers e.g. the company, suppliers, marketing intermediaries, customers,
competitors and various publics. The macro-environment, on the other hand, consists of greater societal forces
that affect the micro-environment e.g. demographic, economic, natural, technological, political and cultural.
Blythe (2006:30) adds that in general, the macro-environment is difficult to control or influence compared to the
micro-environment which is more within an enterprise’s control.
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2.3
The Micro-Environment
The
company
Suppliers
Marketing
intermediaries
Customers
Competitors
Publics
MARKETING
Figure 2.1: An enterprise’s micro-environmental factors
Source: Adapted from Geel, FC.& Tait, M
Let us examine how the success of marketing depends on developing good relationships with each of the factors
shown in figure 2.1.
2.3.1
The company
Kotler and Armstrong (2012:91) state that when designing marketing plans, marketing management must consider
other company groups e.g. top management, finance, research and development (R&D), purchasing, operations
and accounting. These groups comprise the internal environment of the enterprise. Top management is
responsible for formulating the company’s mission, objectives, strategies and policies. It is from the plans and
strategies of top management that marketing managers make decisions.
Finance is responsible for obtaining and utilising funds to implement the marketing plan. Designing safe and
attractive products is the responsibility of the R&D department. Obtaining supplies and materials falls within the
domain of the purchasing department. Operations are responsible for producing the desired products.
Accounting measures the revenues and costs to determine how well marketing is achieving its objectives. It is
clear that all the departments have a role to play in the marketing department’s plans and activities.
Blythe (2010:55) goes a step further by stating that staff relationships, corporate culture and resource constraints
are part of an enterprise’s internal environment. Relationships between staff are crucial for a productive working
environment. Corporate culture has a great influence on staff behaviour. Enterprises need to also use its limited
resources (e.g. a smaller than desired marketing budget) effectively and creatively.
2.3.2
Suppliers
Suppliers provide the resources that a company needs to produce its goods and services. Kotler and Armstrong
(2012:91) advise marketing managers to constantly monitor supply availability as problems could affect customer
satisfaction in the long term. Suppliers’ prices must also be closely watched as rising prices can have a negative
impact on sales.
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Blythe (2006:50) adds that if there are only a few suppliers, the buyer has little room to bargain. In this case
suppliers operate oligopolistically and set terms for business between them. Furthermore, suppliers’ products
sometimes cannot substitute for each other e.g. spare parts for Volvos will not fit Hondas and vice-versa and this
may force an enterprise to buy from a small group of suppliers. Lastly, switching from one supplier to another can
sometimes be costly.
2.3.3
Marketing intermediaries
Marketing intermediaries assist an enterprise to promote, sell and distribute its products to the final purchasers.
According to Kotler and Armstrong (2012:92), they include resellers, physical distribution enterprises, marketing
services agencies and financial intermediaries. Resellers are enterprises that buy and resell merchandise and
therefore assist manufacturers to find customers for them. The retailing industry has changed from having many
small, independent resellers to now having large and growing reseller organisations e.g. (in South Africa) Pick ’n
Pay, Game, Shoprite. These enterprises often possess sufficient power to dictate terms to manufacturers or even
shut them out of large markets.
Physical distribution enterprises assist companies to store and transport goods from the points of production to
their destinations. When choosing these warehouse and transportation enterprises, companies must consider
factors such as cost, delivery, speed and safety.
Marketing services agencies include market research enterprises, advertising agencies, media and marketing
consultants that assist a company to target and promote its products to the right markets. When choosing them,
marketers must consider creativity, quality, service and price.
Financial intermediaries include banks, credit enterprises, insurance companies and other financial institutions
that help to finance transactions or insure against risks.
2.3.4
Customers
Kotler and Armstrong (2012:93) point out that companies need to study five types of customer markets closely.
Consumer markets are made up of individuals and households that purchase goods and services for personal
use. Business markets purchase goods for use in the production process or for further processing. Reseller
markets purchase goods and services that they resell for a profit. Government markets consists of government
agencies that purchase goods to provide services for the public. Lastly, international markets are made up of
buyers from other countries. Marketers need to study the special characteristics of each market type.
2.3.5
Competitors
Blythe (2006:49) argues that since every product represents a means to solving a problem, every product faces
competition. He adds that competition can vary greatly between industries. Competition, he says, can be
categorised as monopolies (where one firm controls the market), oligopoly (where a few large firms control the
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market), perfect competition (where no single buyer or seller can influence the market) and monopolistic
competition (where one major firm has most of the power in the market but smaller firms also have significant
shares).
Kotler and Armstrong (2012:92) advise that for a firm to be successful, it must provide greater customer satisfaction
and value than its competitors do. In order to gain a strategic advantage, marketers must position their offerings
strongly against the offerings of competitors in the minds of consumers.
2.3.6
Publics
A public refers to any group that may influence the ability of an enterprise to achieve its objectives. Kotler and
Armstrong (2012:93) identify seven kinds of publics:
•
Financial publics affect the ability of an enterprise to raise funds e.g. banks, investment houses and
shareholders
•
Media publics include newspapers, magazines, television and radio stations that carry news and editorial
opinions
•
Government publics are important as enterprises need to on an ongoing basis consult their lawyers on
issues like product safety, honesty in advertising and so on
•
Citizen-action publics include consumer bodies, environmental groups and minority groups who often
question the marketing decisions of various companies. The public relations department can play an
important role in this regard
•
Local publics include the residents in the neighbourhood and community organisations. Some
enterprises appoint a community relations officer to deal with the community, attend meetings and make
contributions to worthwhile causes
•
General public affects enterprises in terms of its attitude towards the enterprise’s products and activities.
The image of a company in the eyes of the public will impact on its sales
•
Internal publics include the employees, management, volunteers and board of directors. The internal
publics may be kept informed and motivated by way of newsletters and other means. It is important for
employees to feel good about the enterprise as these positive feelings will spill over to external publics
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2.4
The Macro-Environment
The macro-environment consists of forces that give rise to opportunities and pose threats to an enterprise.
Demographic
forces
Economic
forces
Natural
forces
Technological
forces
Political
forces
Cultural
forces
COMPANY
Figure 2.2 : Enterprise’s macro-environmental factors
Kotler and Armstrong (2012:94)
2.4.1
Demographic environment
Kotler and Armstrong (2012:94) define demography as “the study of human populations in terms of size, density,
location, age, gender, race, occupation, and other statistics”. They contend that the demographic environment is
of great interest to marketers since it involves people, and it is people who make up markets. The world’s large
population (over 6.4 billion) and its diversity provide both opportunities and challenges for enterprises. Marketers
must therefore monitor demographic trends and developments in both domestic and international markets. Let us
examine some of the demographic trends in South Africa.
•
Changing age structure of the population of South Africa
An important demographic trend in South Africa is the changing age structure of the population. Cant and
Machado (2005:48) provide an overview of this and they identify five basic generations.
■Pre-depression generation
This generation includes people who were born before 1930. They experienced the great depression and some
even fought in World War II. This generation today includes people in old-age homes and those living as heads
of extended families. Their needs are unique and relate to health, trying to cope with high medical costs and
trying to make ends meet. Mr Nelson Mandela and Archbishop Desmond Tutu are some famous South Africans
that form part of this generation.
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■The depression generation
People of this generation were born between 1930 and 1946. They experienced Rock ’n Roll first-hand and
are people who have just retired or are in the last stage of their careers. They are the grandparents of
generation Y (discussed later). People belonging to this generation usually believe in hard work, are
conservative in nature and like order.
■The baby boom generation
This is one of the largest generations in South Africa and it includes people who were born between 1947 and
1964. They experienced, inter alia, the apartheid years, racial discrimination, sexual revolution, the hippy era,
recreational drugs and famous pop groups like the Beatles and Rolling Stones. They usually have a live-for-today
attitude. Mr Thabo Mbeki, Mr Tony Leon and Ms Patricia de Lille are well-known South Africans that belong to
this generation.
■Generation X
People belonging to this generation were born between 1965 and 1978. This generation experienced
households with both parents working. They also bore the brunt of single parent households, a deteriorating
environment and the Aids pandemic. They were the first generation that was introduced to television (1976).
When South Africa became a democracy in 1994, they were young adults. Well-known South Africans who
belong to this generation include Lucas Radebe (soccer star) and Charlize Theron (actress).
■Generation Y
People born between 1979 and 1994 belong to Generation Y. They are the children of the baby boomers and
reaped the benefits of living in a democratic South Africa. They experienced computers, the internet and saw
their parents losing their jobs as the economy slowed down. People belonging to Generation Y desire
independence and are more optimistic, confident and social than the previous generations. They are street-smart
and technology-minded. Graeme Smith and Natalie du Toit are well-known South Africans who belong to this
generation.
Think Point 1
Consider the people who belong to Generation Y in your country. Comment on their
consumer behaviour (especially their spending habits). Also provide some practical
examples of how retailers are targeting Generation Y
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Activity 1
Having examined the changing age structure of the population of South Africa, let us
examine the economic impact of the age groupings. According to Cant and Machado
(2005:52) the Bureau for Market Research conducted research in 2004 on the household
expenditure of South African households using life stage and life plane determinants. The
following life stage groupings were used:
Life stage
Age group of household head
1
Less than 26 years
2
26 to 35 years
3
36 to 45 years
4
46 to 55 years
5
56 years’ plus
The life plane determinant refers to the level of education of the consumer and was
used since there is a relationship between level of education and income. The following
six life plane categories were used:
Life plane
Level of education of household head
A
Degree, postgraduate degree or diploma
B
Diploma, certificate with Grade 12
C
Grade 12 (“Matric”)
D
Grade 10, Grade 11, National Technical Certificate
E
Grade 9, Grade 8
F
Below Grade 8
After combining the information gathered on life stage and life plane, the following
information became available:
Life
<26
26-35
plane
R’000
R’000
A
3 733 787
37 823 859
48 456 646
37 829 122
26 137 391
153 980 624
4 785 391
27 986 735
32 606 799
17 508 578
13 565 478
96 452 984
R’000
46-55
R’000
56+
Total
R’000
R’000
C
10 312 978
40 355 400
40 786 731
30 390 723
20 105 509
141 951 342
D
4 646 804
26 221 910
37 658 690
25 106 230
19 923 554
113 557 190
E
2 899 843
10 978 942
19 965 399
18 917 187
18 871 810
71 633 182
F
2 699 605
15 921 870
31 887 739
32 607 365
54 669 186
137 785 767
29 078 410
159 288 718
211 361 825
162 359 208
153 272 929
715 361 092
Total
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Questions
Refer to the above table and answer the following questions:
1.1
Comment on the relationship between level of education and household
expenditure.
1.2
Comment on the household expenditure of various generation groups viz.
Pre-depression, Depression, Baby boom, Generation X and Generation Y
•
The changing South African family
According to Cant and Machado (2005:27) remaining single for longer, increase in divorce rates, living longer
and increased work demands mainly on women is changing the traditional shape of South African
households. The lifestyles, needs and wants of smaller and single-person households are different from
traditional households. The needs and buying habits of each group are distinctive and the marketing approach
to each group will differ.
The number of women who are working has increased significantly. This has resulted in an increase in the
need for, inter alia, child day care facilities, convenience foods, career-orientated clothes and financial
services.
•
Geographic shifts in population
The past two decades has seen a dramatic increase in the number of people moving from the rural areas
(where jobs have become scarce) to the urban areas. This has resulted in the establishment of a number of
informal settlements near towns and cities. The lack of jobs for unskilled workers in the urban areas is one of
the reasons for the dramatic rise in the number of informal businesses that have sprung up in residential
areas and city centres. Marketers are seeing the opportunity in targeting the large lower income markets and
attracting these people as customers early in their development.
The economic woes of Zimbabwe have resulted in an influx of refugees into South Africa. In July 2007, it was
estimated that approximately three million Zimbabweans had crossed the borders into South Africa. The
increase in demand for products will be welcomed by marketers.
•
A better-educated population
With the introduction of compulsory schooling for all South Africans as well as reforms in education since
1994 (when South Africa became a democracy), the population of South Africa has become better educated.
Literacy levels are higher and the number of graduates especially among the Black African population has
increased sharply. The increase in the number of educated people will increase the demand for quality
products, books, magazines, travel, personal computers and internet access. It is expected that the educated
will shop more by catalogue and electronic means.
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•
Diversity
The diversity of the South African population is apparent in the well-known description of South Africa as a
“rainbow nation” by anti-apartheid campaigner Archbishop Desmond Tutu. The majority of the people in South
Africa are Black Africans (approximately 79%). This is followed by Whites (9,6%), Coloureds (8,9%) and
Indian or Asian (2,5%). Diversity is also evident in the first home language of the population. Nine of the
eleven official languages are African languages with IsiZulu speaking people making up approximately 24%
of the population followed by IsiXhosa spoken by approximately17,6% of the population. Afrikaans speakers
account for 13,3% of the population whilst only 8,2% of the population has English as their first home
language.
Many marketers target specially designed products and promotions to one or more of these race and
language groups. According to Cant and Machado (2005:27) the “South African society will continue to
splinter into increasingly smaller groups that are more diverse in their education, wealth and income, ethnicity,
characteristics, tastes and shopping behaviours”.
2.4.2
Economic environment
Kotler and Armstrong (2012:101) define the economic environment as consisting of factors that influence the
buying power of consumers and spending patterns. Some countries have subsistence economies where they
consume most of their agricultural and industrial output. Marketing opportunities in these countries are few.
Countries that have rich markets for a variety of goods are industrial economies. Some of the major economic
trends in South Africa are described below.
•
Economic environment of South Africa
According to Cant and Machado (2005:22) South Africa has weathered the storm of high interest rates and
the spiralling rand of the late 1990s. It is now reaping the benefits of tight fiscal management and investment.
The stronger rand has reduced inflationary pressures and with them interest rates. Due to these factors,
consumer and business confidence has steadily increased, resulting in both an ability and propensity to
spend. The stronger rand has, however, had a negative influence on some sectors e.g. tourism and
manufacturing.
Much of the spending power was supported by easily accessible credit although changes to the National
Credit Act in 2007 have decreased the amount of credit granted. Whilst the income of South Africans has
been rising, the savings as a percentage of GDP remains poor by global comparison.
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Think Point 2
According to Can’t and Machado (2005:22) the stronger (South African) rand
has had a negative influence on some sectors e.g. tourism and
manufacturing. Explain how this is so.
2.4.3
Natural Environment
Kotler and Armstrong (2012:102) describe the natural environment as involving the natural resources that are
required by marketers as inputs or that are affected by marketing activities. There has been growing concerns
about the environment in recent years. Every year a number of international summits and conferences are held in
order to assist nations in the area of environmental conservation. The depletion of the ozone layer, global warming
and pollution are environmental concerns that many governments in the world are now taking seriously.
Kotler and Armstrong (2012:102) advise marketers to be aware of developments in the natural environment. Firstly,
marketers need to be aware of the short supply of raw materials. The depletion of non-renewable resources like
coal and oil poses serious challenges to marketers. The sensible use of renewable resources like forests is
important. Enterprises that use resources that are scarce will likely face ever- increasing prices.
Increased pollution is the second development that marketers need to consider. The production of goods and
services inevitably damages the quality of the environment. Examples include the disposal of toxic waste; chemical
pollutants in the soil and rivers; non-biodegradable containers that litter the environment.
The increasing intervention by governments in natural resource management is the third development. Some
governments vigorously take steps to ensure environmental quality. However, many poorer nations don’t pay
much attention to environmental issues like pollution. It is the duty of enterprises throughout the world to be socially
responsible in terms of the environment.
Some companies are adopting environmentally sustainable strategies. Their responses to some of the
environmental problems include the development of ecologically safer products, recyclable packaging, recycled
materials and more efficient pollution controls.
2.4.4
Technological environment
Kotler and Armstrong (2012:104) maintain that technology is the most dramatic force that shapes our destiny. The
wonders of internet, computers, antibiotics and organ transplants are the result of technology. On the other hand,
the horrors of chemical weapons, guns and nuclear missiles also result from technology. Our attitude towards
technology depends on whether we are in awe of its benefits or blunders.
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The technological environment changes quite rapidly and with it comes new opportunities and markets. Enterprises
that ignore new technologies will most likely face declining sales and find their products becoming out of date.
Furthermore, they will lose out on new product and market opportunities.
Nowadays many companies are placing marketing people in research and development (R&D) teams in order to
get a stronger market orientation. The challenge to R&D teams is not only technical but also to be able to develop
practical, affordable products.
As technology becomes more complex, the public needs to know whether products that arise from these complex
technologies are safe. In recent years many concerns have been raised about genetically modified crops and
certain medicines/drugs.
2.4.5
Political environment
Etzel et al. (2005:41) point out that the conduct of every company is influenced greatly by the political and legal
forces on marketing. They add that these forces can be grouped into four categories:
•
Monetary and fiscal policies: The level of government spending, money supply and tax legislation affects
marketing efforts
•
Social legislation and regulations: These include legislation affecting the environment e.g. anti-pollution
laws. The aim is to protect the interest of societies from unrestrained business conduct
•
Government relationships with industries: Governments may provide subsidies for agriculture and
passenger transportation. Certain industries are affected by tariffs and import quotas. Privatisation of
state institutions will affect public utilities (e.g. water and electricity), telecommunications and transport
industries
•
Marketing specific legislation: Most governments pass laws that affect marketing. These laws are
necessary to protect consumers and regulate competition. Legislation to protect consumers include
matters relating to food, drugs, product safety, packaging and labelling, consumer credit, product
warranties and nutritional information. Laws that regulate competition may relate to unfair trade practices,
trademarks, monopolies and pricing of goods
Kotler and Armstrong (2012:105) add that legislation cannot cover all potential marketing abuses and that existing
laws are not easy to enforce. They therefore believe that companies must be socially responsible by actively
seeking ways to protect the interests of the consumer and environment in the long term.
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Think Point 3
Consider your own country and think of examples of political intervention that
had an influence on marketers..
2.4.6
Cultural environment
Kotler and Armstrong (2012:110) describe the cultural environment as consisting of institutions and other forces
that have an influence on a society’s basic values, perceptions, preferences and behaviours. Cultural
characteristics can influence marketing decision-making.
In any given society people hold many beliefs and values. Their core beliefs and values are passed on from one
generation to the next and are reinforced by schools, religious organisations, business and government. These
core beliefs and values are not easily changed. People, however, do have secondary beliefs and values that are
more open to change. The belief in marriage may be a core belief but getting married at a young age is a secondary
belief. Thus, for example, marketers of family-planning have a better chance of convincing people to marry later
than not to marry at all.
Even though core values remain fairly persistent, cultural swings may occur. The hairstyles and clothing worn by
youngsters today are influenced a great deal by pop (music) groups, movie stars and other celebrities. Cultural
shifts may result in new opportunities or even threats to marketers.
Some people use products and brands as a means of self-expression and they purchase products that match their
views of themselves. The shift from a “me society” to a “we society” stems from a desire for people to be with
others. Opportunities for marketers include establishing health clubs and taking advantage of the need for family
vacations.
People’s orientation to their society also influences consumption patterns. Since 1994 patriotism has been
increasing gradually in South Africa. Many marketers have responded to the catch phrase “proudly South African”
by urging consumers by buy goods manufactured in South Africa.
Cant and Machado (2005:47) describe South Africa as a melting pot of different cultures within which there are
different subcultures. There are various ways of identifying subcultures based on variables like age, religion,
language groupings, racial groupings and geographic groupings. For example, using language as a variable, the
Afrikaans-speaking subcultural group have a preference for braaivleis (barbeque), biltong and rugby. Using racial
groups as a variable, Indians as a subcultural group have a preference to spicy curry dishes.
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2.5
Responding to The Marketing Environment
Kotler and Armstrong (2012:113) found that many enterprises consider the marketing environment as being
uncontrollable and to which it must react and adapt. These enterprises passively accept the marketing environment
without trying to change it. They study the environment and develop strategies to cope with the threats and
capitalise on opportunities that the environment provides.
Some companies, however, are proactive and take aggressive steps to influence the publics and forces in the
marketing environment. Some try to influence legislation that affects their industries. Others use media events to
gain favourable publicity. Advertorials are also used to influence public opinion in their favour. They file complaints
against competitors with regulatory bodies or even file lawsuits against them. Some companies gain better control
of their distribution channels by getting into contractual agreements.
It must be remembered that marketers cannot always influence environmental forces. In many instances, they may
settle for studying and reacting to the environment. However, when it is possible to do so, marketers must be
proactive rather than reactive to the marketing environment.
2.6
Self-Assessment Activities
Knowledge Check Questions
2.6.1 Briefly describe how the micro-environment affects a company’s ability to serve
its customers.
2.6.2 Briefly describe how the macro-environment affects a company’s ability to serve
its customers.
2.6.3 Explain how changes in the economic environment affect marketing decisions.
2.6.4 Explain how the changing role of women has been reflected in marketing in your
country.
2.6.5 Technology is one of the factors that influences a company’s marketing. Discuss
how a company’s marketing may be influenced by the internet.
2.6.6 Explain some of the macro-environmental forces that affect the marketing
program of a pizza store.
2.6.7 “The marketing environment is uncontrollable and therefore marketers should not
waste time, effort and money to change it. Rather, marketers should try to avoid
the threats and take advantage of opportunities that the environment provides.”
Do you agree with this statement? Discuss.
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Solutions
Think point 1
According to Can’t and Machado (2005:50) the following is typical of Generation Y in South Africa:
■They spend between R60 and R80 per month on airtime for cell phones
■They spend between R40 and R50 per month on movies
■They spend between R30 and R55 per month on magazines
■They have a big say on the food that their parents buy
■They also exert influence on parents on the purchase of expensive items like clothing, cars and electronics.
■They are very brand conscious. When it comes to clothing Billabong, Levi’s, Diesel, Roxy, Quicksilver and Adidas
are popular. The main sources of information for decisions regarding brands and what to buy are friends,
magazines and television. In terms of preference for media to gather information, television comes first followed
by magazines and then radio
Retailers are targeting Generation Y in the following ways:
■Young children are targeted in marketing campaigns for almost every product
■They are ideal targets for anything new and fresh
■Edgars (a clothing chain) targets Generation Y with youth clothing brands like Free2BU, Roxy and Bad Boy
■Cell C (a cell phone company) showcases Generation Y South Africans in their advertisements
Think point 2
One consequence of a stronger South African rand is that tourists from other countries will get fewer rands when
they exchange their currency for it. In other words, the South African rand becomes more expensive for tourists to
“purchase” with their own currency. This may discourage tourists from visiting South Africa. Similarly, the
manufacturing sector in South Africa will find that buyers from other countries will have to pay more for South
African goods due to the stronger rand. The demand for South African goods will most likely decrease as a result.
Think point 3
Answers will vary from country to country.
In South Africa, the government passed legislation to make it compulsory for retailers to charge for plastic bags at
the pay point counters of supermarkets in order to reduce the negative impact of freely available carrier bags on
the environment.
Another example is the opening of the pharmaceuticals sector to non-pharmacist owned businesses. The
legislation also made provision for new pricing regulations.
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In June 2007, great changes were effected to the National Credit Act. The Act requires marketers to disclose fully
what consumers are expected to pay in total for a credit transaction including finance charges and any other
additional costs.
Other examples of this kind are acceptable.
Activity 1
•
Households with tertiary education have the highest household expenditure of the six groups. This also
shows the strong correlation between level of education and income
•
The households of the Baby boom generation (age groups 36 to 45 and 46 to 55) show the highest level of
expenditure
The household expenditure of the Pre-depression generation and Depression generation (category 56+ years)
make up a substantial part of the total expenditure in South Africa.
The household expenditure of Generation X (26 to 35 years) is more than that of the Pre-depression and
Depression generation together.
The household expenditure of Generation Y (<26 years) is the lowest of the five life stages. This is expected as
they are still entering the job market and working their way up the corporate ladder. Unemployment rate is also
high in this segment of the market.
Self-Assessment Activities
2.7.1 The micro-environment includes the internal environment (the various departments and management) which
influences marketing decisions. The marketing intermediaries cooperate to create customer value. An enterprise
may serve one or more of the five customer markets viz. consumer, business, reseller, government and
international. Competitors compete with the company to try to serve customers better. The various publics can
affect the company’s ability to realise its objectives.
2.7.2 The macro-environment consists of demographic, economic, natural, technological, political and cultural
forces that affect the micro-environment. These forces may present opportunities and pose threats to the
company.
2.7.3 The economic environment is made of factors that affect the purchasing power and spending patterns of
consumers. One characteristic of the economic environment is customer concern for value. Consumers are always
looking for greater value i.e. the best combination of good quality and service at a reasonable price. In some
countries the distribution of income is shifting. The many cases the rich have become richer and the poor have
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remained poor or got poorer. Marketers have to thus tailor their marketing efforts to two separate markets viz. the
rich and the less affluent. The South African government is trying, through some of its economic policies, to create
a greater middle class amongst the Black Africans.
2.7.4 Using South Africa as an example:
Unlike many years ago, the majority of women are working outside the home today. Marketers are using different
approaches to appeal to women who are working full-time and/or raising children on their own versus stay-at-home
mothers. Working women represent a profitable market for frozen and prepared food, more efficient appliances,
house cleaning services and fast food. Many companies are using specially designed marketing programs to reach
adult females. Many athletic shoe manufacturers, for example, have been designing athletic shoes for the female
market.
Many other examples may apply.
2.7.5 Some examples include the following:
Internet has created opportunities for enterprises to create their own websites to communicate with consumers.
Marketers can transact business from almost any location at any time of the day.
The promotion strategies of companies nowadays also make provision for Web advertising.
Airline seats and hotel accommodation can be booked on-line.
The internet has led to the e-commerce movement where transactions are now conducted via the internet than
through traditional means. There are many online marketers for groceries, clothing, furniture and cars.
2.7.6 Demographic: Generation Y represents an attractive market to pizza stores. The increase in the number of
working women has increased the demand for prepared foods.
Economic: As the buying power of people increase, so does the amount that they spend on prepared foods like
pizza.
Technological: Technological breakthroughs have resulted in pizzas being prepared quicker thus allowing stores
to guarantee delivery within a specified time. Technology has also improved packaging to the extent where pizza
stores can guarantee that the product will remain hot for a specified period.
Political: Legislation relating to food, packaging and nutritional labelling must be adhered to.
Cultural: Certain cultural groups may wish to have certain ingredients omitted from food e.g. beef, non-halaal meat.
Other answers are also acceptable.
2.7.7 No. In order to survive in an ever-changing marketing environment, marketers need to proactive rather than
reactive. Companies that are proactive take aggressive steps to influence the publics and forces in the marketing
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environment. They will try to influence legislation that affects their industries. Others use media events to gain
favourable publicity. Advertorials are also used to influence public opinion in their favour. They file complaints
against competitors with regulatory bodies or even file lawsuits against them. Some companies gain better control
of their distribution channels by getting into contractual agreements.
Although marketers cannot always influence environmental forces, when it is possible to do so, marketers must be
proactive rather than reactive to the marketing environment.
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Unit
3:
Segmentation, Targeting
and Positioning
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
3.1 Introduction
• Introduce topic areas for the unit
3.2 Market segmentation
• Explain the concepts segmentation
• Describe the steps in market segmentation
• Identify bases for segmenting a market
3.3 Target marketing
• Evaluate and select target market segments
• Explain the concepts targeting
3.4 Positioning
• Describe the steps in market segmentation, targeting
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing.
Global Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An
Introduction. Global Edition, Fifteenth Edition. Pearson.
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3.1
Introduction
Enterprises have learnt that they cannot appeal to every single buyer in the marketplace. Kotler and Armstrong
(2012:214) argue that buyers are too numerous, too widely dispersed and vary greatly in terms of their needs and
buying behaviour. They therefore recommend that enterprises must identify the parts of the market that they can
serve most effectively and profitably. Marketing strategies must aim at building the right relationships with the right
customers. Most enterprises nowadays have moved away from mass marketing (the “shotgun approach”) towards
market segmentation and targeting (the “rifle approach”).
The mass markets in every country have slowly broke up into a number of smaller segments. Marketers thus find
it difficult to create a single product or strategy that appeals to all these diverse groups.
In order to build the right relationships with the right customers Kotler and Armstrong (2012:214) state that three
major steps are necessary. The first step is market segmentation – dividing the market into smaller groups of
buyers that display distinct needs, characteristics or behaviours and who may prefer separate products or
marketing mixes. The second step is target marketing – evaluating the attractiveness of each market segment
and then choosing one or more market segments to serve. The third step is market positioning – deciding on a
competitive positioning for the product and developing a comprehensive marketing mix. Each of these steps will
now be discussed.
Think Point 1
Think about the marketing strategy that Coca-Cola has used over the years.
Explain how Coca-Cola has moved away from mass marketing towards
market segmentation and targeting..
3.2
Market Segmentation
Kotler and Armstrong (2012:214) state that it is through market segmentation that “companies divide large,
heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products
and services that match their unique needs”. Lamb et al. (2004:165) add that market segmentation helps marketers
define customer needs and wants more accurately. Since market segments differ in terms of size and profit
potential, segmentation assists decision-makers to define marketing objectives more precisely and to better
allocate resources to brands and market segments. A market segment may be defined as a subgroup of people
(or organisations) within a market that share one or more characteristics that cause them have similar product
needs.
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We will now discuss segmenting consumer markets and the requirements for effective segmentation.
3.2.1
Segmenting consumer markets
According to Kotler and Armstrong (2012:215) there is no single way to segment a market. Marketers need to try
different segmentation variables. Lamb et al. (2004:166) add that markets may be segmented using a single
variable e.g. gender or using a combination of variables e.g. gender, age group and education. Single-variable
segmentation is simpler and easier to use than multiple-variable segmentation but it is less precise. Multiplevariable segments are harder to use. Furthermore, as the number of segmentation variables increase, the size of
individual segments decrease. Despite this, the trend nowadays is to use more rather than fewer variables to
segment markets as it is more precise than single-variable segmentation.
Table 3.1, adapted from Kotler and Armstrong (2012:216) and Van Der Walt et. al. (1996:114), provides an
overview of the main variables that may be used in segmenting consumer markets. We now examine the major
segmentation variables viz. geographic, demographic, psychographic, and behavioural.
•
Geographic segmentation
Geographic segmentation calls for segmenting markets according to the region of the country. According to
Kotler and Armstrong (2012:215) companies may decide to operate in one, a few or all the regions but giving
attention to geographical differences in needs and wants.
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Table 3.1: Segmentation Variables
BASES
POSSIBLE VARIABLES
Geographic
Region
Gauteng; Limpopo; North West; Mpumalanga; Free State; Western Cape;
Northern Cape; Eastern Cape; KwaZulu-Natal
Size of city or town
Under 10 000; 10 000-20 000; 20 000-50 000; over 50 000 inhabitants
Density
Urban; suburban; rural
Climate
Summer rainfall; winter rainfall; very hot and humid; very hot and dry
Demographic
Age
Under 6; 6-11; 12-19; 20-34; 35-49; 50-65; over 65 years
Gender
Male; female
Family size
1-2; 3-4; more than 4
Family life-cycle
Young, single; young, married, no children; young, married with children;
older, married with children; older, married, no children under 18; older,
single; other
Income
Under R30 000; R30 001-R60 000; R60 001-R100 000; R100 001-R140
000; R140 001-R180 000; over R180 000
Occupation
Professional and technical; managers, officials and proprietors; clerical;
sales; craftspeople; supervisors; operatives; farmers; homemakers;
students; retired; unemployed
Education
Grade 9; Matric (Grade 12); diploma; degree; postgraduate
Religion
Protestant; Catholic; Hindu; Muslim; Jewish
Race
Black; White; Coloured; Asian
Generation
Baby boomer; Generation X; Generation Y
Psychographic
Social class
Upper class; middle class; lower class
Lifestyle
Conservative; liberal
Personality
Compulsive; gregarious; authoritarian; ambitious
Behavioural
Purchase occasion
Regular use; special occasion
Benefits sought
Quality; service; economy; convenience; speed
User status
Non-user; ex-user; potential user; first-time user; regular user
Usage rate
Light user; medium user; heavy user
Loyalty status
None; medium; strong; absolute
Readiness stage
Unaware; aware; informed; interested; desirous; intending to buy
Attitude towards product
Enthusiastic; positive; indifferent; negative; hostile
Source: Lamb Jr., C.W., Hair Jr., J.F., McDaniel, C, Boshoff, C. and Terblanche, N.S. (2015) Marketing. 5 th South
African Edition. Cape Town: Oxford University Press.
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Many companies find it beneficial to localise their products, advertising, promotion, and sales effort to fit the
individual needs of regions and cities.
Think Point 2
Many consumer goods enterprises take a regional approach to marketing. What
possible reasons could there be for such an approach?
Think Point 3
Name some products that may have varying appeal depending on the prevailing
climate
•
Demographic segmentation
When segmenting according to demographic factors the market is divided into groups based on variables
that include age, gender, family size, family life cycle, income, occupation, education, religion, race,
generation and nationality. Kotler and Armstrong (2012:215) observe that demographic factors are the most
popular bases for segmenting customer groups. There are a few reasons for this:
■Firstly customer needs, wants and usage rates usually vary closely with demographic variables.
■Secondly, demographic variables are easier to measure than other types of variables.
■Lastly, even when other bases are used to define segments, the demographic characteristics of markets
must be known to assess the size of the target market and to reach it effectively.
Age and life-cycle stage: The needs and wants of customers change with age. Using age and life-cycle
segmentation, some companies offer different products and/or use different marketing approaches for different
age and life-cycle groups. Kotler and Armstrong (2012:215) advise marketers to guard against stereotypes when
using age and life-cycle segmentation. For examples, some people in their 70’s need wheelchairs while others
may play sport like tennis and golf. Couples in their 40’s may have children going to university while some may
be starting a new family. Age is therefore not a good predictor of a person’s life cycle, health, family status, needs
and purchasing power.
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Think Point 4
Consider the buying habits of the age groups 35 to 44 and 45 to 54. On what
do you think do people in each of these age groups spend more money on
compared to people of other age groups?
Gender: Marketers of products like clothing, cosmetics, jewellery and shoes usually segment markets according
to gender. Lamb et al. (2004:169) point out that marketers who have traditionally marketed products like cigarettes
and alcohol to men are now increasing their marketing efforts to attract women. On the other hand, products that
were traditionally marketed to women like cosmetics and household products are now also being marketed to men.
Income: Lamb et al. (2004:169) observe that income is widely used as a demographic variable for segmenting
markets because the level of income has an impact on consumers’ wants and also determines their purchasing
power. Marketers of products and services such as cars, clothing, banking and travel segment their markets by
income.
•
Psychographic segmentation
Kotler and Armstrong (2012:218) state that psychographic segmentation involves dividing the market into
different groups according to social class, lifestyle or personality characteristics. According to Etzel et al.
(2005:152) the most commonly used indicators of social class include level of education, occupation type
and the type of neighbourhood a person resides in. Since a person’s social class – be it upper class or lower
class – has a great influence on that person’s choices in many product categories, enterprises often choose
one or two social classes as target markets and then develop a product and marketing mix to reach these
segments.
Personality appears to be a good basis for segmenting markets. We know from experience that people
who are compulsive buy differently from consumers who are cautious. Introverts usually do not buy the
same products or buy in the same way as extroverts.
Lifestyle has to do with activities, interests and opinions. People’s lifestyles have an effect on what products
people purchase and what brands they prefer. Many marketers are aware of this and develop their
strategies based on life-style segments.
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Think Point 5
Think of possible problems associated with using personality characteristics as
a psychographic variable for segmenting markets.
•
Behavioural segmentation
According to Kotler and Armstrong (2012:220) behavioural segmentation divides buyers into groups
according to their knowledge, attitudes, uses or responses to a product. They observe that many marketers
believe that behavioural variables are the best starting point for building market segments.
Purchase occasion: Buyers may be classified according to the occasions when they get the idea to
purchase, actually purchase or use the purchased item. Enterprises use occasion segmentation to increase
product usage. Turkeys, for example, are purchased often during Christmas but the sale of turkey portions
throughout the year is common in many supermarkets.
Benefits sought: Benefit segmentation involves identifying the main benefits that people look for in the
product class, the kinds of people who look for each benefit and the major brands that offer each benefit. For
example, four benefit segments may be identified in the toothpaste market: flavour, whiteness of teeth,
prevention of decay and price. According to Dalrymple and Parsons (2002:129) these segments have
different demographic strengths, special behavioural characteristics, personality and life-cycle
characteristics. This information suggests how the choice of media may be designed to reach different target
segments.
Think Point 6
Do you think that manufacturers of cellphones make use of benefit
segmentation in their product strategy? Motivate you answer
User status: Users may be segmented into groups as non-users, ex-users, potential users, first-time users
and regular users of a product. Enterprises with the greatest market share tend to target potential users,
whilst the smaller enterprises try to lure customers away from the market leader.
Loyalty status: Customer loyalty may also be used to segment a market. Kotler and Armstrong (2012:221)
state that customers may be loyal to brands (e.g. Panasonic), stores (e.g. Checkers) and companies (e.g.
Ford). Customers may be divided into groups according to the extent of their loyalty. Some consumers are
totally loyal i.e. they buy the same brand all the time. Some are partially loyal i.e. they are loyal to a few
brands or they prefer one brand but sometimes buy others. Others may show no loyalty to any brand.
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Think Point 7
What approaches can an enterprise use for each of the following groups of
customers?
■
Less loyal customers
■
Customers who are shifting away from its brand
■
Non-loyal customers
Readiness stage: Van der Walt et al. (1996:122) recommend that different marketing approaches be
followed depending on the customer’s readiness to purchase. Potential consumers who are unaware of the
product must first be made aware of it. Those who intend to purchase must be convinced to do so.
Attitude towards product: According to Van der Walt et al. (1996:122) it is advisable to avoid market
segments that display hostility or negativity towards a product. This, they say, will save the company valuable
time, effort and money. Those who are indifferent towards the product should be persuaded into purchasing
it whilst those who are positive or enthusiastic should be encouraged to purchase the product in future.
3.2.2
Requirements for effective segmentation
From the discussion above, it is clear that there are numerous ways of segmenting a market, but not all
segmentations are effective. According to Kotler and Armstrong (2012:224) market segments must meet the
following requirements to be useful:
■Measurable: A segment can be measured in terms of its size, purchasing power and profile.
■Accessible: The segment must be easily and effectively reached and served.
■Substantial: The segment must be large or profitable enough to serve.
■Differentiable: It must be distinguishable and react differently to varying marketing mix elements and
programs.
■Actionable: The segment must be such that effective programs can be developed to attract and serve it.
Blythe (2006:201) adds that for a segment to be viable it must be:
■Congruent: The potential buyers must have closely similar needs.
■Stable: The segment should not change greatly over time in terms of its needs or its membership.
3.3
Target Marketing
The purpose of market segmentation is to determine the firm’s market segment opportunities. The firm must now
evaluate the identified segments and select the one(s) it can serve best.
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3.3.1
Evaluating market segments
Kotler and Armstrong (2012:225) advise that a firm must consider three factors in evaluating market segments viz.
segment size and growth, segment structural attractiveness, and company objectives and resources. It is important
for a company to first collect and analyse data relating to present segment sales, growth rates, and expected
profitability for the various segments.
Firms are usually interested in segments that reflect the right size and growth characteristics. However, the
largest and fastest-growing segments may not appeal to every firm. Some firms may have insufficient skills and
resources that are required to serve larger segments.
The main structural factors that affect the long-term attractiveness of a segment must also be examined. The
presence of many strong and aggressive competitors makes a segment less attractive. So too does the availability
of actual or potential substitute products. The relative bargaining power of buyers also affects the attractiveness of
segments. Lastly, powerful suppliers can make a segment less attractive by controlling prices or reducing the
quality and quantity of goods and services ordered.
Sometimes attractive segments are discarded because they don’t fit in with a firm’s long-term objectives and/or
availability of resources.
3.3.2
Selecting target market segments
After doing an evaluation of the various market segments that were identified, the firm must now decide which
segment(s) it will target. Kotler and Armstrong (2012:225) define a target market as one that “consists of a set of
buyers who share common needs or characteristics that the company decides to serve”. They also state that firms
can decide to target broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in
between (differentiated or concentrated marketing). This may be illustrated as follows:
Targeting broadly
Undifferentiated (mass) marketing
Differentiated (segmented) marketing
Concentrated (niche)
marketing
Micromarketing
Targeting
narrowly
Figure 3.1 :Target market segments
Source: Kotler and Armstrong (2012:225)
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•
Undifferentiated (mass) marketing
A firm using this strategy targets the entire market with one offer and thus ignores market segment
differences. The focus is on what is common in the needs of consumers than what is different. A marketing
program is developed that appeals to the largest number of buyers.
Think Point 8
Why do you think that modern marketers would have strong doubts about
using the strategy of undifferentiated marketing?.
•
Differentiated (segmented) marketing
Using this strategy, the firm targets several market segments and develops separate offers for each. The
expectation is for greater sales and a stronger position in each market segment. However, differentiated
marketing also increases costs. It is more expensive to develop and produce say 100 units of 6 different
products than 600 units of one product. Furthermore, developing separate marketing plans for each
segment also increases costs. Marketers must thus compare the expected increased sales to the increased
costs when using the strategy of differentiated marketing.
•
Concentrated (niche) marketing
Kotler and Armstrong (2012:226) contend that this strategy is especially appealing to firms that have limited
resources. The firm goes after a large share of one or a few segments or niches instead of going after a small
share of a large market. Smaller companies often take advantage of focusing their limited resources on
serving niches that are unimportant to or overlooked by larger companies. Many small firms have taken
advantage of the low cost of setting up shop on the internet and achieved success by serving small niches.
Think Point 9
How do you think that firms can achieve a strong market position through
concentrated marketing?.
There are risks involved in concentrated marketing. Firms that depend on one or a few segments for all their
business will suffer if the segment(s) becomes unprofitable. The entry of larger competitors into the same segment
with greater resources will also affect the niche marketer adversely.
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•
Micromarketing
According to Kotler and Armstrong (2012:228) micromarketing is strategy that involves “tailoring products
and marketing programs to suit the tastes of specific individuals and locations”. Micromarketing includes local
marketing and individual marketing.
Local marketing is the practice of tailoring brands and promotions to the needs of local customer groups
e.g. cities, neighbourhoods or even specific stores. One problem with local marketing is that manufacturing
and marketing costs increase due to reduced economies of scale. Another problem is that logistical problems
may arise as companies try to meet the varying requirements of different local markets. Furthermore, the
overall image of a brand may be diluted if the product and the message differs a great deal in different
localities.
Local marketing does help firms to market more effectively where localities differ in terms of demographics
and lifestyles. Also, many retailers prefer fine-tuned product assortments for their neighbourhoods.
Individual marketing (also labelled one-to-one marketing) involves tailoring products and marketing
programs to the needs and preferences of individual buyers. New technologies today enable firms to return
to customised marketing that was once a practice for many centuries. Customised vehicles, computers, sports
equipment and clothing are just a few examples of modern day individual marketing. One-on-one marketing
has made relationships with customers more important than ever.
•
The choice of a target marketing strategy
Kotler and Armstrong (2012:230) suggest that the following factors be considered when choosing a target
marketing strategy:
▪
Company resources: When company resources are limited, concentrated marketing is appropriate
▪
Product variability: For uniform products e.g. grapefruit, undifferentiated marketing is suitable. For
products than vary in design e.g. motor vehicles, differentiated or concentrated marketing is
recommended
▪
The life-cycle stage of the product: When introducing a new product, it may be practical to launch
only one version thereby making undifferentiated or concentrated marketing advisable. Differentiated
marketing becomes more important in the mature stage of the product life-cycle
▪
Market variability: Undifferentiated marketing is recommended if most buyers have the same tastes,
buy the same quantities and react in a similar way to marketing efforts
▪
Competitors’ marketing strategies: When competitors use differentiated or concentrated marketing,
undifferentiated marketing is inadvisable. However, when competitors use differentiated marketing,
using differentiated or concentrated marketing can be advantageous
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3.4
Positioning
Apart from choosing the market segments it will target, a firm must also decide on the positions it wants to occupy
in those segments. Kotler and Armstrong (2012:231) define a product’s position as “the way the product is defined
by the customers on important attributes – the place the product occupies in the consumers’ minds relative to
competing products”. Positioning, they say, involves implanting the unique benefits and differentiation of the brand
in the minds of consumers.
Think Point 10
Consider the motor vehicle market in the country that you live in. Choose a
few motor manufacturers and indicate how they have positioned their
products..
Consumers are bombarded with information about products and services. They cannot re-evaluate products each
time they decide to buy. Consumers try to simplify the buying process by organising products and companies into
categories and position them in their minds. However, marketers should not leave their products’ position to
chance. They should plan positions that will give their products the best advantage in specific target markets. They
should also develop marketing mixes to create these planned positions.
3.4.1
Positioning maps
According to Kotler and Armstrong (2012:232) marketers often prepare perceptual positioning maps that show the
perceptions of consumers of their brands against competing products on important buying dimensions. Blythe
(2006:203) provides an example (Figure 3.2) of a perceptual positioning map.
The two important variables in figure 3.2 are initial price (horizontal axis) and technical assistance (vertical axis).
Of the three firms in the market, Firm A offers low price with little technical assistance. Firm B is a higher-priced
firm offering very good technical assistance. Firm C may spot an opportunity to choose a position offering a
somewhat lower price than B but somewhat better technical assistance than A.
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Comprehensive technical assistance
B●
C●
Low Initial
price
High initial
price
A●
Adequate technical assistance
Figure 3.2:4 Position map
Source Blythe (2006:203)
-++- 8
Blythe (2006:204) contends that if a company has a brand message that is clear, consistent, credible and
competitive (the four Cs of positioning) the positioning will be successful and the brand will sell.
3.4.2
Choosing a positioning strategy
Kotler and Armstrong (2012:232) identify three steps that should be followed in the positioning task viz. identifying
a set of possible competitive advantages on which to build a position, choosing the right competitive advantages,
and selecting an overall positioning strategy.
•
Identifying possible competitive advantages
A company that can position itself as providing superior value compared to its competitors gains competitive
advantage. A company needs to differentiate its marketing offer so that it will give consumers superior value.
It can do this along the lines of product, services, channels, people, or image.
There are some products that allow little variation e.g. chicken. However, some meaningful differentiation is
still possible e.g. a firm claim that its chickens are fresher and more tender thereby gets a 12 percent price
premium based on this differentiation. On the other hand, some products can be highly differentiated e.g.
motor vehicles may be differentiated along the lines of economy, luxury, features, performance, reliability,
safety and design.
Firms can also differentiate the services that go with the product. Some marketers, for example, gain services
differentiation through speedy or careful delivery. Repair services and installation may also be used as points
of differentiation.
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Firms that practice channel differentiation gain competitive advantage through the design of the channel’s
coverage, expertise, and performance. Some marketers set themselves apart through high-quality direct
channels.
Competitive advantage can be gain through people differentiation i.e. hiring and training better people than
their competitors. It is important for customer-contact staff to be carefully selected and trained.
Differentiation can also be based on company or brand image. The image should reflect the product’s
distinctive benefits and positioning. Creativity and hard work is needed to achieve this. Symbols, colour, the
use of famous people and other image elements may be used and these must be communicated through
advertising that reflects the company’s or brand’s image.
•
Choosing the right competitive advantages
After identifying the possible competitive advantages, it must decide on how many to promote and which
ones.
How many to promote? Kotler and Armstrong (2012:236) have found that many marketers think that
companies should promote only one benefit to the target market. Others believe that companies should
position themselves on more than one differentiator. This often becomes necessary when two or more firms
claim to be the best on the same attribute.
Which differences to promote? Not every difference makes a good differentiator. While each difference
has the potential to add to customer benefits, company costs also increase. A difference is worth establishing
to the extent to which it is important, distinctive, superior, communicable, pre-emptive (cannot be easily
copied), affordable (to buyers) and profitable. (See Kotler and Armstrong (2012:236))
•
Selecting an overall positioning strategy
Customers usually choose products that offer them the greatest value. Marketers should thus position their
brands on the key benefits they offer in comparison to competing brands. The positioning strategy must be
so designed that serves the needs and wants of each of the target markets.
•
Repositioning a product or brand
According to Lamb, Hair, McDaniel, Boshoff, Terblanche, Elliot and Klopper (2015:254) 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 productivity by matching the needs and wants of the market
more effectively with the product or brand attributes.
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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.
•
Competitors positioned products nearby and as a result market share is divided among too many
products.
•
Customer taste and preferences shifted and left the firm’s brand with inadequate demand.
•
Factors in the macro-environment (e.g. recession, changing demographics, changing versions or
reduced quantities of the product.
•
Research and technology create breakthroughs with profit potential that can be exploited if the firm or
product is repositioned.
3.4.3
Communicating and delivering the chosen position
Having chosen a position, a firm must ensure that it delivers and communicates the desired position to the target
market. The positioning strategy must be supported by the company’s marketing mix efforts. Once a firm has built
the desired position, it must ensure that it maintains the position through consistent performance and
communication.
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3.5
Self-Assessment Activities
Knowledge Check Questions
3.5.1 Why is market segmentation important to marketers?
3.5.2 List and briefly describe the major bases for segmenting consumer markets.
3.5.3 Complete the table below (extracted from Lamb et al., 2004:175) by using lifestyle
segmentation and benefit segmentation to segment the market for snack food
Table 3.2: A multi-variable benefit segmentation of the snack-food market.
Nutritional
Weight
Guilty
Party
snackers
watchers
snackers
snackers
Lifestyle
Self-assured,
characteristics
controlled
Benefits sought
Nutritious, without
artificial
ingredients,
natural
Usage rate of
Light
snacks
Types of snacks
Fruit, vegetables,
usually eaten
cheese
Demographics
Better educated,
have younger
children
3.6.4 Explain how companies identify desirable market segments and choose a target
marketing strategy.
3.6.5 Describe how companies position their products to gain maximum competitive
advantage in the marketplace.
3.6
Suggested Solutions
Activity 1
Choose an organisation (example a Bank) and practically show the advantages of
segmentation using examples.
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Case Study 2
(based on units 2 and 3 of the study module)
Read the following case study and answer the questions that follow:
Company ABC (Pty) Ltd, manufactures Fast Moving Consumer Goods (FMCG) which are sold in many of its
retail outlets (shopping malls) country wide in South Africa. The financial results of company ABC (Pty) Ltd,
have not been pleasing in the past 3 years. As a marketing Director of company ABC, you are concerned with
the poor trading results, following the analysis of the company’s trading performance for the recent financial
year ended 31 December 2017.
The following are the performance results of company ABC (Pty) Ltd as at 31 December 2017:
•
Sales of fast moving consumer goods (fmcg) declined by 50% in the past 12 months, to 31 December 2017.
•
Profits in the same period (to 31 December 2017) declined unbelievable and now in loss making situation,
from a profit making company, 4 years ago and now in red.
•
The market share declined by 20%. The biggest customers who frequented company ABC reduced their
business transactions as noticed from the order book while some of them no longer trade with company
ABC.
•
The labour turnover in the company has risen by 30% in the last 3 years.
•
Suppliers have since limited the supply of their raw materials required by company ABC.
•
According to the latest management accounts and age analysis, outstanding debtors increased from 30
days to 120 days within 6 months.
•
Trade Creditors’ days increased from 60 days to 120 days within the same 6 months’ period.
•
Above all, it was discovered that some of the monthly expenses remain unpaid and threats from utility
companies supplying water and electricity have threatened to take company ABC to task for the unpaid
portion of the bills.
From the depicted information in the case study, answer the following questions:
i.
Identify and describe the Micro and Macro environmental factors that cause threats to company ABC
(Pty) Ltd in its trading activities
ii.
The marketing Director’s first course of action is to review opportunities for improving the business
performance of company ABC. Describe the market segmentation variables that can be used as
strategic tools to improve the sales and profitability of company ABC.
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Suggested answers:
I.
Micro environmental factors are:
•
The company
•
Suppliers
•
Marketing intermediaries
•
Customers
•
Competitors
•
Publics
Macro environmental factors are:
II.
•
Demographic
•
Economic
•
Natural
•
Technical
•
Political and
•
Cultural
The marketing segmentation variables are:
•
Geographic
•
Demographic
•
Psychographic
•
Behavioural
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Solutioms
Think Point 1
At one time the Coca-Cola company produced only one soft drink and aimed it at the entire beverage market.
Today it offers many different products to a variety of beverage market segments based on diverse consumer
preferences for flavours, calories and caffeine content, as well as alternative beverages. Nowadays, Coca-Cola
markets traditional carbonated soft drinks (Coca-Cola, Sprite, Fanta), sugar-free soft drinks (Coke light, Sprite
Zero), energy drinks (Powerade), flavoured teas (Nestea), fruit juices (Minute Maid) and mineral water (BonAqua).
Think Point 2
▪
Many enterprises find the need to discover new ways to generate sales due to sluggish demand and very
competitive markets
▪
The use of scanners at retail checkouts enable retailers to determine brands that sell well in their region
▪
Many manufacturers are producing new regional brands that appeal to local preferences
A regional approach allows consumer goods enterprises to react faster to competition.
Think Point 3
Examples include ice cream, snow skis, snow-blowers, air conditioning and heating systems.
Think Point 4
According to Lamb et al. (2004:168).
People between 35 and 44 are likely to have children of school-going age and spend more than other groups on
food at home, housing and clothing.
People between 45 and 54 are likely to spend more on food away from home, transportation, education,
entertainment, personal insurance and pensions.
Think Point 5
Cell phone manufacturers like Nokia make different models of phones based on the benefits that that people seek
in cell phones. Some models cater for those who prefer no more than functionality. Other models appeal to those
who:
•
seek phones as a fashion accessory
•
consider imaging to be important
•
are in business
•
want links to the internet
•
want links to the internet
seek entertainment e.g. MP3 player, Satellite television
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Think Point 6
•
Less loyal customers: Study the less loyal buyers to determine the brands that it is competing against
the most. It can attempt to improve its position against its competitors.
•
Customers who are shifting away from its brand: The enterprise needs to identify and learn from its
marketing shortcomings.
Non-loyal customers: Attract them by putting its brand on sale.
Think Point 7
It is difficult to develop a product or brand that will satisfy all consumers. Mass marketers will find it difficult to
compete with more focused firms that do a better job of satisfying the needs of specific market segments and
niches.
Think Point 8
These firms usually have greater knowledge of the needs of the consumers in the niches they serve. Marketing
is more effective by fine-tuning products, prices and marketing programs to suit the needs of clearly defined
segments. Marketing is also more efficient because products and marketing programs are aimed only at
consumers the firm can serve best and most profitably.
Think Point 9
In South Africa, for example, the Toyota Run X and Ford Focus are positioned on economy. Mercedes is
positioned on luxury whilst BMW and Porche are positioned on performance.
Answers to self-assessment activities 3.5 above.
3.6.1 Most markets include groups of people with different product needs and preferences. Market segmentation
helps marketers define customer needs and wants more accurately. Since market segments differ in terms of size
and profit potential, segmentation assists decision-makers to define marketing objectives more precisely and to
better allocate resources to brands and market segments. In turn, performance can be more effectively evaluated
when the objectives are more accurate.
3.6.2 The major segmentation variables are geographic, demographic, psychographic, and behavioural. In
geographic segmentation, the market is divided into different geographical units such as region, city or town.
Using demographic segmentation, the market is divided into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race and generation. In psychographic
segmentation, the market is divided into groups based on social class, lifestyle, or personality characteristics. In
behavioural segmentation, the market is divided into groups based on consumers’ knowledge, attitudes, uses, or
responses to a product.
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3.6.3
The multi-variable segmentation of the snack food market are indicated in the table below:
Nutritional
Weight
Guilty
Party
snackers
watchers
snackers
snackers
Lifestyle
Self-assured,
Outdoor types,
Highly anxious,
characteristics
controlled
venturesome
isolated
Benefits sought
Nutritious, without
Low in calories,
Low in calories, good
Good to serve
artificial ingredients,
quick energy
tasting
guests, served with
natural
Sociable
pride, go well with
beverages
Usage rate of
Light
Light
Heavy
Average
Types of snacks
Fruit, vegetables,
Yogurt,
Yogurt, cookies,
Nuts, potato chips,
usually eaten
cheese
vegetables
biscuits, chocolate
biscuits, pretzels
Demographics
Better educated,
Younger, single
Younger or older,
Middle-aged, non-
have younger
female, lower socio-
urban
children
economic status
snacks
3.6.4 To target the best market segments, a firm must first evaluate each segment’s size and growth
characteristics, structural attractiveness, and compatibility with company objectives and resources. Thereafter it
chooses one of four target marketing strategies. The marketer can ignore segment differentiation and target
broadly using undifferentiated marketing. The same product is marketed in the same way to all consumers.
Marketers that adopt differentiated marketing develop different market offers for different segments.
Concentrated marketing involves focusing on one or a few market segments. Lastly, micromarketing involves
tailoring products and marketing programs to suit the tastes of specific locations and individuals.
Which targeting strategy is best depends on company resources, product variability, product life-cycle stage,
market variability, and competitive marketing strategies.
3.6.5 After deciding on which segments to enter, a firm must decide on its market positioning strategy i.e. the
positions it wants to occupy in the chosen segments. The positioning task involves three steps viz. identifying a
set of possible competitive advantages upon which to build a position, selecting the right competitive advantages,
and selecting an overall positioning strategy. The firm must then effectively communicate and deliver the chosen
position to the market.
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Unit
4:
The Marketing Mix – Product
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
4.1 Introduction
•
Introduce topic areas for the unit
4.2 Defining a product
•
Define a product
4.3 Classification of products
•
Explain the major classifications of products
4.4 Product decisions
•
Describe the decisions firms have to make regarding their
individual products, product lines, and product mixes
4.5 New product development
•
Suggest ways of finding and developing new-product ideas
4.6 Product life cycle
•
Describe the stages of the product life cycle
•
Explain how marketing strategies change at each stage in a
product’s life cycle
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction.
Global Edition, Fifteenth Edition. Pearson.
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4.1.
Introduction
Now that we’ve examined the marketing strategy of a firm in terms of segmentation, targeting, and positioning it is
now time to look deeper into the elements of the marketing mix (briefly discussed in paragraph 1.3, chapter 1). The
marketing mix reflects the tactical tools that are used by marketers to implement their strategies. In this chapter
we examine how companies develop and manage products. In the next three chapters we discuss pricing,
distribution (place) and marketing communication (promotion) tools.
4.2.
Defining A Product
Kotler and Armstrong (2012:248) define a product “as anything that can be offered to a market for attention,
acquisition, use, or consumption and that might satisfy a want or need”. They add that products include physical
objects, services, events, persons, places, organisations, and ideas. Products are seen by consumers as complex
bundles of benefits that satisfy their needs. When developing their products, marketers must first identify the core
consumer needs that the product will satisfy. The actual product must then be designed. Marketers must also
augment the product by offering additional consumer services and benefits that will provide the most satisfying
customer experience. (Also see figure 8.1 pg.250 of Kotler and Armstrong).
4.3.
Classification of Products
Products may be classified according to the types of consumers that use them viz. consumer products and
industrial products. Remember that products also include experiences, organisations, persons, places, and ideas.
(Table 8.1 in Kotler and Armstrong, pg.250 provides valuable information in this regard).
4.3.1
Consumer products
Consumer products are products that are purchased by final consumers for their personal use. According to Kotler
and Armstrong (2012:250) consumer products may be classified further based on how consumers go about
purchasing them - convenience products, shopping products, speciality products, and unsought products. They
provide the following descriptions of these products:
•
Convenience products
These are products that consumers usually purchase often, immediately, and with little buying effort and
comparison e.g. bread, newspapers. Convenience products are usually low in price. Marketers usually make
them readily available to customers by placing them in many locations.
•
Shopping products
These are products that are purchased less frequently and where consumers compare characteristics such
as quality, price, suitability, and style. Buyers usually spend much time and effort to collect information and
make comparisons. Examples include clothing, furniture, and major appliances. These goods are available
in fewer outlets but marketers provide more sales support to assist consumers with making comparisons.
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•
Speciality goods
These are products with distinctive characteristics or brand identification for which buyers are prepared to
make a special purchasing effort. Examples include designer clothes and certain motor vehicles. Buyers
usually do not compare speciality products. They invest only the time needed to reach dealers who keep the
desired products.
•
Unsought products
These are products that consumers are either ignorant about or know about but would normally not buy.
Major new innovations are unsought until consumer awareness is brought about by advertising. Examples of
known but unsought goods include life insurance and pre-planned funeral services. A great deal of
advertising, personal selling, and other marketing efforts are needed for unsought goods.
4.3.2
Industrial products
Kotler and Armstrong (2012:251) define industrial products as “those purchased for further processing or for use
in conducting a business”. Industrial products, they add, may be classified into three groups viz. material and parts,
capital items, and services. Material and parts include raw materials as well as manufactured materials and parts.
Raw materials include farm products (e.g. vegetables, fruit, livestock) and natural products (e.g. fish, crude oil, iron
ore). Manufactured materials and parts include component materials (e.g. wires, cement) and component parts
(e.g. small motors, tyres).
Capital items assist in the buyer’s production and include installations and accessory equipment. Installations
comprise major purchases (e.g. buildings) and fixed equipment (e.g. generators, elevators). Accessory equipment
comprises portable factory equipment and tools (e.g. hand tools, lift trucks) and office equipment (e.g. fax
machines, computers).
Supplies and services is the last group of business products. Supplies comprise operating supplies (e.g. paper,
lubricants) and repair and maintenance items (e.g. paint, brooms). Services include maintenance and repair
services (e.g. computer repair, window cleaning) and business advisory services (e.g. legal, advertising).
Think Point 1
Explain how a lawnmower can be classified as a consumer product as well as
an industrial product..
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4.4.
Product Decisions
According to Kotler and Armstrong (2012:253) product decisions are made at three levels by marketers viz.
individual product decisions, product line decisions, and product mix decisions.
4.4.1
Individual product decisions
The important decisions in the development and marketing of individual products are illustrated in figure 4.1
below:
Product Attributes
Branding
Product decisions
Packaging
Labelling
Product Support Services
Figure 5.1: Product decisions
Source: Kotler and Armstrong (2012:253)
•
Product attributes
Product attributes include the quality, features, and style and design of a product. Marketers often use product
quality as a major positioning tool. Since quality has a direct impact on product performance, it is closely
linked to customer value and satisfaction. Kotler and Armstrong (2012:254) add that product quality has two
dimensions viz. level and consistency. Marketers must determine a quality level that supports the product’s
position in the target market. There must also be consistency in delivering the targeted level of performance.
A product can be offered with a varying number of features. A basic model, without any extras, is the starting
point. Higher-level models may be created by adding more features. Adding features to a product is a
competitive tool used to distinguish the product from competing ones.
Distinctive product design and style can also add customer value. Style describes the appearance of a
product while design affects a product’s usefulness and looks. Good design has the potential to improve
product performance, cut costs, and create a competitive advantage.
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•
Branding
Kotler and Armstrong (2012:255) define a brand as “a name, term, sign, symbol, or design, or a combination
of these, that identifies the maker or seller of a product or service”. Branding has the potential to add value
to a product. Because of the importance of branding, hardly any products are unbranded nowadays.
Think Point 2
How does branding help you as a consumer?.
Branding provides advantages to marketers. The brand name can be built around the product’s special
qualities. The brand name and trademark provides legal protection for unique product features that may
otherwise be copied by competitors. Branding also helps to segment markets.
•
Packaging
Packaging refers to the container or wrapper for a product. According to Kotler and Armstrong (2012:256)
the package includes a primary container (e.g. the tube containing the Aquafresh toothpaste). It may also
contain a secondary package that is discarded when the product is about to be used (e.g. the cardboard box
containing the tube of Aquafresh toothpaste). Lastly, it may contain a shipping package to store, identify, and
ship the product (e.g. a box containing 72 tubes of Aquafresh toothpaste). Labelling is also a part of the
packaging.
Lamb et al. (2004:240) add that packaging provides a means of establishing a competitive edge. Packaging,
they say, serves four functions. The first function is to contain and protect the product. Secondly, it promotes
the product and differentiates it from competing products. Thirdly, it facilitates the storage, use, and
convenience of products. Lastly, in keeping with modern trends, it facilitates recycling and reduces
environmental damage.
Etzel et al. (2005:276) raise some concerns about packaging. Firstly, packaging depletes natural resources.
Secondly, some forms of packaging are health hazards. Thirdly, the disposal of packaging contributes to the
litter problem. Fourthly, packaging may be deceptive in terms of its size giving the impression of containing
more than the actual contents. Lastly, packaging is expensive sometimes comprising up to half the production
cost of the product.
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•
Labelling
A label carries information about the product and seller. It may be part of a package or a tag attached to the
product. Etzel et al. (2005:276) classify labels into three kinds:
▪
Brand label is simply the brand alone applied to the product or package.
▪
Descriptive label gives information on the product’s use, construction, care, performance, and other
features.
▪
Grade label identifies the quality of the product with a letter (e.g. A or B), a number (e.g. 1 or 2) or a
word.
Apart from identifying and describing the product, labelling may also be used to promote the product. Most
countries have laws relating to labelling. These laws have arisen as a result of the use misleading labels,
failure to disclose important ingredients, and failure to include safety warnings.
•
Product support services
Providing support services to customers is an important element of product strategy. Marketers need to
constantly seek fresh ideas for new services and assess the value of support services to customers. Many
companies offer support services by means of phone, e-mail, fax and internet.
4.4.2
Product line decisions
Kotler and Armstrong (2012:258) define a product line as “a group of products that are closely related because
they function in a similar manner, are sold to the same customer groups, and are marketed through the same type
of outlets, or fall within given price ranges”. For example, Samsung produces several lines of appliances and cell
phones.
An important product line decision concerns product line length. The line length refers to the number of items in
each line. The product line length depends on company objectives and resources. A marketer can increase profits
by adding items if the line is too short. Sometimes a marketer may try to increase profit by dropping items from the
line if it too long.
4.4.3
Product mix decisions
According to Kotler and Armstrong (2012:259) a product mix “consists of all the product lines and items that a
particular seller offers for sale”. The product mix of a firm has four important dimensions viz. width, length, depth,
and consistency. The width of a product mix refers to the number of different product lines a firm offers. The length
of the product mix refers to the number of items the firm carries within each line. The depth of the product line
refers to the number of versions offered of each product in the line. The consistency of the product mix refers to
how closely related the various product lines are in end use, promotional requirements, distribution channels, or
any other way.
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The product mix dimensions provide an opportunity for firms to increase sales in four ways. Firstly, it can add new
product lines. Secondly, it can lengthen the existing product lines. Thirdly, it can deepen the product mix by adding
more versions of each product. Lastly, it can pursue more product line consistency (or even less).
Think Point 3
Consider the product offering of the company “Nestle”. State it’s product mix
width, product mix length and depth of one of its product lines..
4.5.
New Product Development
Perreault and McCarty (2005:281) define a new product as one that is new in any way for the company concerned.
Not only can a fresh idea be turned into a new product but variations to existing products can also make a product
new. In USA a firm can call a product new up to a period of six months. Identifying and developing new-product
ideas are vital to success and survival in today’s highly competitive markets. However, developing new products
is very costly. Furthermore, about 70 to 80 percent of new consumer goods end up as failures.
Think Point 4
Why do you think many new products fail?
An organised new-product development process can help to avoid expensive new-product failures. Kotler and
Armstrong (2012:285) suggest eight steps in the new-product development process. Figure 4.2 below shows
these eight steps.
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Idea generation
Idea screening
Concept development
and testing
Marketing strategy
Business analysis
Product development
Test marketing
Commercialisation
Figure 4.2: 6New product development stages.
Kotler and Armstrong (2012:285)
4.5.1 Idea generation
Idea generation involves the systematic search for new-product ideas. Kotler and Armstrong (2012:285) classify
new-product ideas as those emanating from internal sources and external sources.
•
Internal idea sources
A company can undertake formal research and development to find new ideas. Executives, scientists,
engineers, production staff and sales persons may be encouraged to think up and develop new product ideas.
Croft (cited in Brassington and Pettitt, 2000:349) recommended the following methods of generating ideas
from employees: giving awards, allowing time and space for new ideas, forming cross-functional teams,
training staff in creative thinking, and adopting a positive attitude towards new ideas.
•
External idea sources
New ideas can come from customers who may identify a need they have. Companies may also analyse
questions and complaints from customers to develop products that solves consumer problems. Conducting
customer surveys can assist a firm to learn about customer needs and wants.
Firms pay attention to competitor advertisements to learn about their new products. They often buy competing
products and strip them apart to look for new ideas or improvements.
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Distributors are in close touch with consumers and can provide information about customer problems and
new-product possibilities. Suppliers can inform firms about new techniques, concepts, and materials that may
be used to develop new products. Other idea sources include market research firms, trade magazines, trade
shows, government agencies, inventors, and university laboratories.
4.5.2 Idea screening
The purpose of idea screening is to identify the good ideas and drop the poor ones as soon as possible.
Brassington and Pettitt (2000:352) add that the idea must fit with the broad strategic plans and development
directions of the firm. They also suggest criteria for use in screening product ideas. These criteria may be weighted
according to their relative importance.
•
The criteria may include the following:
•
Fit with corporate strategic goals
•
Fit with marketing strategic goals
•
Size of target market
•
Access to market
•
Differential advantage offered
•
Profitability potential
•
Market growth
•
Synergy with existing products and technology
•
Synergy with existing skills and assets
4.5.3 Concept development and testing
A good product idea must be transformed into a product concept. Kotler and Armstrong (2012:288) stress the
importance of distinguishing between a product idea, a product concept, and a product image. A product idea, as
we already know, is an idea for a possible product that a firm contemplates offering to the market. A product
concept is a detailed version of the idea stated in meaningful consumer terms. A product image refers to
consumers’ perception of an actual or potential product.
•
Concept development
This stage involves developing the new product idea into alternative product concepts, determining how
attractive each concept is to the consumers, and then choosing the best one.
•
Concept testing
Testing new-product concepts with potential customers is important. Kotler and Armstrong (2012:289) state
that this can be done symbolically or physically. Some marketers use a word or picture description in concept
tests. However, the physical presentation of the product makes the concept test more reliable. After a concept
test, consumers may be asked to react to it by answering questions. New-product concept tests with
customers may lead to changes and this is better done before the firm commits itself to full scale efforts.
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4.5.4 Marketing strategy
This step involves designing an initial marketing strategy to introduce the product to the market. According to Kotler
and Armstrong (2012:289) a marketing strategy statement, consisting three parts, should be formulated:
•
The first part should contain a description of the target market; the planned product positioning; and the
sales, market share, and profit objectives for the first few years
•
The second part of the statement describes the product’s planned price, distribution, and marketing
budget for the first year
•
The final part of the statement outlines the planned long-run sales, profit goals, and marketing mix
strategy,
4.5.5 Business analysis
Kotler and Armstrong (2012:290) describe this step as evaluating the business attractiveness of the proposal.
Business analysis, they say, is concerned with a review of the sales, costs, and expected profit for the new product
in order to determine whether they are in keeping with the company’s objectives. If they do, the product can now
proceed to the product development stage.
Think point 5
What can a company use to estimate sales for a new product?
4.5.6 Product development
According to Perreault and McCarty (2005:287) product development usually involves research and development
(R & D) and engineering to design and develop the physical product. New computer-aided design (CAD) systems
have revolutionised design work. Designers can develop life-like 3-D colour drawings of products and changes
can be made immediately.
Kotler and Armstrong (2012:290) add that the product development stage calls for a large increase in investment.
The R&D department usually develops and tests one or more physical versions of the product concept. The
expectation is to design a prototype that will satisfy and excite consumers and that can also be produced quickly
and within budget. Rigorous tests are conducted on the products to ensure product safety and efficiency.
4.5.7 Test marketing
According to Brassington and Pettitt (2000:356) test marketing involves offering the potential product on a limited
basis in a defined geographical area, under conditions that are as realistic as possible. Kotler and Armstrong
(2012:291) add that this step provides experience to the marketer with marketing the product before incurring the
great cost of full introduction. The company has the opportunity to test the product and the entire marketing program
including positioning strategy, advertising, distribution, pricing, branding, and packaging. The amount of test
marketing required varies with each new product.
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Think Point 6
When do you think that a lot of test marketing is required and what conditions
favour little or no test marketing?
Although test marketing does not guarantee success, Brassington and Pettitt (2000:357) maintain that test
marketing offers a number of benefits:
•
Test marketing is a real test in a real environment
•
It provides the final chance for fine-tuning
•
It offers the opportunity to vary some of the marketing mix variables
•
It allows for the assessment of things that are difficult to predict on paper, such as the propensity for
repeat purchases
4.5.8
Commercialisation
This step involves introducing the new product into the market. Kotler and Armstrong (2012:292) state that the
company faces high costs if it goes ahead with commercialisation. A manufacturing facility may have to be built or
leased. Furthermore, the amount to be spent on advertising, sales promotion, and other marketing efforts is very
high for the first year. The timing of the introduction is important.
Brassington and Pettitt (2000:356) state that there are two main alternatives in terms of how to go about launching
the product:
•
Immediate national or international launch (sprinkler strategy): The product is made available in all
target markets at the same time. This makes a big impact providing a single focus for a promotional
blitz. Further, it provides little scope for competitors to sneak in. Smaller firms will experience difficulty
with financing a full national (or international) launch
•
Rolling launch (the waterfall strategy): This involves working towards full national coverage by
starting in one or two recognised distribution areas, and then gradually adding new areas to those
already served as experience and success is gained
4.6.
Product Life Cycle
According to Blythe (2006:397) the basis of the product life cycle (PLC) is that products move through a number
of stages from their introduction to their final withdrawal from the market. When products are first introduced, they
tend to lose money. Later, the product’s sales increases and it begins to show a profit. Thereafter sales may peak
out and as alternative products enter the market the product goes into decline and will eventually cease to have
any market.
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Despite the fact that product life cycle is a useful concept for explaining what happens to products, it has a number
of drawbacks:
•
Not all products follow the life cycle. Some are withdrawn very quickly while others may have a long
maturity stage.
•
The model ignores the effects of marketing activities. If the product’s sales are falling, marketers may
run a major promotional campaign or reposition the product in another market.
•
The model does not account for products that come back into fashion after a few years in the decline
stage e.g. the yo-yo.
•
The model ignores the fact that newest products fail.
•
It is difficult to predict the sales level at each PLC stage as well as the length of each stage.
Kotler and Armstrong (2013:297) consider the product development stage as the first stage in the product life cycle.
We now examine the other life cycle stages viz. introduction, growth, maturity and decline as well as the strategies
that may be used by marketers. (Also see figure 9.2 on pg.297 of Kotler and Armstrong).
Figure 4.3: 7 The Product Life Cycle model
Kotler and Armstrong (2013:297)
4.6.1 Introduction stage
This stage commences when the new product is first launched. Blythe (2006:399) contends that the strategic
objective is to build the market as quickly as possible in order to keep out competition. The product is likely to be
a basic model with differentiation coming in after adequate feedback is received from the market. The promotional
effort will focus on creating awareness and encouraging trial of the product. The price is likely to be high as the
firm needs to recoup research and development costs and since competitors have yet to introduce their own
versions of the product. Distribution is likely to be patchy as many distributors may not want to risk carrying an
unknown product. Kotler and Armstrong (2012:299) add that profits will be negative or low due to the low sales
and higher promotion and distribution expenses.
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4.6.2 Growth stage
The new product enters the growth stage if it satisfies the market. During this stage sales will start to increase
quickly. According to Blythe (2006:400) the strategic thrust is still on building the market as quickly as possible.
The promotional emphasis will shift towards encouraging repeat purchases and brand preference. There’s likely
to be several different versions of the product by now. The price will likely be lower as competitors enter the market.
Distribution is expected to be much wider as distributors will have more confidence in the product.
Kotler and Armstrong (2012:299) point out that profits increase during the growth stage since promotional costs
are spread over a large volume and the unit manufacturing cost per product will fall. A company that spends a lot
of money on product improvement, promotion, and distribution can gain a dominant market position. In doing so,
however, it sacrifices maximum current profit, which it hopes to make up in the next stage.
4.6.3 Maturity stage
The product enters the maturity stage when the product’s sales growth slows down. Blythe (2006:400) states that
the strategy shifts towards maintaining market share as competition increases. Promotion is focused on
maintaining brand loyalty. The price will be at its lowest. Several versions of the product will be available to meet
the needs of various market segments. Competition will be at its peak and distribution will be intensive.
According to Kotler and Armstrong (2012:301) the slowdown in sales growth, lowering of prices, increasing
promotional efforts and increasing R&D efforts to find better versions of the produce lead to a fall in profit. Weaker
competitors start to drop off and the industry eventually comprises well-established competitors.
Kotler and Armstrong (2012:301) advise product managers not to sit back and defend their mature products.
Instead they should try to modify the market, product, and marketing mix. A company can modify the market by
finding new users and market segments. It can also reposition a brand to appeal to a larger or faster-growing
segment. It can also look for ways to increase usage among present buyers. A company can try to modify the
product by changing characteristics like quality, features, and style to attract new users and encourage more
usage. Lastly, the company can try to modify the marketing mix to improve sales.
Think Point 7
Think of four ways by which a company can modify its marketing mix to
improve sales..
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4.6.4 Decline stage
The decline stage is characterised by a drop in sales. The decline may be slow or sales may drop quickly towards
zero. Kotler and Armstrong (2012:302) advise marketers to identify those products that are in the decline stage
by regularly reviewing sales, market shares, costs, and profit trends. According to Blythe (2006:400) the company
will rationalise the product range by not making the product available in all its variants. Price will rise in order to
make as much as possible from remaining sales. Promotional expenditure will be at its minimum or cut altogether.
Distribution will shrink as distributors find it unprofitable to carry the product.
Think Point 8
Think of possible reasons why products reach the decline stage.
Brassington and Pettitt (2000:308) provide the following options for dealing with declining products”
•
Milking or harvesting: This strategy is based on the idea of allowing the sales decline to run its course
with little or no marketing. The product fades away naturally while profits are reaped. This gives the firm
time to find other means of generating revenue
•
Phased withdrawal: An ultimate cut-off date for the product is set. Stages are also identified whereby
the product is gradually withdrawn from geographic areas or from different channels of distribution. This
strategy also allows time to plan replacement products
•
Contracting out or selling: This strategy is a means of keeping loyal users of the product happy and
involves selling the brand to a niche operator or to subcontract its marketing and/or production
4.7.
Self-Assessment Activities
Knowledge Check Questions
4.7.1
Consumer products are usually classified based on how consumers go about buying
them and therefore in how they are marketed. Bearing this in mind complete the
table below by following the answers provided for convenience products.
4.7.2
After screening numerous product ideas, a motor car manufacturer decided to
develop a battery-powered electric car. After being exposed to the concept,
consumers were asked to react to it by answering certain questions. Formulate
possible questions that you think should be asked.
4.7.3
State the various ways by which companies find and develop new-product ideas.
4.7.4
Use the following table to show how the marketing strategy and mix changes at
each stage in the product life cycle (the first phase has been done for you)
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Type of consumer product
Marketing
considerations
Convenience
Shopping
Buying behaviour
Frequent purchase; Little
of customer
planning; Little comparison
Specialty
Unsought
or shopping effort
Price
Low price
Distribution
Widespread distribution;
Convenient locations
Promotion
Mass promotion by producer
Examples
Magazines; Toothpaste
Introduction
Strategy
Growth
Maturity
Decline
Build the market as
quickly as possible
Product
Basic model
Price
Likely to be high
Promotion
Creating awareness
and encouraging trial
of the product
Distribution Likely to be patchy
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4.8 Case Study 3
Read the following case study and answer the questions that follow:
Market leadership in the 3G market
3G stands for third-generation mobile communication and can be viewed as wireless broadband for mobile
phones. It is a radio communications technology offering: internet, music downloading, e-mail, voice, video,
picture message and other applications. 3G is a contemporary development and more than half of Japanese
mobile phone users use 3G. It spread to Europe in 2003 and its use is growing rapidly there and worldwide.
As a mobile network provider, a company called 3 recognised that 3G was the way forward for market
development. It seeks to provide the best network available for mobile phone users. Hutchison Whampoa, the
company that owns 3, has led the growth of the global 3G market. It has invested heavily in new technology
and provides the most comprehensive network for 3G communications. Hutchison Whampoa’s objective is to
be the market leader in providing 3G wireless communications. All aspects of 3’s market plan are tailored
towards achieving this.
3G technology has significantly more bandwidth than 2G technology. More bandwidth means more space for
transmitting large amounts of data. During 2007, 3 will launch a high speed service which will have a target
speed of 1.8 Mbytes per second (compared to the present 384 kilobytes per second).
3 was the first company in Europe to appreciate the opportunities offered by 3G. It invested seriously in this
market, hoping to acquire the “first mover advantage” by being the first one to develop a specific market. 3 is
always seeking to improve its products and services to maintain its market leading position. In 2006 these
included:
•
signing an exclusive deal to stream ITV1 to its 3.75 million customers in the UK.
•
signing deals with leading handset producers like Nokia, Motorola, and Sony Ericsson to provide
handsets to complement the network.
•
screening the 2006 world cup directly on customer mobile phones.
•
launch of the X series from 3, which is supported by a commercial link with key internet service and
software providers such as Microsoft, Yahoo, Google, eBay, Skype, Slingbox, and Orb. Consumers
can enjoy full internet experience through wireless broadband while on the move.
3’s market research shows that young people like 3G because it enables them to send pictures, view videos,
and listen to music downloads. It is also popular with business customers and people who work in the media.
Market research showed that customers appreciated the following benefits:
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Real-time communication (phone calls, e-mails and faxes)
•
High-speed internet access
•
Access to information e.g. news bulletins
•
Personal organisers e.g. electronic diaries
•
Global roaming – accessing services anywhere in the world
•
Video conferencing – for business people or schools
Research also revealed that 3’s customers wanted to watch ITV1 on their phones, so the company formed a
link with ITV.
Adapted from: www.thetimes100.co.uk
Questions
4.8.1 Describe the product attributes of 3G offered by 3.
4.8.2 State the factors that have contributed to 3 becoming a leader in the 3G market.
4.8.3 Consider the cell phone market. In which stage of the product life cycle would you place:
•
First generation phones (analogue mobile phones)?
•
Second generation phones (GSM digital mobile phones)?
•
Third generation phones (3G digital phones with much greater bandwidth)?
4.8.4 Describe the relationship between the stage in the product life cycle and the sales for the three types of
cell phones described in question 7.5.3 above.
4.8.5 How can the marketers of cell phones prolong the life cycle of their products?
4.8.6 Describe the two main market segments that 3 is targeting.
4.8.7 What would you consider to be the main strengths of 3?
4.8.8 What can 3 do to maintain its position as a market leader?
Activity 1
Think of a situation in the business environment, that would force or lead the organisation to
extend the life of its products by adding more product features.
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Solutions
Think Point 1
If a consumer buys a lawn mower for use around the home, it is considered to be a consumer product. If the
same consumer buys the same lawnmower for use in a garden cleaning service business, the lawnmower is an
industrial product.
Think Point 2
Branding helps consumers to identify products that may be of benefit to them. It also tells buyers something about
the quality of the product. Consumers know that they can expect the same features, benefits, and quality with
every purchase of the same brand.
Think Point 3
Refer to the following table.
Beverages
Breakfast cereals
Confectionery
Pasta
Desserts
-Nesquick
-Cheerios
-Kit Kat
-Tortelloni
-Aero Choc
-Bottled
-Fitnesse
-Aero
-Ravioli
mousse
water
-Cereal bars
-Smarties
-Cappellette
-Milky Bar
-Quality Street
-Gnocchi
Choc mousse
-Milky bar
-Rolo Split Pot
-After Eight
dessert
Product mix width: The product lines of Nestle include beverages, breakfast cereals, confectionary, pasta and
desserts.
Product line depth: The product line length is as follows:
beverages (2), breakfast cereals (3), confectionary (6), pasta (4) and desserts (3).
Product line depth: Consider beverages. Nesquick (milkshake powder) is offered in many flavours e.g.
Chocolate, Strawberry, Banana, Cream soda. Bottled water has a number of variants e.g. still, sparkling, naartjie,
strawberry.
Think Point 4
Many companies fail to offer a unique benefit.
Some companies underestimate the competition.
The company may have design problems.
The product may cost more to produce than was expected.
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The product may be launched without a proper marketing plan.
Entry into the market may have been slow.
The market size may have been overestimated.
Think Point 5
It can conduct surveys of market opinion.
It can look at the sales history of similar products.
Think Point 6
A lot of test marketing is required when:
The new product requires a big investment.
Management is not sure of the product or marketing program.
Little or no test marketing is required when:
Costs of developing and introducing the product are low.
Management is already confident of the new product.
Think Point 7
The company can change one or more of the marketing mix elements e.g.:
It can decrease prices to attract new users and competitors’ customers.
It can use aggressive sales promotions or launch a better advertising campaign.
The company can move into larger marketing channels, using mass merchandisers.
The company can offer new or improved services to customers.
Think Point 8
Technological advances may make the product out of date.
Consumer tastes may change.
Competition may be very great.
4.10 Possible questions:
83
•
Do you believe the claims about the car’s performance?
•
What advantages do electric powered cars have compared to conventional cars?
•
What improvements in the car’s features do you suggest?
•
For what uses would you prefer a battery-powered electric car to conventional cars?
•
What price would you say is reasonable for such a car?
•
Who will drive it?
•
Would you buy the car (definitely, maybe, maybe not, definitely not)?
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4.11 Suggested solutions to case study 4.8
4.11.1 3G is wireless broadband for mobile phones offering consumers access to ITV1, high-speed internet
access, global roaming, e-mail service and personal organisers.
4.11.2 It was among the first to recognise the potential for 3G for market development.
It invested heavily in new technology and its network is very comprehensive.
All aspects of 3’s market plan are tailored towards achieving market leadership.
It developed a product that meets the needs of customers.
It responded to the results of its market research to satisfy the needs of consumers.
It is always seeking ways to improve on its products and services by improving:
-
the network
-
the content available through the network
-
links with mobile phone producers
-
links with global leaders in internet technology
4.11.3 First generation phones
- decline stage
Second generation phones
- maturity stage
Third generation phones - growth stage
4.11.4 First generation phones - decline stage
Second generation phones
– decline in sales
- maturity stage – sales growth slows down
Third generation phones - growth stage – sales starts climbing quickly
4.11.5 Use skilful marketing techniques to inject new life into the product.
Keeping the product relevant and attractive to customers.
Find new target markets for the product.
Find new uses for the product.
Add new features to the product.
Improve quality.
Reposition the product.
4.11.6 The first segment is young people who prefer to product for sending pictures, viewing videos, and
listening to music downloads.
The second segment includes business people including media personnel.
4.11.7 It places emphasis on anticipating and meeting customer needs.
It recognises that it must offer a superior product.
It is always seeking ways to improve on its products and services.
It believes in gaining advantage by being the first one to develop a specific market.
4.11.8 It must ensure that its products are superior to that of its rivals.
It must continue to understand what customers want.
It must also research the future requirements of customers.
It must frequently research new technologies.
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Unit
5:
85
The Marketing Mix – Price
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
5.1 Introduction
•
Introduce topic areas for the unit
5.2 What is price
•
Identify and describe the internal and external factors that
affect a firm’s pricing decisions
5.3 Factors that should be considered
•
when setting prices
Differentiate between the three general approaches to setting
prices
5.4 Pricing approaches
•
Discuss the general pricing approaches which may be used
5.5 New product pricing strategies
•
Discuss the major strategies for pricing new products
5.6 Price adjustment strategies
•
Describe how firms adjust their prices to take into
consideration different types of customers and situations
•
5.7 Price changes
Explain the key issues related to initiating and responding to
price changes
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction.
Global Edition, Fifteenth Edition. Pearson.
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5.1
Introduction
Price is an important element of a firm’s marketing mix. Decisions regarding price affects both the sales that a firm
makes and the profit it generates. Despite the importance of pricing, many firms do not manage pricing well. One
of the dilemmas faced is that marketers want to sell the product at the highest possible price while consumers want
to pay as little as possible.
Think Point 1
What are some of the things that sets “price” apart from the other elements of
the marketing mix?
5.2.
What is price?
Price may be considered to be the amount of money charged for a product or service.
However, Kotler and Armstrong (2012:314) provide a much broader definition of price. They define price as “the
sum of all the values that consumers exchange for the benefits of having or using the product or service”.
5.3
Factors that should be considered when setting prices
Kotler and Armstrong (2010:315) illustrate the factors (internal and external) that affect pricing decisions
in figure 5.1 below:
Internal factors
External factors
Marketing objectives
Marketing mix
strategy
Costs
Nature of the market
and demand
Competition
Other factors:
Economy, resellers
and Government
Pricing decisions
Organisational
considerations
Figure 5.1:8Internal and external factors - pricing decisions.:
Kotler and Armstrong (2010:315)
5.3.1
Internal factors that affect pricing decisions
Kotler and Armstrong (2012:324) provide the following discussion of the internal factors that affect price viz. the
firm’s marketing objectives, marketing mix strategy, costs, and organisational considerations.
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•
Marketing objectives
If a firm has selected its target market and positioning carefully, the pricing strategy is quite straightforward.
At the same time, the firm may set additional general objectives. These may include survival, current profit
maximisation, market share leadership, and product quality leadership. It may also set specific objectives e.g.
set prices low to prevent competing products from entering the market or set prices at competitors’ levels to
stabilise the market. Prices may be set to maintain loyalty or avoid government interference. Prices may be
reduced temporarily to attract more customers into the store.
Think Point 2
How will the pricing strategy of a firm that pursues market share leadership
differ from that of a firm that wants to achieve product quality leadership?.
•
Marketing mix strategy
Pricing decisions must be co-ordinated with the other elements of the marketing mix viz. product, distribution
and promotion in order to develop a consistent and effective marketing program. Decisions made for the other
elements of the marketing mix may affect pricing decisions. For example, the decision to position a product
on high quality will influence a marketer to charge a higher price to cover higher product costs.
Firms often use price to position their products and then tailor the other marketing mix elements to the prices
they want to implement. Using price as a positioning factor defines the product’s market, competition, and
design. Many firms support price-positioning strategies with a technique called target costing. In target costing
an ideal selling price is set based on customer expectations and then targets costs that will ensure that the
price is met.
•
Costs
The price that a company sets must cover the costs of production, distribution, and selling the product and
deliver a satisfactory rate of return for its effort and risk. Companies with lower costs can afford to set lower
prices that can result in greater sales and profits.
•
Organisational considerations
Each firm must decide who in the organisation should set prices. In smaller firms, prices are usually set by
top management. In larger firms, pricing is usually done by divisional or product line managers. In industrial
markets, sales persons may be allowed to negotiate prices with customers within a certain range. In industries
where pricing is an important factor, a pricing department sets the prices or assists others to set them.
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5.3.2
External factors that affect pricing decisions
Kotler and Armstrong (2012:325) elaborate on the following external factors that affect price viz. nature of the
market and demand, competition, and other environmental elements.
1
Nature of the market and demand
The lower limit of prices is determined by costs whereas market and demand determine the upper limit.
Buyers balance the price of a product against the benefits of owning it. It is therefore important that, before
setting prices, marketers must understand the relationship between price and demand for its product.
•
Pricing in different markets
Pricing freedom varies with different types of markets. Four types of markets may be identified, each posing
a different pricing challenge:
Pure competition: The market is made up of many buyers and sellers trading in a uniform product e.g.
wheat, copper. No single buyer or seller can affect the going market price significantly. A seller is unlikely to
charge more than the going price as buyers can obtain as much as they want at the going price. Sellers will
avoid selling less than the market price because they can sell all they want at this price.
Monopolistic competition: The market consists of many buyers and sellers who trade over a range of prices.
A range of prices prevails because sellers can differentiate their offers to buyers by means of quality, features,
style, or accompanying services.
Oligopolistic competition: The market is made up of a few sellers who are highly alert to each other’s pricing
and marketing strategies. It is difficult for new sellers to enter the market.
Pure monopoly: The market consists of only one seller. The seller may be a government monopoly, a private
regulated monopoly, or a private non-regulated monopoly. In a regulated monopoly, the government allows
the company to set rates that will yield a fair return. In the case of non-regulated monopolies, companies are
free to price at what the market will bear.
•
Consumer perceptions of price and value
Pricing must be consumer-orientated. Effective, consumer-orientated pricing involves understanding how
much value consumers attach to the benefits they receive from the product and setting a price that fits this
value.
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•
Price elasticity of demand
Price elasticity refers to how responsive demand will be to a change in price. The demand is inelastic if
demand hardly changes to a small change in price. If the demand changes a lot, we say that the demand is
elastic.
Think Point 3
When would you expect buyers to be less price-sensitive to products?.
•
Competition
When setting prices, a firm must also take into consideration competitors’ costs and prices and even
competitors’ reactions to the firm’s own pricing strategies. A firm’s pricing strategy may affect the nature of
competition. If for example the company Sony follows a high-price, high-margin strategy, it may attract
competition. On the other hand, a low-price, low-margin strategy may prevent new competitors or even drive
present ones out of the market.
•
Other environmental elements
Economic conditions such as a boom or recession, inflation, and interest rates can impact greatly on pricing
strategies. How resellers react to various prices is also important. Marketers should set prices that give
resellers a satisfactory profit, encourage their support, and assist them to sell the product effectively. The
government can also exert an influence on pricing decisions.
5.4
Pricing Approaches
According to Kotler and Armstrong (2010:315) the following general pricing approaches may be used: Cost-based
approach, Value-based approach, and Competition-based approach.
5.4.1
Cost-based approach
Kotler and Armstrong (2012:321) rate cost-plus pricing is the simplest pricing method. A standard mark-up (e.g.
20%) is added to the cost of the product. This method is popular for various reasons. Firstly, marketers are surer
about costs than demand. By tying the price to cost, pricing is simplified. Secondly, if all firms in the industry use
this pricing method, prices tend to be similar thereby minimising competition. Lastly, many people believe that this
method is fairer to both buyers and sellers.
Dalrymple and Parsons (2002:382) observe that mark-ups on selling price are more complicated than mark-ups
on cost because they cannot be multiplied directly by the cost to give a price. If a seller wants a 30 per cent profit
margin on the selling price and the item costs R14, the selling price will be:
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Selling price =
Cost
(1 – mark-up on selling price)
=
R14
(1 – 0.3)
= R20
Think Point 4
What would you consider to be the major drawbacks of cost-based pricing?.
Break-even pricing is another cost-based pricing approach. The firm determines the price at which it will break
even (total cost and total revenue are equal). If a firm wants to make a target profit, it must sell more than the
break-even volume.
Break even volume is calculated as follows:
Break-even volume =
Fixed cost
Price – Variable cost
Also see figure 10.5 in Kotler and Armstrong pg.322 (as calculated), as well as the graphical presentation of the
information.
Make sure that you understand the calculations of Break-even Volume and Profits at different prices as shown in
table 10.1 in Kotler and Armstrong (pg.323).
5.4.2
Value-based approach
Using this approach, firms base their prices on the product’s perceived value by customers. Kotler and Armstrong
(2012:315) observe that unlike cost-based pricing, the price is considered before the marketing program is set.
The firm sets a target price based on customer perceptions of the product value. The targeted value and price then
influence decisions about product design and what costs can be incurred. However, measuring perceived value
can be difficult.
5.4.3
Competition-based approach
According to Kotler and Armstrong (2012:323) going-rate pricing is one form of the competition-based approach
whereby the firm bases it’s price largely on competitors’ prices than its own costs and demand. The firm may set
a price that is the same as, greater than, or less than its major competitors. Many firms use competition-based
pricing when bidding for jobs. A firm will base its price on how it thinks competitors will price rather than its own
costs and demand.
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5.5.
New-Product Pricing Strategies
Firms can choose between market-skimming and market-penetration when setting prices for new products.
5.5.1
Market-skimming pricing
According to Kotler and Armstrong (2012:338) many firms that invent new products set high initial prices to skim
maximum revenues layer by layer from the segments that are willing to pay the high price. The firm makes fewer
but more profitable sales. Blythe (2006:463) adds that once the innovative consumers have bought, and
competitors start to enter the market, the firm can drop the price and skim the next layer of the market, at which
point profits will start to rise.
Think Point 5
As a marketer, what factors will you consider before using market-skimming
pricing?
5.5.2
Market-penetration pricing
Kotler and Armstrong (2012:338) describe this method as setting a low initial price in order to penetrate the market
quickly and deeply. The aim is to attract a large number of buyers quickly and to gain a large market share. The
higher sales volume results in lower costs per unit, allowing the firm to cut its price even further.
For this method to be successful, the market must be highly price sensitive. Secondly, costs must decrease as
sales volume increases. Lastly, the low price must keep out competitors. Blythe (2006:466) warns that the danger
with this method is that competitors may be able to sustain a price war long enough to bring bankruptcy to the
incoming firm.
5.6.
Price-Adjustment Strategies
Varying customer differences and changing situations may require firms to adjust their basic prices. Kotler and
Armstrong (2012:343) elaborate on six price-adjustment strategies:
5.6.1
Discount and allowance pricing
The basic price is often adjusted to reward customers for certain responses e.g. bulk purchases, paying cash.
Various forms of discounts may be granted:
•
A cash discount is a price reduction offered to buyers in return for prompt payment
•
A quantity discount is a price reduction to buyers who buy in large quantities
•
A functional (trade) discount is offered to trade channel members who perform certain functions e.g.
storage
•
A seasonal discount is a price reduction to buyers who purchase goods out of season
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Allowances are another form of reduction from the listed price. Trade-in allowances are price reductions for
handing in an old item when purchasing a new one. Promotional allowances are payments or price reductions to
dealers as a reward for promoting the manufacturer’s products.
5.6.2
Segmented pricing
This involves selling a product at two or more prices even though the difference in prices is not based on the
difference in costs. There are several forms of segmented pricing:
•
Using customer-segment pricing, different customers pay different prices for the same product
•
Under product-form pricing different versions of the product are priced differently but not according to
the differences in their costs
•
Using location pricing, a firm charges different prices for different locations, although the cost of
supplying each location is the same
•
When time pricing is used, a firm varies its price by the month, day, season, or even the hour
Think Point 6
Identify marketers who use segmented pricing. Provide an example that
demonstrates the use of each of the four forms of segmented pricing
described above.
5.6.3
Psychological pricing
Consumers often associate higher prices with higher quality. However, when they can judge the quality of a product
by examining it or by considering past experience with it, price is used less to judge quality.
Small differences in prices can make a difference. Suppose a DVD player is priced at R400 compared to R399,99.
The actual price difference is only one cent, but the psychological difference may be greater. Some customers
may see the price in the R300 range than the R400 range.
5.6.4
Promotional pricing
Using this strategy, a firm will temporarily price the products less than the list price or sometimes even below cost
in order to create buying excitement and urgency. Promotional pricing may take various forms:
•
Loss leaders: Supermarkets often price a few products as loss leaders to attract customers into the store
in the hope that they will also purchase the other items at normal mark-ups
•
Special-event pricing: This is used by marketers to draw more customers into the stores
•
Cash rebates: Manufacturers sometimes offer these to consumers who purchase the product from
dealers within a specific time period. The rebate is sent by the manufacturer directly to the consumers
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•
Low-interest financing, longer warranties, or free maintenance: Manufacturers sometimes offer these
to reduce the customers “price”
•
Discounts: A marketer may offer a price reduction to increase sales and lower inventories
Think Point 7
Promotional pricing can have adverse effects on marketers. Think of reasons
why this may be so.
5.6.5
Geographical pricing
A firm must decide how to price its products for customers located in various parts of the country or world. We
examine five geographical pricing strategies:
•
FOB-origin pricing: The goods are placed free on board a carrier. Title and responsibility are passed to
the customer at this point. The customer pays the freight from this point to the destination
•
Uniform-delivered pricing: The company charges the same price plus freight to all customers,
irrespective of their location. The freight charge is set at the average freight cost
•
Zone pricing: The company sets up two or more zones. All customers within a given zone pay the
same total price. The price in a more distant zone is higher
•
Basing-point pricing: A firm chooses a given city as a basing point and charges the customers the freight
cost from that city to the customer location
•
Freight-absorption pricing: The seller absorbs all or a portion of the freight charges in order to get the
desired sale. The expectation is that if the firm gets more business, its average costs will fall and will more
than compensate for its extra freight cost
5.6.6
International pricing
International marketers must decide what prices to charge in different countries in which they operate. Some
companies may set a uniform price worldwide. However, most companies set prices that take into account local
conditions (economic conditions, competition, laws etc.) and cost implications.
5.7.
Price Changes
After pricing strategies have been developed, firms often find a need to initiate price changes or react to price
changes by competitors. Kotler and Armstrong (2012: 349) explain the following key issues related to initiating and
responding to price changes:
5.7.1
Initiating price changes
A firm may find it advantageous to initiate either a price cut or a price increase. It is important to predict possible
buyer and competitor reactions in both cases.
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•
Initiating price cuts
A firm may consider cutting its price for various reasons:
•
It may have excess capacity. If the firm needs more sales but cannot achieve it through increased
sales effort or product improvement, it may aggressively cut prices to boost sales
•
•
It may experience falling market share in the face of strong competition
•
It may want to dominate the market through lower costs
Initiating price increases
If a price increase is successful, it can increase profits greatly. A major reason for increasing prices is to
combat the effects of cost inflation. Another reason is over-demand i.e. a situation where a firm cannot supply
all products that the customers need.
Companies must guard against being perceived as charging excessive prices. One way to do this is by
supporting price increases with company communications informing customers why prices are increased.
Making low-visibility price moves first such as eliminating discounts or increasing minimum orders are
recommended.
Think Point 8
Suggest some ways that companies can meet higher costs without raising
prices
•
Buyer reactions to price changes
All consumers do not interpret price changes in the same way. A price cut may be welcomed by most but
interpreted by some consumers in the following ways:
•
The product is about to be replaced by a newer model
•
The product has some fault and is not selling well
•
The marketer is going to abandon the business and not stay long enough to supply future parts
•
The quality has been reduced
•
The price may go down even further, so wait and see
A price increase, apart from the negative meanings attached to it, may be interpreted positively by some
consumers as follows:
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•
The item is very “hot” and be may not be available unless you buy it soon
•
The product is an unusually good performer
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•
Competitor reactions to price changes
A reaction from competitors to price changes is most likely when there are few firms involved, when the product
is uniform, and when buyers are well informed. Competitors may interpret a price cut in various ways.
Competitors may think that:
▪
The company is trying to gain a larger market share
▪
The company is doing poorly and is trying to boost sales
▪
The company wants the whole industry to cut prices to increase total demand
If some competitors match the price change, it is likely that the others will follow suit.
5.7.2
Responding to price changes
The question is now how should a firm respond to a price change by a competitor.
Think Point 9
What are some issues a firm needs to consider when a competitor changes
the price of its product?
Apart from some of the issues mentioned in the suggested solution for think point 9, the firm needs to make a
broader analysis. It must consider its own product’s life cycle stage, the importance of the product to the firm’s
product mix, the intentions and resources of the competitor, as well as the possible reactions to the price change
by consumers.
A firm can assess and respond to a competitor’s price cut in various ways. If it believes that it will not lose too much
market share or profit, it may decide to maintain its current price and monitor the situation. If the firm believes that
decisive action is necessary, it may respond in one of four ways:
•
It can reduce its price to match that of the competitor. The belief here is that the market is price
sensitive and that the firm will lose too much market share if it does not lower the price
•
It can increase the perceived value of its offer. It can stress the relative quality of its product over that
of the lower-priced competitor
•
It can improve quality and increase price, moving the brand to a higher-price position. In this case the
higher quality justifies the higher price, which in turn will maintain the firm’s higher margins
•
It can launch a low-price “fighting brand”. This may be necessary if the market segment being lost is
price sensitive and will not respond to claims of higher quality
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5.8
Self-Assessment Activities
Knowledge Check Questions
5.8.1 Briefly describe the internal factors that influence a firm’s pricing decisions.
5.8.2 Discuss briefly the external factors that affect pricing decisions.
5.8.3 A retailer purchases a camera for R400 and plans to use a 60 percent mark-up on
the selling price. Calculate the final purchase price for the consumer.
5.8.4 The total fixed costs of producing a DVD player are R2 100 000 and the variable
costs are R160. If the manufacturer is considering selling prices of R300 and R400,
what are the break-even volumes?
5.8.5 Gillette Co.’s Oral-B laboratory has introduced the most important toothbrush ever
at a list price of $4.99. The new Cross-Action brush will cost the consumer 50% more
than any of its high-end rivals. The new brush removes 25% more plaque than
competitive brushes. It has denser bristles at the tip to clean the back teeth.
Source: Dalrymple and Leonard (2002:390)
Questions
5.8.5.1 Name and describe the pricing strategy used by Gillette for the toothbrush.
5.8.5.2 What advantages does this strategy have for the company?
5.8.5.3 Briefly discuss the key issues related to initiating and responding to price changes,
Activity 1
From a variety of available pricing strategies, discuss a situation where penetration pricing
strategy is better than Skimming pricing strategy. Give reasons for your answer.
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Solutions
Think Point 1
Price is the only element in the marketing mix that produces revenue (the other elements represent costs).
It is more flexible than the other elements (price can be changed quickly).
Price is the only area where marketers can directly improve the profits of the firm.
Think Point 2
To become the market share leader, the firm should set prices that are as low as possible. A firm that wants to
achieve product quality leadership will usually charge a high price to cover higher performance quality and high
R&D costs.
Think Point 3
The cost of the product is low relative to their income.
The product is unique.
The product is high in quality, prestige, or exclusiveness.
Substitute products are hard to find.
Think Point 4
This method ignores demand and competitor prices.
Think Point 5
The quality and image of the product must support its high price.
Enough buyers must want the product at that price.
The costs of producing a smaller volume should not be so high as to nullify the advantage of charging more.
Competitors should not be able to enter the market with lower prices.
Think Point 6
•
Customer-segment pricing: An aquarium may charge a lower price for children and pensioners.
•
Product-form pricing: The most expensive iron may cost more than the next most expensive one by
R40 because it has a non-stick surface. However, this extra feature may cost the company much less
than R40 to add to the product.
•
Location pricing: Theatres may vary seat prices because of audience preferences for certain locations.
•
Time pricing: Airlines charge different prices for air tickets to the same destination on the same day.
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Think Point 7
If it is used too frequently and copied by competitors, this may lead to “deal-prone” customers who wait for brands
to go on sale before buying them.
Constantly reduced prices may erode the brand’s value in the minds of consumers.
It can lead to industry price wars and this plays in the hands of one or a few competitors.
Think Point 8
It can consider more cost-effective ways to produce or distribute the product.
It can shrink the product instead of raising the price.
It can substitute less expensive ingredients.
It can remove certain product features, packaging, or services.
Suggested solutions to self-assessment activities: 5.8
5.8.1 The internal factors that affect the firm’s pricing decisions include:
Marketing objectives: The pricing strategy is largely determined by the firm’s target market and positioning
objectives. Additional objectives include survival, current profit maximisation, market share leadership, and product
quality leadership.
Marketing mix strategy: Pricing decisions influence and are influenced by product design, distribution, and
promotion decisions. Pricing strategies must thus be carefully coordinated with the other marketing mix variables.
Costs: The price must cover the costs of making and selling the product, as well as a fair rate of return.
Organisational considerations: The firm must decide who within the organisation is responsible for setting prices.
It may be top management, product line managers, divisional managers or salespersons.
5.8.2 Nature of market and demand: The marketer’s pricing freedom varies with the different types of markets.
Pricing is challenging in markets characterised by monopolistic competition or oligopoly. Consumers decide
whether the company has set the right price. If consumers feel that the price exceeds the perceived values of using
the product, they will not buy the product. The more inelastic the demand, the higher the firm can set its price.
Therefore, demand and consumer value perceptions set the ceiling for prices.
Competition: Firms must learn the price and quality of the competing products and use them as a starting point
for its own pricing.
Other environmental factors: Economic conditions such as a boom or recession, inflation, and interest rates can
impact greatly on pricing strategies. How resellers react to various prices is also important. The government can
also exert an influence on pricing decisions.
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5.8.3
Selling price =
Cost
(1 – mark-up on selling price)
=
R400
(1 – 0.6)
= R1 000
5.8.4
Break-even volume =
Fixed cost
Price – Variable cost
=
R2 100 000
R300 – R160
= 15 000 units
Break-even volume =
Fixed cost
Price – Variable cost
=
R2 100 000
R400 – R160
= 8 750 units
5.8.5 The pricing strategy used is market skimming. Gillette set a high initial price to skim maximum revenues
from the segments that are willing to pay the price.
5.8.6 The cost of developing the product is returned fairly quickly, so that the product can be sold later near the
marginal cost of production.
This means that competitors have difficulty entering the market, since their own development costs have to be
recovered in some other way.
5.8.7 When initiating a price change, a firm must consider the reactions of consumers and competitors. Initiating
price cuts and initiating price increases have different implications. Buyer reactions to price changes are
influenced by the meaning customers see in the price change. Competitors’ reactions flow from a set reaction
policy or fresh analysis of each situation.
The company that faces a price change initiated by a competitor must try to understand the competitor’s intent and
the likely duration and impact of the change. When facing a competitor’s price change the company may retain its
price, reduce its price, raise perceived value, improve quality and increase price, or launch a fighting brand.
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Unit
6:
101
The Marketing Distribution
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
6.1 Introduction
•
Introduce topic areas for the unit
6.2 The nature and importance of
•
Explain the nature and importance of marketing channels
•
Discuss the factors that should be considered in channel
marketing channels
6.3 Channel design decisions
design
•
6.4 Channel management decisions
Explain how firms select, motivate and evaluate channel
members
6.5 Marketing logistics and Supply chain
•
management
Discuss the nature and importance of marketing logistics
and integrated supply chain management
•
6.6 Retailing
Classify the major types of retailers according to amount of
service, product lines, relative prices, and how they are
organised
•
6.7 Wholesaling
Identify and describe the major types of wholesalers. ™
explain the marketing decisions that retailers and
wholesalers face
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction. Global
Edition, Fifteenth Edition. Pearson.
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6.1.
Introduction
The distribution of products is an important element of the marketing mix. Getting the products in the right place at
the right time must first take place before consumers can buy the products. Kotler and Armstrong (2012:364) point
out that the success of a firm depends not only on how well it performs but also on how well its entire distribution
channel competes with competitors’ channels.
6.2
The Nature and Importance of Marketing Channels
Very few producers sell their products directly to the final users. Most prefer to use intermediaries to bring the
products to the market. Kotler and Armstrong (2012:365) state that producers forge a marketing channel (or
distribution channel) which they define as a set of interdependent organisations involved in the process of making
a product available for use by the final user”.
A firm’s channel decisions have a direct effect on other marketing decisions.
Think Point 1
How can a company’s channel decisions affect its pricing, new products (to
offer), and its sales force and communication decisions?
Channel members are important because:
•
They have greater efficiency in making goods available to the target market
•
Using intermediaries can provide economies to a firm by reducing the number of contacts with customers
•
Intermediaries buy in large quantities from many producers and break them down into smaller quantities
and wider assortments that consumers want
•
They add value by bridging the time, place, and possession gaps that separate goods from those who
would use them
•
They help to complete transactions e.g. promoting products, negotiation, matching the offer to the buyer’s
needs, and establishing contacts with prospective buyers
•
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They help to fulfil the completed transactions by financing, physical distribution and risk-taking
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The number of intermediary levels determines the length of a channel. Figure 6.1 below shows consumer
distribution channels of different lengths:
Producer
Producer
Producer
Wholesaler
Retailer
Retailer
Consumer
Consumer
Consumer
Channel 1
Channel 2
Channel 3
Figure 6.1:9 Consumer distribution channels
Source: Kotler and Armstrong (2012: 365).
Channel 1 is called a direct marketing channel and is one where the firm sells directly to the consumers. Channels
2 and 3 are indirect marketing channels that have one or more intermediaries.
Think Point 2
Why do you think that some marketers sell directly to consumers despite the
value offered by other channel members?
6.3.
Channel Design Decisions
According to Kotler and Armstrong (2010:372) designing a channel system requires analysing consumer needs,
setting channel objectives, identifying major channel alternatives, and evaluating them.
6.3.1
Analysing consumer needs
Designing the marketing channel starts with determining what target consumers want from the channel.
Think Point 3
What are some things that consumers may want from a channel?.
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To be able to provide the quickest delivery, widest assortment, and most services may not be possible or practical
due to lack of skills or resources of the company and its channel members. Higher levels of services will ultimately
translate into higher prices for consumers. The company must therefore balance consumer needs against the
feasibility and costs of meeting the needs and customer price preferences.
6.3.2
Setting channel objectives
The marketing channel objectives should be stated in terms of targeted levels of customer satisfaction. The
company must try to minimise the total channel cost of meeting customer service requirements in each segment.
The company’s channel objectives are also influenced by the nature of the company, its marketing intermediaries,
its competitors and the environment.
6.3.3
Identifying major channel alternatives
The company must now identify its main channel alternatives in terms of types of intermediaries, the number of
intermediaries, and the responsibility of each channel member:
•
Types of intermediaries: A company should identify the types of channel members available to carry out its
channel work. It may decide to use its own sales force, hire agents, or use distributors
•
Number of marketing intermediaries: A company may use one of three strategies viz. intensive distribution,
exclusive distribution, or selective distribution. Intensive distribution is the strategy where the products are
available in as many outlets as possible. Exclusive distribution is used when a manufacturer gives only a
limited number of dealers the exclusive right to distribute its products in their territories. Selective distribution
is a strategy that uses more than one but fewer than all the intermediaries who are willing to carry a company’s
product
•
Responsibility of channel members: The producer and intermediaries need to agree on the terms and
responsibilities of each channel member with regard to price policies, conditions of sale, territorial rights, and
specific services each party must perform
Think Point 4
What do you think is the main aim of producers in using each of the following strategies:?
intensive distribution, exclusive distribution, and selective distribution?.
6.3.4
Evaluating the major alternatives
After identifying several channel alternatives, each alternative should be evaluated against economic, control, and
adaptive criteria. Using economic criteria, a company compares the expected sales, costs, and profitability of each
channel. Control issues relate to the degree of control granted to intermediaries over the marketing of the product.
In applying adaptive criteria, a producer understands that channels usually involve long-term commitments but
wants to keep the channel flexible so that it can adapt to environmental changes.
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6.4.
Channel Management Decisions
Kotler and Armstrong (2010:377) state that channel management calls for selecting, managing and motivating,
and evaluating channel members.
6.4.1
Selecting channel members
A company should identify criteria that channel members must satisfy before choosing them. These criteria may
include experience, other lines carried, growth and profit record, cooperativeness, and reputation. Moriarty and
Kosnik cited in Blythe (2006:651) developed a system for profiling channel members. The following table illustrates
the characteristics that should be considered:
Table 6.2: 3 Characteristics of channel members
General
characteristics
- Past
Capabilities
Reputation/
Goals and
Relationship
strategies
Compatibility
- Facilities
- With suppliers
- Short-term
- Product lines
- Marketing/
- With customers
- Long-term
- Markets
- Profitability
- Sales
- With financial
- Sales growth
- Technological
- Cooperation
- Size of firm
with other
- Language
partners
- After-sales
performance
- Experience
- Style
institutions
- With government(s)
- Knowledge of
with
local business
market/product
conditions
- Financial
strength
Source: Blythe (2006:651)
6.4.3
Evaluating channel members
Channel members should be regularly evaluated against standards such as sales quotas, average inventory levels,
customer delivery time, cooperation in company promotion, treatment of damaged goods and services to
customers. Those who perform well and add value for customers should be recognised and rewarded. Those who
perform poorly should be assisted and only as a last resort, replaced.
6.5
Marketing Logistics and Supply Chain Management
Kotler and Armstrong (2013:381) define marketing logistics (also called physical distribution) as “planning,
implementing, and controlling the physical flow of goods and related information from the points of origin to the
points of consumption to meet customer requirements at a profit”. They add that marketing logistics nowadays
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involve not only outbound distribution (moving products from the factory to resellers and eventually to the
customers) but also inbound distribution (moving materials and products from suppliers to the factory) and reverse
distribution (moving damaged, unwanted, or excess products returned by resellers or consumers). Marketing
logistics thus involves entire supply chain management i.e. managing upstream and downstream value-added
flows of materials, finished products, and related information among suppliers, the company, resellers, and final
users.
Kotler and Armstrong (2013:381) elaborate on the following aspects of marketing logistics and supply chain
management: importance of marketing logistics, goals of the logistics system, major logistics functions, and
integrated logistics management.
Think Point 5
Apart from moving damaged, unwanted, or excess products from resellers or
consumers to the factory, think of other examples of reverse distribution.
6.5.1
Importance of marketing logistics
Firstly, firms can gain a major competitive advantage by using improved logistics to give customers better services
or lower prices. Secondly, improved logistics can result in great cost savings to both the firm and its customers.
Thirdly, the dramatic increase in product variety has created a need for better logistics management. Ordering,
transporting, storing, and controlling a wide variety of products presents a great logistics challenge. Lastly,
developments in information technology (e.g. web-based logistic systems and satellite tracking) have created
opportunities for major gains in distribution efficiency.
6.5.2
Goals of the logistical system
The goal of marketing logistics should be to provide a targeted level of customer service at the lowest possible
cost. For each segment a firm must research the importance of various distribution services to customers and then
set desired service levels. The aim is to maximize profits, not sales. The firm must therefore weigh the benefits of
providing higher service levels against the costs.
6.5.3
Major logistical functions
The main logistical functions include warehousing, inventory management, transportation, and logistics information
management.
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•
Warehousing
Most companies have to store their products while they wait for them to be sold. A company must decide
on the number and types of warehouses it needs and where they will be located. The company may
make use of storage warehouses or distribution centres. Storage warehouses are used to store goods for
moderate to long periods while distribution centres are designed to move goods rather than just store
them. Modern warehouses are automated with advanced, computer-controlled materials-handling
systems requiring few employees. Computers and scanners are used to read orders and direct lift trucks,
electric hoists, or robots to gather goods, move them to loading areas, and issue invoices.
•
Inventory management
Managers must find the right balance between carrying too little inventory and carrying too much
inventory. With too little stock, the firm runs the risk of running out of stock and may thus require costly
emergency shipments or production. Carrying too much inventory increases inventory-carrying costs and
stock obsolescence.
Many companies nowadays have reduced inventories and related costs through the use of just-in-time
logistics systems. Using this system new stock arrives exactly when needed, rather than being stored
until needed. For the system to work accurate forecasting is needed together with fast, frequent, and
flexible delivery.
•
Transportation
The choice of transportation carriers affects prices of products, delivery performance, and the condition
of goods at its destination – all of which influences customer satisfaction. Traditionally road, rail, water,
pipeline, and air have been the main modes of transportation. The internet is nowadays increasingly
being used as an alternative mode for digital products.
Road transport is very flexible in their routing and time schedules. They are efficient for short hauls of
high-value merchandise. Rail transport is very cost-effective for transporting large quantities of bulk
products over long distances. Water transport is the slowest mode but offers low cost for shipping bulky,
low-value, non-perishable products. Pipelines provide a specialised means by which petroleum, natural
gas, and chemicals are moved from sources to markets. Air transport rates are much higher but airfreight
is ideal when speed is needed or distant markets have to be reached. The internet carries digital products
from producers like software firms, media, and music companies to consumers.
Many shippers use inter-modal transportation i.e. combining two or more modes of transport e.g. the use
of road and rail. In choosing the transportation mode for a product, several factors may be considered.
Lamb et al. (2004:296) illustrate the use of six criteria for ranking the modes of transport in table 6.2 below:
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Table 6.2: 4Criteria ranking the modes of transport
Highest
Lowest
Relative cost
Air
Road
Rail
Pipeline
Water
Transit time
Water
Rail
Pipeline
Road
Air
Reliability
Pipeline
Road
Rail
Air
Water
Capability
Water
Rail
Road
Air
Pipeline
Accessibility
Road
Rail
Air
Water
Pipeline
Traceability
Air
Road
Rail
Water
Pipeline
Source: Lamb et al. (2004:296)
Cost refers to total amount charged by the carrier. Transit time is the total time the carrier has possession
of the products. Reliability is the consistency of the carrier to deliver products on time and in good
condition. Capability is the ability of the carrier to provide appropriate equipment and conditions to move
certain goods e.g. seafood. Accessibility is the ability of the carrier to move goods over a specific route or
network. Traceability is the relative ease of locating a shipment.
•
Logistics information system
Channel partners often share information so that better logistics decisions may be made. Information
flows from customer orders, billing, inventory levels, and customer data affect channel performance.
Information may be shared using mail, telephone, sales persons, internet or facsimiles.
6.5.4
Integrated logistics management
The concept of integrated logistics management recognises that providing better customer service and reducing
distribution costs require teamwork, both within the company and among all the marketing channel partners. Inside
the company, the different departments must work together to maximise the company’s own logistics performance.
Outside the company, it must integrate its logistical system with those of suppliers and customers to maximise the
performance of the whole distribution system.
6.6.
Retailing
Kotler and Armstrong (2012:398) define retailing as all the activities involved in selling products directly to the final
users for their personal, non-business use.
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6.6.1
Types of retailers
Kotler and Armstrong (2012:399) classify retailers according to various characteristics e.g. the amount of service
they offer, the breadth and depth of the product lines, the relative prices they charge, and how they are organised.
Examples of each kind appear in table 6.3 below:
Table 6.3:5 Characteristics of retailers
Amount of service
Product line
Relative prices
Organizational approach
- Self-service
- Specialty stores
- Discount stores
- Chain stores
- Limited-service
- Department stores
- Independent off-
- Franchise
- Full-service
- Supermarkets
price retailers
- Convenience stores
- Factory outlets
- Superstores
- Warehouse clubs
- Category killers
Source: Kotler and Armstrong (2012:399)
•
Amount of service
Different products require different amounts of service. Retailers may offer consumers one of three levels of
service:
▪
Self-service retailers serve customers who prefer to locate, compare and select products. Self-service
is used extensively for convenience products and nationally branded, fast-moving shopping products
▪
Limited-service retailers provide greater sales assistance since they carry more shopping products
about which consumers require information. This leads to higher operating costs resulting in higher
prices
▪
Full-service retailers usually stock more speciality products for which customers expect to be “waited
on”. Providing more services increases operating costs and ultimately leads to higher prices
•
Product line
Retailers may be classified according to the length and breadth of their product assortments:
▪
Speciality stores carry narrow product lines with deep assortments within each line. According to Lamb
et al (2004:299) customer service is crucial for most speciality shops, as many of the products offered
usually require usage instructions and sometimes adjustments to meet customers’ demands
▪
Department stores stock a wide variety of product lines. Competing with focused, flexible speciality
stores and lower-priced discounters has not been easy. In response, many have introduced promotional
pricing to counter the discount threat and stepped up on the use of store brands to compete with speciality
stores
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▪
Supermarkets sell a wide range of food products and a limited number of non-food items. They usually
operate on a self-service, low-price and low margin basis. Competition from superstores, discount food
stores and convenience stores has contributed to slow sales growth for many supermarkets
▪
Convenience stores are described by Blythe (2006:685) as small stores that carry a limited line of
convenience goods especially grocery and household items. They are local shops that open until late at
night. They have been in recent years under threat from supermarkets as longer shopping hours has now
become a trend
▪
Superstores are much larger than supermarkets and offer a large assortment of food products, non-food
items, and services. Another variation of the superstore is the hypermarket, which can be described as a
huge superstore that carries about 20 000 lines
▪
Category killers are giant speciality stores that carry a very deep assortment of a particular line and they
have a knowledgeable staff. They may specialise in books, electronics, toys, sporting goods and so on.
Think Point 6
How have supermarkets responded in recent years to consumers’ desire for
speed and convenience?.
•
Relative prices
Retailers may be classified according to the prices they charge. Examples include:
Discount stores: sell standard products at lower prices and strive to achieve higher volume with lower
▪
margins. The target market is the economy-conscious consumer. Limited services were initially offered
but in the face of great competition from department stores and other discounters, many discount stores
have “traded up”.
Off-price retailers: As major discount stores traded up, off-price retailers moved in to fill the low-price,
▪
high-volume gap. Off-price retailers purchase at below regular wholesale prices and charge less than
retail
Examples include:
-
Independent off-price retailers: They are either owned and managed by entrepreneurs or are
divisions of larger retailers
-
Factory outlets: These outlets of manufacturers offer prices as low as fifty percent less than retail
prices
-
Warehouse clubs: They operate in large, warehouse-like buildings and offer few frills. They sell a
limited variety of grocery items, appliances, clothing, and other goods at ultra-low prices to members
who pay annual membership fees
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•
Organisational approach
An increasing number of stores are moving from being independently owned to some form of corporate or
contractual organisation. The two major types are:
▪
Chain stores: These are two or more outlets that are commonly owned and managed. Their size enables
them to buy in bigger quantities at lower prices and gain promotional economies
▪
Franchises: A franchise is a contractual association between a franchiser (manufacturer or wholesaler
or service organisation) and a franchisee (independent business person) who purchases the right to own
and operate one or more units in the franchise system. Franchise systems are based on some unique
product or service, a trade name or on a method of doing business
6.6.2
Retailer marketing decisions
Retailers are always seeking new marketing strategies to attract and hold customers. According to Kotler and
Armstrong (2012:406) retailers face major marketing decisions about their target marketing and positioning,
product assortment and services, price, promotion, and place.
•
Target marketing and positioning
Retailers must first define their target markets before deciding how to position themselves in these markets.
Only after this is done can retailers make decisions about product assortment, services, pricing, advertising,
store décor, or any other decisions that must support their positions.
•
Product assortment and services
There are three major product variables that retailers should decide on:
▪
Product assortment: should differentiate the retailer while meeting target customers’ expectations.
Retailers can offer a highly targeted product assortment. Some offer products that no other competitors
carry e.g. private brands or exclusive national brands
•
▪
Services mix: can set one retailer apart from another
▪
The store’s atmosphere: must suit the target market and entice customers to buy
Price
The pricing policy of a retailer must fit its target market and positioning, product and service assortment, and
competition. Most retailers choose either high mark-ups on lower volumes or low mark-ups on higher
volumes.
•
Promotion
Retailers may use any or all promotion tools to reach consumers. They can use advertising, personal selling,
sales promotion, public relations, and direct marketing. Retailers may use the press, radio, television, and
internet to advertise. Personal selling calls for careful training of salespersons to meet customer needs. Sales
promotion may take the form of demonstrations, displays and competitions. Public relations activities such
as press conferences, special events and store openings may be used. Most retailers have web sites to offer
customers direct sales.
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Place
The locations that are selected must be accessible to the target market and be in areas that are consistent
with the retailer’s positioning. Many retailers locate in shopping centres or malls as they are close and
convenient for customers. Many have moved away from central business districts.
6.7.
Wholesaling
Kotler and Armstrong (2012:418) define wholesaling as all the activities involved in selling goods and services to
those who purchase for resale or business use. Wholesalers are those firms that are engaged primarily in
wholesaling.
6.7.1
Importance of wholesalers
Kotler and Armstrong (2012:419) state that wholesalers add value by performing one or more of the following
channel functions:
•
Selling and promoting: They help manufacturers to reach many retailers at a low cost
•
Buying and assortment building: They build assortments needed by their customers, thereby saving the
customers much work
•
Bulk-breaking: They save their customers money by buying in bulk and then selling in smaller quantities.
•
Warehousing: They hold inventories thus reducing inventory costs of both suppliers and customer
•
Transportation: They provide quicker delivery to customers as they are closer than the producers
•
Financing: They allow customers credit, and finance suppliers by ordering early and paying on time
•
Risk bearing: By taking title they bear the risk of theft, damage, spoilage, and obsolescence
•
Market information: They provide information to suppliers and customers about new products, competitors,
and price developments
•
Management services and advice: They often assist retailers with improving store layout and displays, and
to set up inventory control systems
6.7.2
Types of wholesalers
Kotler and Armstrong (2012:420) classify wholesalers into three groups viz. merchant wholesalers, agents and
brokers, and manufacturers’ sales branches and offices.
•
Merchant wholesalers: are the largest single group of wholesalers. Some are full-service wholesalers that
provide a full set of services while others are limited-service wholesalers that offer fewer services to suppliers
and customers. Full-service wholesalers include wholesale merchants and industrial distributors. Limitedservice wholesalers include cash-and-carry wholesalers, truck wholesalers, drop shippers and rack jobbers.
•
Brokers and agents: do not take title to the goods, and they perform just a few functions. A broker gets
buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more
permanent basis. Examples of agents include manufacturers’ agents, selling agents, purchasing agents, and
commission merchants.
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Manufacturers’ sales branches and offices: Wholesaling is done in manufacturers’ sales branches and
offices rather than through independent wholesalers.
6.7.3
Marketing decisions
According to Kotler and Armstrong (2012:420) the marketing decisions of wholesalers, as with retailers, include
choices of target market and positioning, product assortments and services, price, promotion, and place:
•
Target market and positioning: Wholesalers must define their target markets and position themselves
effectively. The target group can be chosen by size of customer (e.g. only large retailers), type of customer
(e.g. convenience stores only), need for service (e.g. customers who need credit), or other factors
•
Product assortments and services: Wholesalers often feel pressured to carry a full line and stock enough
for immediate delivery. However, this is not always profitable. Wholesalers need to also consider which
services are valued most in building strong customer relationships
•
Price: Wholesalers usually add a standard percentage to the cost. Some may cut the margin in some lines
in order to gain new customers. They may also persuade suppliers to offer price breaks that they can use to
increase the suppliers’ sales
•
Promotion: The use of advertising, sales promotion, personal selling, and public relations is often unplanned
and scattered. They need to follow some of the techniques used by retailers
•
6.8
Place: Wholesalers must choose their locations carefully
Self-Assessment Activities
Knowledge Check Questions
6.8.1 Briefly explain how companies select, motivate, and evaluate channel members.
6.8.2 Marketing coverage may be achieved through intensive distribution, selective distribution,
or exclusive distribution. Use the table below to compare the general characteristics of each
(Some answers have been provided).
Intensive
Selective
Total number of outlets covered
Number of outlets per region
Exclusive
Relatively few
As many as
possible
Distribution focus
Some specialist
retailer knowledge
Type of consumer product
Convenience
Number of potential buyers
Purchase frequency
Level of planned purchasing
Low
Typical price
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6.8.3 Discuss the importance of marketing logistics.
6.8.4 Provide two examples each of speciality retailers in your country with respect to the following
products:
Clothing
Furniture
Music
Jewellery
Shoes
Books
Toys
6.8.5The various types of retailers may be differentiated from each other by their characteristics.
Complete the following table that shows how the various types of retailers differ in terms of level
of service, product assortment, price, and gross margin (The first one has been done for you.):
Level of service
Department
store
Moderately high to
high
Product
assortment
Broad
Price
Moderate to
high
Gross
margin
Moderately
high
Specialty store
Supermarket
Convenience
store
Discount store
Independent offprice retailer
Warehouse club
6.8.6 Having studied the section on retailing in this chapter, how do you see the future of retailing?
6.8.7 What economic justification can there be for wholesaling?
6.8.8 Read the following extract and answer the questions that follow:
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Case Study :
Steers moves into some Spar outlets
Retail chain Spar has entered into a business marriage with fast food group, Steers, that will see Steer’s outlets in
all Spar supermarkets countrywide. According to Steers chief operating officer Kevin Hedderwick, the venture has
kicked off with the introduction of Steers outlets in selected Spar stores. The trial phase has involved six Spar
regions in Eastern and Western Cape, Kwa-Zulu Natal and in Gauteng (provinces of South Africa). Mr Hedderwick
said that the introduction of the “Steers @ Spar” outlets will offer a core menu of signature items.
Source: Lamb et al. (2004:305)
Questions
1. Name some advantages that retail chains like Spar has over independents.
2. Steers is a fast food franchise. Explain what is meant by franchising.
3. How will the “business marriage” benefit each party (Spar and Steers)?
4. How will this “business marriage” benefit consumers?
Activity 1
Distribution is all about delivery of the goods and services at the right time and place
accessible by customers. Discuss how Commercial Banks in South Africa have made
distribution a competitive advantage.
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Solutions
Think Point 1
The firm’s pricing depends on whether it works with national discount chains, high-quality speciality stores, or sells
directly to consumers.
Whether a company develops new products depends on how well these products fit the capabilities of the channel
members.
The firm’s sales force and communications decisions depend on how much persuasion, training, and support its
channel partners need.
Think Point 2
The internet gives firms access to customers it may have not been able to reach in the past.
The firm is in direct contact with its customers and can adjust its marketing mix easily to changes in the marketplace
including consumer attitudes.
Middlemen are not available or will not cooperate.
They want to control the entire distribution.
Many business products are sold directly to the customers.
Think Point 3
They may want to buy from nearby locations or they be willing to travel to more distant centralised locations.
They may want to buy in person, over the phone, through the mail, or via the internet.
They may prefer breadth of assortment or specialisation.
They may want add-on services e.g. delivery, installation.
Think Point 4
Intensive distribution: The products are available to consumers where and when they want them.
Exclusive distribution: The producer has more control over dealer prices, promotion, credit and services. It also
enhances the image of the product and allows for higher mark-ups.
Selective distribution: It gives producers good market coverage with more control and less cost than does
intensive distribution.
Think Point 5
Toy companies, motor-car manufacturers, drug companies, and others sometimes recall products because of
safety problems.
A firm that makes an error in completing an order may have to take returns.
Soft-drink manufacturers need to recycle empty bottles.
Used inkjet and laser toner cartridges are often recycled and reused.
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Think Point 6
The shop layout is designed to allow for speed of movement of customers.
Scanning has become standard equipment reducing time spent at the tills.
Most accept major credit and debit cards for payment.
They provide ample parking.
They are situated at convenient locations.
Answers to Knowledge Check Questions:
6.8.1 When selecting intermediaries, the company should evaluate each member’s qualifications and select those
who best fit its channel objectives. The criteria that may be used to select channel members include experience,
other lines carried, growth and profit record, cooperativeness, and reputation. Once selected, they must be
continually motivated to do their best. It should forge long-term partnerships with channel partners to create
a marketing system that satisfies the needs of all. The company must also regularly evaluate the performance
of channel members against performance standards. They should reward intermediaries who are performing
well and assist or replace weaker ones.
6.8.2
Intensive
Selective
Exclusive
Total number of outlets covered
Maximum
Possibly many
Relatively few
Number of outlets per region
As many as possible
A small number
One or very few
Distribution focus
Maximum availability
Some specialist
Close retailer-consumer
retailer knowledge
relationship
Type of consumer product
Convenience
Shopping
Specialty
Number of potential buyers
High
Medium
Low
Purchase frequency
Often
Occasional
Seldom
Level of planned purchasing
Low
Medium
High
Typical price
Low
Medium
High
Source: Brassington and Pettitt (2000:473)
6.8.3 Firms can gain a major competitive advantage by using improved logistics to give customers better
services or lower prices.
Improved logistics can result in great cost savings to both the firm and its customers. The dramatic increase
in product variety can created a need for better logistics management. Ordering, transporting, storing, and
controlling a wide variety of products presents a great logistics challenge.
Developments in information technology (e.g. web-based logistic systems and satellite tracking) have
created opportunities for major gains in distribution efficiency.
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6.8.4
Clothing
Foschini
Markhams
Furniture
Russels
Morkels
Music
Musica
Top CD
Jewellery
American Swiss
Hyper Jewellers
Shoes
Cutberts
AD Spitz
Books
CNA
PNA
Toys
Reggies
Toys R Us
6.8.5
Product
Department store
Level of service
assortment
Price
Gross margin
Moderately high to
Broad
Moderate to high
Moderately high
high
Specialty store
High
Narrow
Moderate to high
High
Supermarket
Low
Broad
Moderate
Low
Convenience store
Low
Medium to narrow
Moderately high
Moderately high
Moderate to low
Medium to broad
Moderately low
Moderately low
Low
Medium to narrow
Low
Low
Low
Broad
Low to very low
Low
Discount store
Independent offprice retailer
Warehouse club
6.8.6 Answers will vary. Possible responses may include the following:
The trend is for a rise in mega-retailers.
Retail technology is becoming increasingly important.
Many retailers are seeking new markets in other countries.
Retail establishments are becoming places where people get together (“hang out”).
Web site selling may lead to a decline in business done by traditional retailers.
However, there are clear limits as to what can be bought over the internet.
Many consumers will still want to buy their food from supermarkets because they can inspect the goods to see
if they are fresh and meet their needs.
Large grocery chains should prosper as they continue to offer one-stop shopping for food, banking, liquor,
pharmaceuticals, DVD rentals, books, and take-out prepared foods.
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6.8.7 Most manufacturers are small and specialised. They don’t have the resources to maintain a sales force to
contact many retailers.
Even for manufacturers with sufficient capital, some products or lines generate such a small volume of
sales that it is not cost-effective to establish a sales force to sell them.
Most retailers buy in small quantities and have limited knowledge of the market and sources of supply.
There is thus often a gap between the producer and the retailer.
1 It buys in large quantities at lower prices.
It gains promotional economies.
It can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and
sales forecasting
2 A franchise is a contractual association between a franchiser (manufacturer or wholesaler or service
organisation) and a franchisee (independent business person) who purchases the right to own and operate
one or more units in the franchise system.
3 Benefits to Spar
It widens the product offering of Spar.
It can attract more consumers to the store.
It enhances the shopping environment
Benefits to Steers
It allows Steers a cost-effective access to a broader distribution network.
It allows Steers to bring its products within easy reach of consumers.
It benefits from the customers that shop at Spar.
4 Steers fast food products are brought to areas where consumers work, live, and shop.
It adds to the convenience of the shopping environment for consumers.
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Unit
7:
The Marketing Mix-Promotion
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
7.1 Introduction
•
Introduce topic areas for the unit
7.2 Marketing communications mix
•
Name and define the five major tools of the marketing
communications mix
7.3 Steps in developing effective
•
communication
7.4 The promotion budget
Describe the steps in developing effective marketing
communications
•
Explain the roles of the five major promotional tools in the
promotion mix
7.5 Advertising
•
Discuss the important decisions involved in developing an
advertising program
7.6 Sales promotion
•
Name and describe the major sales promotion tools
7.7 Public relations
•
Explain the importance of public relations
7.8 Personal selling
•
Discuss the steps in the selling process
7.9 Direct marketing
•
Explain the importance and forms of direct marketing
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Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global Edition.
Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction. Global Edition,
Fifteenth Edition. Pearson.
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7.1.
Introduction
Apart from developing a good product, pricing it attractively, and making it available to target customers companies
must also promote the product. Promotion, an important element of the marketing mix, involves communication
with current and prospective customers to influence attitudes and behaviour. Marketing communication is a vital
component in a company’s endeavour to build profitable customer relationships
7.2.
Marketing Communications Mix
Kotler and Armstrong (2012:432) describe the marketing communication mix (or promotion mix) as consisting of
“the specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that
the company uses to pursue its advertising and marketing objectives”. They define these five major promotion
tools as follows:
(Also see figure 14.1 pg.431 of Kotler and Armstrong).
•
Advertising: is any paid form of non-personal presentation and promotion of ideas, products, or services by
an identifiable sponsor
•
Sales promotion: are short-term incentives used to encourage the sale or purchase of a product.
•
Public relations: concerns building good relations with the company are various publics by gaining
favourable publicity, developing a good company image, and handling unfavourable stories, rumours, and
events
•
Personal selling: involves personal presentation by a company’s sales force in order to obtain sales and
build customer relationships
•
Direct marketing: concerns the use of direct connections such as e-mail, internet and telephone with
carefully targeted individual customers to obtain an immediate response or develop lasting customer
relationships
Each category described above involves specific tools that will be discussed later. Communication, however, goes
beyond these specific tools. The entire marketing mix i.e. promotion together with product, price, and place must
be coordinated for maximum communication impact.
Previously, no single person or department was responsible for coordinating the promotion mix. Nowadays,
according to Kotler and Armstrong (2013:436), companies are adopting the concept of integrated marketing
communications (IMC). Using this concept, a company integrates and coordinates its various communication
channels to deliver a clear, consistent, and compelling message about the organisation and its brands.
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7.3.
Steps in developing effective communication
In order to develop an effective integrated marketing communications program, the marketing communicator
should follow certain steps. Figure 7.1 below illustrates these steps:
Identify
target
audience
Determine
communicati
on
objectives
Design a
message
Choose the
media
Select the
message
source
Collect
feedback
Figure 7.1: 10Steps in developing effective communication
Kotler and Armstrong (2013:439)
Kotler and Armstrong (2013:439) describe these steps as follows:
7.3.1
Identify target audience
The marketing communicator must start with a clearly defined target audience in mind. The target audience could
be potential buyers, current buyers, those who make the purchasing decision, or those who influence it.
Think Point 1
How will the choice of a target audience affect a marketing communicator’s decisions?.
7.3.2
Determine the communication objectives
Ultimately, the marketing communicator wants the target audience to purchase the product. However, purchase is
the result of a long consumer decision-making process. The target audience could be in any of six buyer-readiness
stages and the marketing communicator needs to know at which stage the target audience now stands and to
which stage it needs to be moved. The stages that consumers normally follow on their way to making a purchase
are:
•
Awareness: The target market may be unaware of the product, only know its name, or know only a few
things about it
•
Knowledge: The target market may have varying degrees of knowledge about the product’s quality and
features. The communicator must first build on awareness and knowledge
•
Liking: The question is how the target consumers feel about the product. Promotion can be used to move
knowledgeable target consumers from being indifferent to liking a brand
•
Preference: Creating preference involves distinguishing among brands so that target consumers find the
company’s brand more attractive than competing ones
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•
Conviction: It refers to the actual decision or commitment to purchase. The communicator must increase
the strength of the buyer’s need
•
Purchase: Some target customers may be convinced about the product, but have delayed the purchase.
The communicator must lead them to take the final step
7.3.3
Design a message
Once the desired audience response has been defined, the communicator must now design an effective message.
In terms of the AIDA model, a message should attract Attention, arouse Interest, create Desire, and lead to Action.
In designing a message, the marketing communicator must decide what to say (message content) and how it must
be said (message structure and format).
•
Message content
The communicator can use one of three types of appeals to get the desired response viz. rational, emotional,
and moral.
Rational appeals: These show that the product will produce the desired benefits. Messages may
▪
emphasise the product’s quality, economy, value, and/or performance
Emotional appeals: Communicators may use emotions such as love, joy, pride, and humour to
▪
motivate purchase. However, communicators may also use negative emotional appeals such as fear,
guilt, and shame
Moral appeals: These are aimed at the audience’s sense of what is right and proper. The message
▪
may be used to urge people to support social causes e.g. cleaner environment, assist the needy
Think Point 2
What are some pros and cons of using humour as an emotional appeal in
advertisements?
•
Message structure
There are three message structure issues that the communicator must decide on:
▪
Whether to draw a conclusion or leave it to the audience
▪
Whether to present the strongest arguments first or last.
▪
Whether to present a one-sided argument (highlighting product strengths) or a two-sided argument
(showing the product’s strengths and also admitting shortcomings).
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Think Point 3
When do you think a two-sided argument should be used in a sales
presentation?
•
Message format
In a print ad, the communicator must decide on the headline, copy (text), illustration, and colour. In a radio
ad, the communicator has to choose words, sounds, and voices. Television ads must use all these elements
and body language.
Think Point 4
What can a marketing communicator use to attract attention to a print
advertisement?
7.3.4
Choose the media
The communicator can select personal and non-personal channels of communication.
•
Personal communication channels: are channels whereby two or more people communicate directly with
each other through face-to-face, person to audience, telephone, or e-mail means. Some personal
communication channels are controlled by the company e.g. the company uses sales persons to contact
buyers and create opinion leaders to spread information about a product. Channels not controlled by the
company include consumer advocates, neighbours, friends, and family members (word-of-mouth influence).
•
Non-personal communication channels: include major media that carry messages without personal
contact or feedback e.g. print media (newspapers, magazines), broadcast media (radio, TV), and display
media (billboards, posters).
7.3.5
Select the message source
The communicator of the message is important as messages delivered by highly credible sources are very
persuasive. Marketers can use celebrities such as athletes and actors to endorse their products
7.3.6
Collect feedback
The marketing communicator must determine the effect the message had on the target audience. The target
audience members may be asked whether they remember the message, how many times they saw it, how they
felt about the message, and their attitudes towards the product and company. Measuring behaviour that resulted
from the message is also important – how many people purchased the product, talked about it to others, or visited
the store. Feedback may lead to changes in the promotion program or the product offer
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7.4.
The Promotion Budget
There are four methods that are commonly used to set the total promotion budget:
•
Affordable method: Many small businesses use this method where they set the promotion budget at a
level they think they can afford. However, this method ignores the effect of promotion on sales
•
Percentage-on-sales method: The promotion budget is set at a certain percentage of current or
expected sales. This is a simple method to use but it views sales as the cause of promotion rather than
the result
•
Competitive-parity method: The promotion budget is set to match the promotional expenditures of
competitors. Whilst competitors’ budgets may represent the collective wisdom of the industry, this method
fails to recognise that each company has its own special promotion needs
•
Objective-and-task method: This is perhaps the most logical method whereby the promotion budget
starts with defining promotion objectives, then determining the tasks needed to achieve these objectives,
and lastly estimating the costs of performing these tasks
Think Point 5
According to Etzel et al. (2005:499), the amount spent on promotion should be
thought of as a capital investment, even if must be treated as an expense for
accounting purposes. Explain the rationale behind this statement.
7.5.
Advertising
According to Kotler and Armstrong (2013:460) marketing management must make four important decisions when
developing an advertising program: setting advertising objectives, setting the advertising budget, developing the
advertising strategy (message and media decisions) and evaluating advertising campaigns.
7.5.1
Setting advertising objectives
Kotler and Armstrong (2013:461) classify advertising objectives by primary purpose viz. whether the aim is to
inform, persuade, or remind. Informative advertising is used extensively when introducing new products in order
to build primary demand. Persuasive advertising is used to build selective demand as competition increases.
Reminder advertising is important for mature products. The aim is to keep consumers thinking about the product.
7.5.2
Setting the advertising budget
The methods that may be used for setting promotion budgets are discussed in paragraph 4 above. Kotler and
Armstrong (2013:462) add that certain specific factors must be considered when setting the advertising budget:
•
Stage in the product life cycle: Large advertising budgets are needed for new products in order to build
awareness and gain consumer trial. Mature products require lower budgets
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•
Market share: Building market share or taking share from competitors requires larger advertising
expending than just maintaining current share
7.5.3
Developing advertising strategy
Kotler and Armstrong (2013:463) view advertising strategy as consisting of two elements viz. creating advertising
messages and selecting advertising media.
•
Creating the advertising message
In order to gain and hold the attention of consumers today, advertising messages must be better planned,
more imaginative, more entertaining, and more rewarding. The first step in creating an effective message is
to plan a message strategy i.e. decide what customer benefits will be used as advertising appeals. The next
step is to develop a creative concept (or “big idea”) that will bring the message strategy to life in a distinctive
and memorable way. The creative concept will determine the specific appeals to be used in the advertising
campaign. The advertising appeals should be meaningful, believable, and distinctive.
The advertiser must now find the best style, tone, words, and format for executing the message. The following
styles may be used to execute the message:
▪
Slice of life: It shows typical people using the product in a normal setting
▪
Lifestyle: It shows how the product fits in with a certain lifestyle
▪
Fantasy: Fantasy is created around the product or its use
▪
Mood or image: A mood or image such as beauty or serenity is built around the product
▪
Musical: This style shows one or more persons singing about the product
▪
Personality symbol: A real or animated character is created to represent the product
▪
Technical expertise: The company’s expertise in making the product is shown
▪
Scientific evidence: Scientific evidence is presented to show that the brand is better or better liked
than other brands
▪
Testimonial endorsement: A likeable or believable source endorsing the product is featured
The tone chosen for the ad may be positive or include humour. The words that are used in the ad should be
memorable and attention-getting. Lastly, the format elements viz. illustration, headline, and copy (text) must
effectively work together.
•
Selecting advertising media
Kotler and Armstrong (2012:468) outline four major steps in media selection viz. deciding on reach,
frequency, and impact; choosing among media types; selecting specific media vehicles; and deciding on
media timing.
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•
Deciding on reach, frequency, and impact
To select media, the advertiser must decide on the reach and frequency required to attain the advertising
objectives. Reach measures the percentage of target customers who are exposed to the ad campaign during
a certain period of time. Frequency is the number of times the average person in the target market is exposed
to the message. The advertiser must also decide on the desired media impact i.e. the qualitative value of the
message exposure through a given medium.
•
Choosing among media types
The major media types together with their advantages and limitations are summarised by Kotler and
Armstrong (2012:471) in table 7.1 below:
Table 7.1:6 Advantages and disadvantages of promotional media tools
Medium
Advantages
Disadvantages
Newspapers
Flexibility; Timeliness; Good local market coverage;
Short life; Poor reproduction quality;
High believability; Broad acceptability;
Small pass-along audience
Good mass-market coverage; Low cost per
High absolute costs; High clutter;
exposure; Combines sight, sound, and motion;
Fleeting exposure; Less audience
Appeals to the senses
selectivity
High audience selectivity; Allows personalization;
Relatively high cost per exposure;
No ad competition within the same medium;
“Junk mail” image
Television
Direct mail
Flexibility
Radio
Magazines
Good local acceptance; Low cost; High geographic
Audio only; Fleeting exposure; Low
and demographic selectivity
attention; Fragmented audiences
High geographic and demographic selectivity;
Long ad purchase lead time; High
Credibility and prestige; High-quality reproduction;
cost; No guarantee of position
Long life and good pass-along readership
Outdoor
Internet
Flexibility; High repeat exposure; Low message
Little audience selectivity; Creative
competition; Low cost; Good positional selectivity;
limitations
High selectivity; Low cost; Immediacy; Interactive
Small, demographically skewed
capabilities
audience; Relatively low impact;
Audience controls exposure
Source: Kotler and Armstrong (2012:471)
When choosing media, advertisers consider several factors:
•
Media habits of target consumers: Advertisers seek media that reach target consumers effectively
•
Nature of product: Different products are suited to different media
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•
Types of messages: Different types of messages may require different media
•
Cost: The total cost of using a medium and the cost per exposure of reaching target customers are
important
Think Point 6
By way of examples show how different type of messages may require
different media.
•
Selecting specific media vehicles
The advertiser must now choose specific media within each general media type e.g. the actual TV station.
The cost per thousand persons reached by the vehicle must be calculated. The cost of producing ads for the
different media must also be considered.
•
Deciding on media timing
Scheduling the advertising over the course of the year must be decided upon. Advertising may follow a
seasonal pattern or follow the same pattern the whole year. The pattern of the ads must also be decided
upon. Continuity involves scheduling ads evenly within a given period. Pulsing involves scheduling ads
unevenly over a given period. Some advertisers use pulsing by advertising heavily for a short period to build
awareness that carries over to the next advertising period.
7.5.4
Evaluating advertising
Kotler and Armstrong (2012:474) suggest that both the communication effects and sales effects of advertising
be evaluated regularly. Measuring the communication effects of an ad (copy testing) shows whether the ad
is communicating well. After the ad is run, the advertiser can determine to what extent the ad affected product
awareness, knowledge, and preference. The sales effects of advertising are more difficult to measure. There
are other factors, apart from advertising, that affects sales e.g. product features, price, and availability.
7.6.
Sales Promotion
Sales promotion involves offering short-term incentives to encourage the purchase or sale of a product or service.
7.6.1
Major sales promotion tools
Kotler and Armstrong (2012:507) provide descriptions of the major consumer promotion tools:
•
Samples: are offers of a small quantity of a product. Sampling is a very effective but expensive way of
introducing a new product. Samples may be delivered door-to-door, handed in a store, or attached to another
product
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•
Coupons: are certificates that entitle buyers to a saving when they buy specified products. They can be
used to entice early trial of a new brand or stimulate sales of a mature brand
•
Price packs: offer consumers the product at a price that is below the regular price. The reduced price is
marked on the label or package by the producer
•
Premiums: are goods offered free or at low cost to entice consumers to buy a product e.g. toys included in
kid’s product
•
Promotional products: are articles imprinted with the advertiser’s name, logo, or message and are given to
customers as gifts. Examples include T-shirts, mouse pads
•
Patronage rewards: include cash and other awards offered for the regular use of a company’s products or
services e.g. airlines award points for miles travelled and points accumulated can be converted to free airline
trips
•
Contests, sweepstakes, and games: offer consumers the opportunity to win something
7.6.2
Factors that affect the choice of sales promotion tools
Etzel et al. (2005:552) suggest that the following factors be used in choosing sales promotion tools:
•
Nature of the target audience: If the target group is loyal to a competing brand, a coupon or high-value
incentive may work. If the product is bought on impulse, an eye-catching point-of-sale display may be
effective
•
Nature of the product: The marketer must determine whether the product lends itself to sampling,
demonstration, or multiple-item purchases
•
Cost of the promotional tool: Sampling to a large market can be expensive
•
Current economic conditions: Coupons and rebates are good tools during periods of recession or
inflation
7.6.3
Developing the sales promotion program
According to Kotler and Armstrong (2012:511) the marketer must first decide on the size of the incentive. Secondly,
conditions for participation must be set. Incentives may be offered to select groups or everyone. Thirdly, the
marketer must decide how to promote and distribute the promotion program. Fourthly, the marketer must decide
on the length of the promotion period. Lastly, the company must evaluate the success of its sales promotion
programs.
7.7.
Public Relations
Public relations (PR) is an important mass-promotion tool designed to favourably influence attitudes towards a firm,
its products, and policies. Kotler and Armstrong (2012:478) point out that public relations departments may perform
any or all of the following functions:
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•
Press relations: Create and place newsworthy information in the news media to attract attention to a
product, service, or person
•
Product publicity: Specific products are publicised
•
Public affairs: Developing and maintaining good community relations
•
Lobbying: Developing and maintaining relations with legislators and government to influence legislation
and regulation
•
Investor relations: Maintaining relationships with shareholders and others in the financial community
•
Development: Public relations with members of non-profit organisations to volunteer support
Blythe (2006:516) adds that public relations people deal with a wide range of people, all with varying needs and
preconceptions. They include: customers, suppliers, staff, government (national, provincial, and local),
neighbours, local residents, general public, pressure groups, and other industry members.
7.7.1
The role and impact of public relations
Kotler and Armstrong (2012:479) contend that public relations have the potential to have a strong impact on public
awareness at a much lower cost than advertising can. The company does not pay the media for publicity, although
it pays employees to develop and provide information and to manage events. If a company has something
newsworthy, and it is reported by several media, it could have the same effect as advertising that would cost
millions. News items also have greater credibility than advertising.
Etzel et al. (2005:557) mention other benefits of publicity:
•
Increased attention: Publicity, presented as news, is more likely to be watched, listened to, or read than
advertising
•
More information: Publicity can contain greater detail than an ad and the content can even be more
persuasive
•
Timeliness: News releases can be put out very quickly when some unexpected event occurs
•
Pearson cited in Blythe (2006:529) developed a hierarchy of organisational needs that public relations
can help to satisfy. Table 7.2 below illustrates this:
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Table 7.2:7 Public relations and organisational needs
Organizational
Requirements
Typical PR activity
need
Output
Money; Machines; Manpower; Materials
Staff programmes to attract the right
people
Survival
Morale
Cash flow; Profits; Customers; Share
Publicity aimed at customers; Events
performance
publicising the firm and its products
Employee job satisfaction
Staff newsletters; Morale-boosting
activities; etc.
Acceptability
Approval by external stakeholders
External PR; Shareholder reports;
(shareholders, government, suppliers,
Lobbying of government departments and
customers, society)
MPs; Events for suppliers and customers;
Favourable press releases
Leadership
Having a respected position in the
Corporate image-building exercises;
company’s chosen field; This could be
Customer-care activities; Publicity about
customer satisfaction; employee
new products and technological
involvement; industry leadership in
advances; Sponsorship of research in
technology; or several of these
universities; Sponsoring of the arts
Source: Blythe (2006:529)
7.7.2
Major public relations tools
According to Kotler and Armstrong (2012:480) PR professionals use the following tools:
•
News: PR professionals seek or create favourable news about the company, its products, or its people
•
Speeches: may be used to create product and company publicity. Company executives may give talks at
trade associations or field questions from the media
•
Special events: These may include news conferences, press tours, grand openings, laser shows, multimedia
presentations and hot air balloon releases
•
Buzz marketing: creates publicity by getting customers themselves to spread the message by word-of-mouth
communication
•
Mobile marketing: involves organising travelling promotional tours to bring the brand to the consumers
•
Written materials: such as annual reports, brochures, articles and newsletters can influence the target
markets
•
Audiovisual materials: such as films, and audio and visual CDs are also used as communication tools
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•
Corporate identity materials: can help create corporate identity that becomes instantly recognisable e.g.
logos, stationery, signs, business cards, uniforms, buildings and company vehicles
Blythe (2006:517) adds two more PR tools to the above list:
•
Publicity stunts: Some firms stage an event especially for the purpose of creating a news story e.g. a
bookstore may arrange a book-signing session involving a famous author
•
Sponsorship: Sponsorship of events, persons, or organisations is a useful means of generating
favourable publicity
Think Point 7
If you were the public relations manager of a company, what criteria will you
apply when considering sponsorship?
7.7.3
Developing the public relations program
Kotler and Armstrong (2012:478) advise companies to set PR objectives, choose the PR messages and vehicles,
implement to PR plan, and evaluate the results. PR should blend smoothly with the other promotion activities within
the company’s overall integrated marketing communications effort.
7.8
Personal Selling
According to Fill, cited in Brassington and Pettitt (2000:687), personal selling may be defined as “an interpersonal
communication tool which involves face-to-face activities undertaken by individuals, often representing an
organisation, in order to inform, persuade or remind an individual or group to take appropriate action, as required
by the sponsor’s representative”. From the definition it is clear that personal selling is not only about making a
sale. As a means of making sales, personal selling involves finding, informing, persuading and even servicing
customers through personal, two-way communication.
According to Kotler and Armstrong (2012:489) the sales force serves as an important link between the company
and its customers. In many cases, salespeople serve both the buyer and the seller. They represent the company
to customers. They approach customers, present their products, answer objections, negotiate prices and terms,
and finalise the sales. At the same time, salespeople represent customers to the company. They relay customer
concerns about company products to the company. They also learn about customer needs and together with others
in the company try to develop better customer value.
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7.8.1
Steps in sales force management
The major steps in sales force management advocated by Kotler and Armstrong (2012:492) are illustrated in figure
7.2 below:
Design sales
force
strategy and
Recruit and
select
salespeople
Train
salespeople
Compensate
salespeople
Supervise
salespeople
Evaluate
salespeople
Figure 7.2: 11
•
Design sales force strategy and structure
We examine the structure and size of the sales force as well as other sales force and structure issues.
i.
Sales force structure
Sales responsibilities can be divided in several ways. These include:
◼Territorial sales force structure: Each salesperson is allocated an exclusive geographic area and sells
the company’s full line of products to all customers in that area. Improved selling effectiveness may
result from the salesperson’s desire to build local business relationships. Travel expenses are relatively
low
•
Product sales force structure: Different salespersons sell different product lines. Each salesperson
has a great knowledge of the product line allocated to him/her. However, it becomes inconvenient for
customers who buy many different products from the same company
•
Customer sales force structure: Salespersons specialise in selling only to certain customers or
industries. This can help to build closer relationships with important customers
Some companies combine several types of sales force structures if it sells a wide variety of products to many types
of customers over a wide geographical area.
ii.
Sales force size
Sales forces range from very small to very large. Increasing the size of the sales force increases both sales
and costs. Many companies use some form of the workload approach to determine the size of the sales force.
Accounts are classified according to size, account status, or other factors related to the amount of effort
needed to service them. The number of salespeople required for each class of accounts is then determined.
iii.
Other sales force strategy and structure issues
Companies may have to make decisions regarding the following:
•
Inside and outside sales forces: A company may have an inside sales force or an outside sales force
(or field sales force) or both. The outside sales force travel to call on customers. The inside salespeople
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do business from their offices via telephone or visits by prospective buyers and they may include technical
support people, sales assistants, and telemarketers
•
Team selling: May companies nowadays use team selling to service large, complex accounts. These
sales teams can unearth problems, solutions, and sales opportunities that an individual salesperson may
not. The teams may comprise experts from sales, marketing, technical support, R&D, operations, finance
and others
Think Point 8
What problems do you anticipate for companies that use team selling?
•
Recruit and select salespeople
When recruiting salespeople, companies must analyse the job and the characteristics of its most successful
salespeople to determine the traits needed by a successful salesperson in their industries. Thereafter, it must
recruit the best salespeople through the various means available. The selection procedure follows and it can
range from a single formal interview to lengthy testing and interviewing.
•
Train salespeople
The time spent on training new salespeople can range from a few weeks to a year or more. Training can be
provided by means of seminars, sales meeting, and the Web throughout a salesperson’s career.
The goals of training programmes include the following:
•
i.
Salespeople must know and identify with the company and its products
ii.
They must be knowledgeable about customers and competitors
iii.
They must know the basics of the selling process in order to sell effectively
Compensate salespeople
Compensation may comprise several elements viz. a fixed amount, a variable amount, expenses and fringe
benefits. The fixed amount is usually a salary that gives the salesperson a stable income. The variable amount
includes commissions or bonuses and is used to reward a salesperson for greater effort and success.
Expense allowances repay salespersons for job-related expenses. Fringe benefits such as paid vacations,
pensions, and medical aid provide job security and satisfaction. Management must decide what mix of these
compensation elements would be appropriate for each sales job.
•
Supervising salespeople
Companies must direct and motivate the sales force through supervision. Some companies use a tool called
the annual call plan that shows which customers and prospects to call on in which months and which activities
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need to be carried out. Another tool is the time-and-duty analysis that shows not only the time spent selling
but also time travelling, waiting, eating, taking breaks, and doing administrative work. Many companies
motivate their salespeople by providing a good organisational climate, setting sales quotas, and providing
positive incentives e.g. cash awards and trips.
•
Evaluating salespeople
Management must evaluate the performance of salespeople by collecting information about them. One
source is the sales reports. Another source is call reports that salespersons use to write about their completed
activities. Other sources include personal observation, customer surveys, and talks with other salespeople.
7.8.2
Steps in the selling process
According to Kotler and Armstrong (2012:502) the selling process consists of seven steps:
prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling objections, closing,
and follow-up.
•
Prospecting and qualifying
This step involves the identification of qualified potential customers. The company can supply leads such as
trade show lists and lists from telemarketing campaigns. However, salespeople must be skilled in finding their
own leads. They can make use of referrals from contacts outside the organisation. They can also look for
prospects in directories or on the Web. They can also arrive unannounced at various offices (cold calling). It
is important for salespeople to qualify leads i.e. identify the good ones and eliminate the poor ones.
Think Point 9
What should salespeople look for or consider when qualifying leads?.
•
Pre-approach
Pre-approach involves learning as much as possible about the prospective customer before making a sales
call. Information about the buying company may be garnered from industry sources, online sources, and
business associates. The salesperson must have call objectives e.g. whether to qualify the prospect, gather
information, or to make an immediate sale. The salesperson must also decide whether to make a personal
visit, make a telephone call, or send a letter. Timing is also important.
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•
Approach
During this step, the salesperson meets the customer for the first time. The salesperson’s appearance is
important. The opening lines must be positive in order to get the relationship off to a good start. After the
opening lines the salesperson may pose questions to learn more about the customer’s needs or the
salesperson may show a sample or display to attract the buyer’s attention and curiosity.
•
Presentation and demonstration
During this stage the salesperson presents the benefits of the product and shows how it matches the
customer’s needs. This need-satisfaction approach requires good listening and problem-solving skills. Buyers
value qualities such as empathy, good listening, honesty, dependability, and follow-through in salespersons.
Nowadays, multimedia presentations are often used to by salespersons to showcase products to prospective
clients.
•
Handling objections
When handling objections, the salesperson should:
•
i.
use a positive approach.
ii.
look for hidden objections.
iii.
use objections as an opportunity to provide more information.
iv.
try to turn the objections into reasons for buying.
Closing
Once objections have been handled, the salesperson tries to close the sale. Salespersons must be trained
to look for closing signals from the buyer e.g. physical actions, comments, and questions. Closing techniques
that may be used include asking for the order, reviewing points of agreement, and asking the buyer to choose
between models. The salesperson may offer the buyer incentives to close e.g. lower price or greater quantity
at no extra charge.
•
Follow-up
The salesperson must follow-up after the sale to ensure customer satisfaction and repeat purchases. The
salesperson should follow-up on the delivery, installation, and servicing.
7.9.
Direct Marketing
Direct marketing is marketing without using intermediaries. It involves communication directly with customers
usually on a one-to-one, interactive basis.
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7.9.1
Benefits of direct marketing
Kotler and Armstrong (2012:521) distinguish between the benefits of direct marketing for buyers and sellers. Direct
marketing is convenient, private and easy to use for buyers. From the comfort of their homes or offices, they have
access to a variety of products and information from around the globe. Buyers can interact with sellers by phone
or internet to request exactly what is needed and order immediately.
Direct marketing is a potent tool for sellers for developing customer relationships. Direct marketers can target
individuals or small groups, tailor offers to individual needs, and promote such offers through personalised
communications. Direct marketing enables sellers to gain access to buyers that could not be reached through other
channels. Lastly, direct marketing provides sellers with a low-cost, efficient alternative to reach their markets.
7.9.2
Customer databases and direct marketing
Effective direct marketing starts with a good customer database. Kotler and Armstrong (2012:523) define a
customer database as “an organised collection of comprehensive data about individual customers or prospects,
including geographic, demographic, psychographic, and behavioural data”. The database forms the basis to locate
potential customers, tailor products and services to the specific needs of target customers, and to maintain ongoing
customer relationships.
Companies can use their databases to:
•
identify prospects and generate sales leads by advertising products and offers
•
deepen customer loyalty e.g. by remembering buyer preferences and sending appropriate information or
gifts
•
profile customers based on previous purchases and decide which customers should receive particular
offers
7.9.3
Forms of direct marketing
Kotler and Armstrong (2012:524) identify the following major forms of direct marketing: personal selling (discussed
in paragraph 8), telephone marketing, direct-mail marketing, catalogue marketing, direct-response television
marketing, kiosk marketing, and online marketing.
•
Telephone marketing
The use of the telephone to sell directly to consumers and business customers is a major direct-marketing
communication tool. Outbound telephone marketing is used to sell directly to consumers and businesses.
Inbound toll-free numbers are provided to obtain orders from television and print ads, direct mail, or
catalogues.
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•
Direct-mail marketing
Direct-mail marketing entails sending an offer, announcement, reminder, or other item to the recipient’s home
or business premises. Every year millions of letters, ads, brochures, samples, and CDs are sent via the postal
service. Faxes, e-mail and voice mail are increasingly used nowadays in direct-mail marketing.
Think Point 10
Is there a difference between direct mail and junk mail? Explain.
Direct mail permits high target market selectivity, can be personalised, is flexible, and results are easily
measured. Although the cost per thousand people reached is higher than with mass media, the people who
are targeted are much better prospects.
•
Catalogue marketing
Catalogue marketing is direct marketing through print, video, or electronic catalogues that are posted to select
customers, made available in stores, or presented online. Nowadays almost anything can be bought from a
catalogue and more and more catalogues are going electronic. Web-based catalogues are used by many
marketers to augment their printed catalogues.
•
Direct-response television marketing
This can take one of two major forms. The first is direct-response advertising. Direct marketers use 60 to 120
seconds long television ads that persuasively describe the product and provides customers a toll-free number
to order. Some make use of infomercials (30-minute advertising programs) for a single product.
The second form of direct-response television marketing is home shopping channels. These are television
channels that are devoted to selling products and services.
•
Kiosk marketing
Kiosks are information and ordering machines that are placed by companies in stores, airports, and other
places. They are different from vending machines that dispense the actual products. Some kiosks give
customers access to the company’s Web site where it allows them to purchase items that are out of stock or
not available in the store. Other companies allow customers to use a kiosk that has a touch screen computer
to access information about the company’s products.
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•
Online marketing
E-business involves the use of electronic platforms viz. intranets, extranets, and the internet to conduct a
company’s business. Almost every company has a Web site that informs about and promotes its products
and services. Most companies use intranets to enable employees to communicate with each other and to
access information from the company’s computers. Extranets are set up with major suppliers and distributors
to facilitate information exchange, orders, transactions, and payments.
E-commerce involves buying and selling processes through electronic means, mainly the internet. Sellers
offer their products online. Buyers use the internet to search for information, identify what they want, and
place orders using credit or paying electronically.
E-marketing is the term that describes a company’s efforts to communicate about, promote, and sell products
over the internet. Internet marketing can generate enquiries and sales and be used to maintain relationships
with customers very cost effectively and efficiently.
7.9.4
Integrated direct marketing
Quite often the individual direct-marketing efforts of a company are not well integrated with each other or with other
elements of the marketing and promotion mixes. A solution to this problem is the implementation of an integrated
direct marketing approach that involves the use of carefully coordinated multiple-media, multiple-stage campaigns.
This approach will improve response rates and profits.
7.10 Self-Assessment Activities
Knowledge Check Questions
7.10.1 As a marketing communicator, what promotional efforts would you use at each of the
six buyer-readiness stages if you were promoting a motor vehicle.
7.10.2 Provide examples of everyday advertising messages that use emotional negative
appeals.
7.10.3 Evaluate the percentage-on-sales method that may be used to set the total
promotional budget of a company.
7.10.4 Explain how advertising objectives are influenced by the stages in a product’s life
cycle.
7.10.5 When selecting media, the advertiser must decide on the reach and frequency
required to attain the advertising objectives. Explain what is meant by reach and
frequency.
7.10.6 Compare newspapers and magazines as advertising media. Tabulate the main
differences between the two.
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7.10.7 Provide one major objective that a marketer would have in mind when using each of
the following promotion tools:
1 Samples
2 Coupons
3 Patronage rewards
7.10.8 Explain how publicity can be more effective than advertising as a promotion tool.
7.10.9 Explain how the publishers of the latest Harry Potter novel and bookstores used
publicity to good effect.
7.10.10 Name and briefly describe the type of sales force structure that may be appropriate
in each of the following cases:
1 A company that sells only one product line with customers in many locations
2 A company that sells many products to many types of customers
7.10.11 What advice would you give to a salesperson in order to handle objections from
potential customers effectively?
7.10.12 Discuss the evolution of catalogue marketing.
Case Study 4
7.10.13 Read the following case study and answer the questions that follow:
Subway
In 1965, 17-year-old Fred DeLuca was trying to figure out how to pay for college. A family friend suggested that
Fred open a sandwich shop and then the friend invested 1 000 dollars to help get started. From that humble start
grew the Subway franchise chain with over 20 000 outlets in 70 countries.
Targeted advertising and sales promotion have been important to Subway’s growth. Some memorable ads
featured Jared Fogie, who was overweight but lost 245 pounds by only eating Subway’s low-fat sandwiches.
Subway’s strategy at the time focused on its line of seven different sandwiches with under 6 grams of fat. The
objective was to set Subway apart from other fast foods in a way that would appeal to health-conscious eaters and
spark new sales growth.
As soon as Jared’s ads began to run, word of his inspiring story spread and consumer awareness of Subway and
its healthy fare increased. Sales grew more than 18% that year. The ad also attracted the attention of potential
franchisees. Subway headquarters supports franchisees by providing materials and guidance for the local
advertising and sales promotion they do to reach their own target customers.
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Recently, Subway has been squeezed at the high end by rival sandwich shops. So Subway has to balance its
menu and promotion. Balance is needed to appeal to the segment of customers who are most interested in taste
as well as the low-fat segment. Subway balances the menu with a line of “Subway Selects” sandwiches made
with zesty sauces and special breads. It turned to a new ad agency, Fallon Worldwide, to create ads that would
balance the copy thrust.
Subway includes many other elements in its promotion blend. For example, it is a national sponsor of the American
Heart Walk. It has contests and games to keep its customers interested. One is a trivia contest in which customers
can win a boxed set of recordings. The contest ties in with a section of Subway’s Website that keeps customers
coming back by providing handy reviews of current movies and music. The Website also provides tips on dieting
and exercise as well as nutritional details about its sandwiches.
Subway is in a very competitive, dynamic market. More change is sure to come.
Source: Perreault and McCarty (2005:430)
Questions
1 Which elements of the marketing communications mix feature in the case study? Explain how they have
contributed to the success of Subway.
2 Name one important message style that Subway used in its advertisements.
3 Which promotion budget method would you recommend that Subway use? Motivate your answer.
4 One of the steps in creating an advertising message is to develop a message strategy.
What do you think Subway used?
5 What factors should Subway consider when choosing advertising media?
6 Apart from the sales promotion tools mentioned in the case study, what other sales promotion tools 10.13.7
would you recommend that Subway use? Explain why..
Activity 1
Discuss with examples how integrated communication has proved to be more
effective than using a single promotional tool.
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Solutions
Think Point 1
The target audience will affect what will be said, how it will be said, when it will be said, where it will be said,
and who will say it.
Think Point 2
Pros
Humour can
•
capture attention.
•
people feel good.
•
give a brand personality.
Cons
Humour can
•
detract from comprehension.
•
wear out its welcome fast.
•
overshadow the product.
irritate consumers.
Think Point 3
When the audience is highly educated.
When the audience is likely to hear opposing claims.
When the communicator has a negative association to overcome.
Think Point 4
The marketing communicator can use novelty and contrast; eye-catching pictures and headlines; distinctive
formats; message size and position; and colour and shape.
Think Point 5
The benefits and returns on promotional expenditures are often not immediately evident, instead accruing over
many years.
Regularly repeating messages builds awareness and familiarity, sometimes for years before the actual sales are
realised.
Think Point 6
Answers may vary from student to student. Possible responses:
A message announcing a major sale tomorrow may be suited to newspapers or radio.
A message with a lot of technical data may be suited to magazines, direct mailings, or a Web site.
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Think Point 7
The sponsorship must be economically viable.
The event or organisation being sponsored should be consistent with the brand image and overall marketing
communications plans.
It should offer a strong possibility of reaching the desired target audience.
It should lead to an improvement in the firm’s standing with customers
Think Point 8
Selling teams can confuse or overwhelm customers who are used to working with only one salesperson.
Salespeople who are used to working on their own may have trouble learning to work with and trust other team
members.
Difficulties in evaluating individual contributions to the team selling effort may create some sticky compensation
issues.
Think Point 9
They can look at financial ability, volume of business, special needs, location, and growth possibilities.
Think Point 10
Yes, there is a difference.
Junk mail is indiscriminate, untargeted mailings whereas direct mail is carefully targeted.
7.10.1 Answers may vary from student to student. Possible answer:
Awareness: Create name familiarity by for example showing the car’s name but not the car in the
introductory advertisements.
Knowledge: Placing glossy inserts in newspapers that explain the car’s features and quality.
Liking: Associate the car with a well-known person e.g. racing driver.
Preference: Differentiate the car from competing ones by describing a specific feature.
Conviction: Auto dealers van invite consumers to test-drive the new car.
Purchase: Offer the car at an introductory price or offer finance at a lower interest rate.
7.10.2 Messages may urge people:
to brush their teeth, buy new tyres, stop smoking, stop eating unhealthy foods, stop speeding, avoid injuries,
etc.
7.10.3 This is a simple method to use but it views sales as the cause of promotion rather than the result. When
business is good marketing expenditures expand but when business is poor marketing expenditures are cut
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back. Thus when business is poor, this approach will make the problem worse especially if weak promotion
is the reason for declining sales.
7.10.4 Informative advertising is used extensively when introducing new products (introductory phase) in order
to build primary demand. Persuasive advertising is used during the growth phase to build selective demand
as competition increases. Reminder advertising is important in the maturity phase in order to maintain brand
loyalty. In the decline phase the company may continue with little reminder advertising or none at all as the
product is allowed to decline.
7.10.5 Reach measures the percentage of target customers who are exposed to the ad campaign during a
certain period of time. Frequency is the number of times the average person in the target market is exposed
to the message as follows:
7.10.6
Newspapers
Magazines
Timeliness
Long ad purchase lead time.
Poor reproduction quality
High-quality reproduction
Low cost
High cost
Small pass-along readership
Good pass-along readership
Short life
Long life
7.10.7
1 Samples: may be used to introduce a new product or entice early trial of the new product.
2 Coupons: entice early trial of a new brand or stimulate sales of a mature brand.
3 Patronage rewards: encourage the regular use of a company’s products or services
7.10.8 Public relations have the potential to have a strong impact on public awareness at a much lower cost
than advertising can. If a company has something newsworthy, and it is reported by several media, it could
have the same effect as advertising that would cost millions. News items also have greater credibility than
advertising. Publicity, presented as news, is more likely to be watched, listened to, or read than advertising.
Publicity can contain greater detail than an ad and the content can even be more persuasive.
7.10.9 The launch of “Harry Potter and the Deathly Hallows” was preceded by a lot of hype as the media reported
on sleepovers, games, and costume contests used to whip up consumer frenzy. The publishers ensured that
the book was released exactly at midnight on the same day throughout the world with booksellers forced to
sign secrecy agreements. This too was widely reported in the media.
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7.10.10
1.Territorial sales force structure: is recommended. Each salesperson is allocated an exclusive geographic area
and sells the company’s full line of products to all customers in that area. Improved selling effectiveness
may result from the salesperson’s desire to build local business relationships. Travel expenses are relatively
low.
2 The company can use product sales force structure or customer sales force structure or combine several types
of sales force structures.
•
Product sales force structure: Different salespersons sell different product lines. Each salesperson has
a great knowledge of the product line allocated to him/her. However, it becomes inconvenient for
customers who buy many different products from the same company.
•
Customer sales force structure: Salespersons specialise in selling only to certain customers or
industries. This can help to build closer relationships with important customers.
7.10.11 The salesperson should use a positive approach, look for hidden objections, use objections as an
opportunity to provide more information, and try to turn the objections into reasons for buying
7.10.12 Catalogue marketing was first made available in print (and still is) with a limited range of products on offer.
Nowadays almost anything can be bought from a catalogue and more and more catalogues are going
electronic. Web-based catalogues are used by many marketers to augment their printed catalogues.
1. The elements that feature is advertising, sales promotion, publicity, and direct marketing.
Advertising: Advertising is aimed at the target market. Testimonial endorsement through Jared Fogle
was used to great effect. The success of the advertising led to an increase in the number of franchisees.
Subway also ensured that it’s advertising changed as market conditions changed (use of Fallon
Worldwide to balance its promotion).
Sales promotion: It used contests and games to keep customers interested in its products.
Publicity: As a national sponsor of the American Heart Walk, it sponsored an event that is closed linked
to the image of its products viz. healthy sandwiches.
Direct marketing: Its Website was innovative and informative e.g. reviews of current movies and music,
tips on dieting as well as nutritional and health-related facts.
2 Testimonial endorsement: A believable source in the form of Jared Fogie endorsing Subway’s products is
featured.
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3 Answers may vary. One possible answer is:
Objective-and-task method is the most logical method whereby the promotion budget starts with
defining promotion objectives, then determining the tasks needed to achieve these objectives, and lastly
estimating the costs of performing these tasks. This method does not have the shortcomings of the other
major methods.
4 The idea would have revolved around a “healthy fast food” and later “healthy, tasty fast food”.
5 Media habits of target consumers: Seek media that reach target consumers effectively.
Nature of product: Different products are suited to different media.
Types of messages: Different types of messages may require different media.
Cost: The total cost of using a medium and the cost per exposure of reaching target customers are
important.
Media habits of target consumers: Seek media that reach target consumers effectively.
6 Answers may vary.
Samples: This is especially important when new franchise outlets are opened. Sampling is effective in
reducing customer resistance to purchasing a new product.
Patronage rewards: A discount may be offered on the next purchase following the sale. They may
encourage regular purchase of Subway’s products.
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Unit
8:
Marketing Challenges
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Unit Learning Outcomes
CONTENT LIST
LEARNING OUTCOMES OF THIS UNIT:
8.1 Introduction
•
Introduce topic areas for the unit
8.2 Challenges facing marketers
•
Identify and describe the major challenges facing marketers
today
•
Suggest ways of dealing with the challenges faced by
marketers
Prescribed and Recommended Textbooks/Readings
Prescribed Textbook
•
Kotler, P. and Armstrong, G. (2023) Principles of Marketing. Global
Edition. Nineteenth Edition. Pearson.
Recommended Reading
•
Kotler, P. and Armstrong, G. (2023) Marketing: An Introduction. Global
Edition, Fifteenth Edition. Pearson.
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8.1.
Introduction
As the world moves into the first decade of the 21st century, dramatic changes are taking place in the marketplace.
Firms that don’t keep up with these changes will lose their competitive advantage. According to Kotler and
Armstrong (2013:46) there are some major developments that are changing the marketing landscape and
challenging marketing strategy. We now examine these developments and others cited by Perreault and McCarthy
(2005:616).
8.2.
8.2.1
Challenges Facing Marketers
Change
Perreault and McCarthy (2005:616) say it well in their statement: “change is the only thing that’s constant”. For
firms to progress marketers must pay attention to the changes in the market including trends in the marketing
environment. Marketing strategies have to be improved to cope with these changes. Table 8.1 below summarises
some of the important trends and changes that will have an effect on how marketers serve society.
Table 8.1: Changes and trends in the marketing environment
Communication technologies
Sales promotion
The internet and intranets
Point-of-purchase promotion
Satellite communications
Event sponsorships
Cellphones
Customer loyalty programs
Role of computerization
Personal selling
E-commerce, Websites
Sales technology
Spreadsheet analysis
Automated order-taking
Scanners and barcodes
Use of e-mail, fax, and voice mail
Marketing research
Mass selling
Search engines
Interactive media (Websites, etc.)
Multimedia data and questionnaires
Integrated marketing communication
Decision support systems
Direct-response advertising
Demographic patterns
Pricing
Explosion in teen and ethnic sub-markets
Electronic bid pricing and auctions
Aging of the baby boomers
More attention to exchange rate effects
Geographic shifts in population
Lower mark-ups on higher stockturn items
Business and organizational customers
International marketing
Just-in-time inventory systems
Global competitors – at home and abroad
Web portals and internet sourcing
Global communication over the internet
Interactive bidding and proposal requests
New trade rules
Product area
General
Faster new-product development
Explicit mission statements
Computer-aided design (CAD)
S.W.O.T. analysis
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Mare attention to quality
Privacy issued
Channels and logistics
Internet selling
Larger, more powerful retail chains
Automated warehousing and handling
Source: McCarthy (2005:616)
Think Point 1
Apart from those mentioned in table 8.1. above, what additional trends and
changes can you identify in the areas of communication technologies and
computerization that may affect marketing strategy planning?.
Customers will support firms that meet their needs while firms that don’t will be forced to improve or perish.
8.2.2
Evaluate marketing strategies constantly
In the words of Perreault and McCarthy (2005:616) “if it isn’t broke, improve it”. Marketing managers must
constantly evaluate their strategies to make sure that competitors have not found new and better ways of doing
things. Marketers must not wait until a problem becomes completely obvious before doing something about it.
Marketing managers must take the lead to find innovative new markets and approaches in order to gain competitive
advantage.
8.2.3
Rapid globalisation
According to Kotler and Armstrong (2012:51) marketers find themselves in an increasingly smaller world as many
companies are now connected globally with their customers and marketing partners. Every company today, big or
small, is affected in some way by global competition. Domestic firms not only try to sell more of their locally
produced goods in international markets but are also challenged at home by the marketing skills of foreign
multinationals. Perreault and McCarthy (2005:616) state that international competition is a reality and marketers
must find ways of gaining a competitive advantage both at home and in foreign markets.
8.2.4
Technology including the internet
We are living in an era where dramatic new technologies are developed almost every day. According to Perreault
and McCarthy (2005:616) marketers face the challenge of deciding which technologies can help the firm serve its
customers and which cannot.
Kotler and Armstrong (2012:50) consider the internet to be the most dramatic new technology. Companies have
to use the internet to build closer relationships with customers and marketing partners. Apart from competing in
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traditional marketplaces, they must now make use of the exciting new marketspaces. The growing and diverse
internet population means that all kinds of people are using the Web for information and to buy products and
services.
Consumer e-commerce and business-to-business e-commerce will provide marketers with new opportunities and
challenges.
8.2.5
Ethics and social responsibility
Kotler and Armstrong (2012:51) argue that as worldwide consumerism and environmentalism movements mature,
marketers of today are challenged to take greater responsibility for the social and environmental impact of their
actions. Price fixers, fraudulent or deceptive advertisers, and others who violate existing laws have given marketing
a bad name.
Corporate ethics, social responsibility, and environmental concerns will place even stricter demands on companies
in the future. Companies need to view socially responsible actions as a means to success.
8.2.6
Consumer privacy
Perreault and McCarthy (2005:616) advise marketers to be sensitive to the rights and privacy of consumers. The
use of sophisticated research methods, the internet, and other technologies have made it easier nowadays to
abuse these rights. Marketing managers must use technology in a responsible manner to improve the quality of
life of consumers, not disrupt it.
Think Point 2
Has your right to privacy (or the right of someone you know) been violated by a
marketer? If so, how?
8.2.7
Irresponsible consumers
Perreault and McCarthy (2005:616) cite the following examples of irresponsible behaviour:
•
Some consumers abuse policies about returning goods
•
Some consumers change price tags in self-service stores
•
Salespeople are sometimes abused by customers
•
Shoplifting is a major problem for traditional retailers
•
Online retailers have to contend with the use of fraudulent or stolen credit cards
Marketers have to find creative ways of dealing with problems associated with irresponsible consumer behaviour.
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8.3
Self-Assessment Activities
Knowledge Check Questions
8.1
Discuss some of the major challenges facing marketers in the country
that you live in.
8.2
Provide examples of instances where marketers have acted
irresponsibly or unethically and these actions consequently pose
challenges to companies today.
Activity
Discuss how modern technology has created many challenges to
organisations that have not fully adopted technology.
Solutions
Think Point
Communication technologies
HTML e-mail and instant messaging
Videoconferencing and internet telephone
Etc
Computerisation
Computers and PDAs
Wireless networks
Multimedia integration
Etc
Think Point
Answers will vary. from student to student.
Credit card companies computerise their records about consumers’ purchases and private lives and many of them
sell these records to anyone who pays for them. The result is unwanted e-mails, SMSs, direct mail catalogues etc.
8.1 Answers will vary but some of the challenges faced may include those discussed in paragraph 2 above.
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8.2 Some company’s mark-up goods excessively.
Marketers are accused of using deceptive pricing, deceptive promotion, and deceptive packaging.
Salespersons are sometimes accused of high-pressure selling.
Some products that are sold lack the needed quality, deliver little benefit, or may even be unsafe.
Etc.
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Revision Questions
QUESTION.1
[20 Marks]
The product life cycle (PLC) stage that a product has reached will determine appropriate strategies that firms can use
to extend the PLC of products and services. Using the integrated communication as a strategy, describe each PLC
stage and apply the appropriate communication mix element at each stage of the PLC, with explanations why your
choice is the most appropriate strategic communication mix element for the respective stage of the PLC.
QUESTION. 2
[20 Marks]
There are many ways in which a market can be segmented. A marketer will need to decide which strategy is best for
a given product or service.
4.1 Discuss the four segmentation strategies that marketers can use to segment markets
(12 Marks)
4.2 From the four segmentation strategies, choose one and explain why it is the best
segmentation strategy for an organisation of your choice by giving examples.
(8 Marks)
QUESTION 3
Describe how you can apply each element of the marketing mix (4Ps) as a strategy to improve the declining sales
turnover of company ABC (Pty) Ltd
(20 Marks).
QUESTION 4
Describe the two major Micro environmental factors that cause threats to companies in their trading activities.
(4 Marks)
Answer Guide to Revision Question 1
Examiner’s discretion prevails on how practical and realistic to use the chosen communication mix at the appropriate
stage) 4 marks for plc model, 4 marks each for the appropriate communication mix/mixes appropriate for the
respective stage of the PLC.
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The following is the PLC model:
Communication mix are:
•
Advertising: appropriate at introduction stage, creates awareness to the target market, advertising tools of
radio, tv, newspaper, posters, can be used to cover and penetrate wider market segment, well known to the
targets and hence easily believed by the targets
•
Sales promotion – Suitable at introduction (to attract customers with say discounts), at growth with reduced
pricing for example and will attract customers
•
Personal selling – suitable at all stages. Suitable at introduction (a one on one selling will easily convince as
customer especially for new products introduced on the market), at growth, will show continued relationship
so as at Maturity. A one to one selling gives trust and full understanding of the benefits to be derived from
the product as compared to non-personal selling of advertising
•
PR/Publicity- appropriate at all stages. At introduction, if the company’s events are publicised, its products
will easily be associated to what the company is perceived off by the targets. So as at Growth stage, the
company brand will easily be connected to its product offerings
•
Direct selling: Appropriate at introduction, growth and maturity. Direct selling involves dealing directly with
the targets, which may be more convincing and detailed about the benefits and or use of the products and
services
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Answer Guide to Revision Question 2
4.1 The four segmentation strategies that need to be described in detail are (3 Marks per each strategy described:
•
Geographic segmentation
•
Demographic segmentation
•
Psychographic segmentation
•
Behavioural Segmentation
4.2 The examiner will determine the appropriateness of the strategic choice and how it fits the organisation and the
ability of the chosen strategy to realise the objectives. (8 marks)
Answer Guide to Revision Question 3
•
Product – product quality, improved packaging, design, features, brand name sizes, warranties, returns,
aftersales,
•
Price – discounts allowances, payment period, credit terms, value based, penetrative
•
Promotion – sales promotion, advertising, personal sales, publicity, public relations, direct marketing
•
Place – channels of delivery, coverage area, convenience, locations, inventory, transport.
Answer Guide to Revision Question 4
The major Micro environmental factors that can be considered are:
•
Customers
•
Suppliers
Appropriate marks can be awarded for students who mention other factors like:
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•
The company
•
Publics
•
Competitors
•
Employees
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•
Blythe, J. (2006) Principles and Practice of Marketing.1st Edition. London: Thomson Learning.
•
Brassington, F. and Pettitt, S. (2000) Principles of Marketing. 2nd Edition. London: Pearson
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•
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•
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•
Kotler, P. and Armstrong, G. (2010) Principles of Marketing. 13th Edition. New Jersey: PrenticeHall.
•
Kotler, P. and Armstrong, G. (2013) Principles of Marketing. 15th Edition. New Jersey: Prentice-Hall
•
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Lamb Jr., C.W., Hair Jr., J.F., McDaniel, C, Boshoff, C. and Terblanche, N.S. (2015) Marketing 5th
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•
Perreault Jr., W.D. and McCarthy, E.J. (2005) Basic Marketing. 15th Edition. New Dehli: Tata
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•
Van Der Walt, A., Strydom, J.W., Marx, S. and Jooste, C. J. (1996) Marketing Management. 3rd
Edition. Cape Town: Juta and Co.
MANCOSA – Bachelor of Commerce in Marketing Management Year 2
160
Marketing Mix
161
MANCOSA – Bachelor of Commerce in Marketing Management Year 2