Module 2: The functions of Marketing in Business Management NQF LEVEL 5 – 15 CREDITS* Published by Business Management Training College (Pty) Ltd 147 Second Road, Chartwell, Fourways, 2191 Private Bag X100, Bryanston, 2021 Tel: 011-708-0159, Fax: 086-639-4687 | E-mail: info@bmtcollege.ac.za www.bmtcollege.ac.za © Copyright 2021 - All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright owner, Business Management Training College (Pty) Ltd. 2021 First Edition First Print June 2021 *SAQA equates one credit with ten notional hours of study. Credits include all studies related to this module, including prescribed and recommended research, assignments and work-related projects if required. Credits will only be granted upon successful completion of the full programme. Author: Fahima Haffejee Editors: Bernie van der Linde, Zoe Auths, Jako Poolman TABLE OF CONTENTS PRESCRIBED TEXTBOOK REFERENCES ............................................................. V CHAPTER 1: THE CONCEPT OF MARKETING ...................................................... 2 1.1 INTRODUCTION ............................................................................................. 2 1.2 DEFINING MARKETING ................................................................................. 3 1.2.1 The Exchange.................................................................................................. 5 1.2.2 The Marketing Gap .......................................................................................... 6 1.2.3 What is Marketed? ........................................................................................... 7 1.2.4 Where is the Market?....................................................................................... 9 1.2.5 Closing the Marketing Gap ............................................................................ 11 1.3 THE MARKETING ORIENTATION ................................................................ 12 1.3.1 Production Orientation ................................................................................... 12 1.3.2 Sales Orientation ........................................................................................... 13 1.3.3 Marketing Orientation .................................................................................... 14 1.3.4 Relationship Marketing .................................................................................. 17 1.4 THE MARKETING FUNCTION ...................................................................... 18 1.5 SUMMARY .................................................................................................... 20 CHAPTER 2: THE MARKETING ENVIRONMENT.................................................. 22 2.1 INTRODUCTION ........................................................................................... 22 2.2 COMPONENTS OF THE MARKETING ENVIRONMENT ............................. 22 2.2.1 Internal (micro) Environment ......................................................................... 23 2.2.2 External (market and macro) Environment .................................................... 23 2.3 THE MICRO-ENVIRONMENT ....................................................................... 25 2.4 THE MARKET-ENVIRONMENT .................................................................... 27 2.4.1 Supply............................................................................................................ 28 2.4.2 Demand ......................................................................................................... 29 Copyright © Business Management Training College (Pty) Ltd i 2.4.3 Needs and Trends ......................................................................................... 30 2.5 THE MACRO-ENVIRONMENT...................................................................... 31 2.5.1 Political and Legal Environment..................................................................... 33 2.5.2 Economic Environment .................................................................................. 34 2.5.3 Socio-Cultural Environment ........................................................................... 35 2.5.4 Technological Environment ........................................................................... 35 2.5.5 Physical Environment (The Environment) ...................................................... 36 2.6 ANALYSING THE ENVIRONMENT............................................................... 37 2.6.1 The SWOT analysis ....................................................................................... 38 2.7 SUMMARY .................................................................................................... 40 CHAPTER 3: UNDERSTANDING THE TARGET MARKET ................................... 42 3.1 INTRODUCTION ........................................................................................... 42 3.2 CONSUMER BEHAVIOUR ............................................................................ 43 3.2.1 Determinants of Consumer Behaviour ........................................................... 43 3.2.2 Individual Factors that influence consumer behaviour ................................... 46 3.2.3 Group Factors ................................................................................................ 50 3.3 MARKET SEGMENTATION .......................................................................... 51 3.3.1 Bases for Segmentation ................................................................................ 52 3.3.2 Levels of Market Segmentation ..................................................................... 53 3.4 MARKET RESEARCH AND INFORMATION ................................................ 54 3.4.1 Types of Research......................................................................................... 55 3.4.2 The Power of Information .............................................................................. 56 3.5 SUMMARY .................................................................................................... 57 CHAPTER 4: THE MARKETING INSTRUMENTS .................................................. 60 4.1 INTRODUCTION ........................................................................................... 60 4.2 PRODUCT DECISIONS ................................................................................ 61 ii Module 2: The Functions of Marketing in Business Management 4.3 DISTRIBUTION DECISIONS ......................................................................... 64 4.4 COMMUNICATION DECISIONS ................................................................... 65 4.5 PRICING DECISIONS ................................................................................... 65 4.6 SUMMARY .................................................................................................... 66 CHAPTER 5: CUSTOMER SERVICE...................................................................... 69 5.1 INTRODUCTION ........................................................................................... 69 5.2 DEFINING CUSTOMER SERVICE ............................................................... 69 5.3 PERCEIVED VALUE ..................................................................................... 70 5.3.1 Types of Perceived Value .............................................................................. 71 5.4 IS THE CUSTOMER ALWAYS RIGHT? ........................................................ 73 5.5 CUSTOMER RETENTION ............................................................................ 74 5.6 SUMMARY .................................................................................................... 76 CHAPTER 6: THE BASIC MARKETING PLAN ...................................................... 78 6.1 INTRODUCTION ........................................................................................... 78 6.2 INTENTION AND OUTCOMES ..................................................................... 79 6.3 MARKETING PLAN FRAMEWORK .............................................................. 79 6.3.1 The Research phase ..................................................................................... 80 6.3.2 The Formulation Phase ................................................................................. 84 6.3.3 The Implementation Phase ............................................................................ 86 6.3.4 The Review phase ......................................................................................... 87 6.4 SUMMARY .................................................................................................... 88 Copyright © Business Management Training College (Pty) Ltd iii LIST OF FIGURES Figure 1.1: Core marketing aspects ........................................................................... 3 Figure 1.2: Flows between modern exchange markets .............................................. 9 Figure 1.3: Simplified marketing flow........................................................................ 10 Figure 1.4: Principles of the marketing orientation ................................................... 14 Figure 2.1: The Marketing Environment ................................................................... 23 Figure 2.2: Components of the marketing environment............................................ 24 Figure 2.3: Demand and supply sides of the Market Environment ........................... 27 Figure 3.1: Customer types, activities and roles ....................................................... 44 Figure 3.2: Consumer behaviour model ................................................................... 46 Figure 4.1: Product levels ......................................................................................... 63 Figure 4.2 Basic food distribution channels and intermediaries ............................... 64 Figure 5.1: Example of personalised customer engagement on social media .......... 75 Figure 6.1: Structure of the marketing plan .............................................................. 80 FIGURE 6.2: THE BCG (MARKET GROWTH-MARKET SHARE) MATRIX ............ 81 Figure 6.3: The GE Mckinsey Matrix (Market Attractiveness-Enterprise Strength Model) ...................................................................................................................... 83 LIST OF TABLES Table 2.1: Micro-environment elements controlled by the marketing function .......... 26 Table 3.1: Maslow's hierarchy of needs and marketing motivation .......................... 48 iv Module 2: The Functions of Marketing in Business Management PRESCRIBED TEXTBOOK REFERENCES Erasmus, B.J., Strydom, J.W. & Rudansky-Kloppers, S. (2019). Introduction to Business Management. (11th ed.). Oxford University Press. ISBN 978 0190 745769. • Study Chapter 13, Marketing Management. RECOMMENDED TEXTBOOK/S Cant, M.C., & Van Heerden, CH. (2017). Marketing Management – A South African Perspective. (3rd ed.). Juta. ISBN 978 1485 125204. Copyright © Business Management Training College (Pty) Ltd v PROGRAMME OVERVIEW THE PROGRAMME AIMS TO ADDRESS THE FOLLOWING MANAGERIAL COMPETENCIES: • Proficient communication skills: effective managers need to be skilful communicators and have good listening skills to be able to manage a diverse workforce. Good managers must be able to adapt their communication skills based on people’s personality and culture; • Understand multigenerational workforce trends: effective managers need to understand the different generations and be able to adapt their management style accordingly; • Leadership skills: effective managers need the ability to direct, motivate and lead by example. This includes being aware of their own strengths to interact with subordinates in a way that capitalizes on their own strengths and minimises their weaknesses; • Planning skills: effective managers need to be organised. They need to know what needs to be done and when it needs to be done. Effective managers need to understand the organisation’s goals and objectives to inspire subordinate to achieve the vision; • Problem-solving skills: Effective managers must be able to identify and solve problems; take responsibility for challenges that arise and take ethical approaches to decision-making and problem-solving; • Information sharing and collective intelligence: Effective managers encourage social connectors and the sharing of ideas for joint decision-making (Blum, 2014; Sineriz, 2018) vi Module 2: The Functions of Marketing in Business Management PROGRAMME STRUCTURE MODULE 1: INTRODUCTION TO BUSINESS MANAGEMENT This module explains the role of business in society and how a business employs its resources to satisfy the needs for products and services. The economic systems of the world are explained in this module, including how small businesses function within a market economy. The module further describes the role of management in the business environment and the basic management functions and the skills and competencies needed by management on different levels within a business. MODULE 2: THE FUNCTIONS OF MARKETING IN BUSINESS MANAGEMENT The purpose of this module is to introduce students to the fundamentals of marketing management. This module covers the nature and the function of marketing management within the organisation. Furthermore, the marketing process, as well as the components of the marketing environment are discussed in this module. The collection, analysis and interpretation are used to segment the market according to consumer behaviour. The elements of the marketing mix (product, price, promotion, and distribution decisions) are also covered in this module and how to develop a simple marketing strategy. The module is concluded with a discussion regarding customer service and the importance thereof. MODULE 3: THE FUNCTIONS OF HUMAN RESOURCES IN BUSINESS MANAGEMENT The purpose of this module is to provide students with an overview of the tasks associated with human resource management. The module starts with the scope and task of human resource management. The determining and formulating policy task, advising task; rendering a service and controlling employee affairs management tasks in relation to the HR function and the implication on other functional areas of management are also discussed. This is followed by a discussion on human resource provision, retention and governance affecting human resource management. Copyright © Business Management Training College (Pty) Ltd vii MODULE 4: THE FUNCTIONS OF OPERATIONS IN BUSINESS MANAGEMENT The purpose of this module is to provide students with an understanding of the operations function in relation to other major business functions. Students are introduced to concepts related to operations management, including supply chain, supply chain management, logistics, supply and demand and various demand forecasting techniques. To conclude the module, students will learn about inventory management and how to calculate inventory costs. MODULE 5: THE FUNCTIONS OF FINANCES IN BUSINESS MANAGEMENT The purpose of this module is to introduce students to financial management from a secondary or support perspective such as technology, human resource management and legal services. On completion of this module, students will be able to explain the scope of financial management, apply basic principles and practices of financial management and explain budget planning and control issues. Financial statements are analysed as a source of information for financial management and students must be able to measure and interpret the financial performance of an organisation. MODULE 6: BUSINESS COMMUNICATION IN A DIGITAL ERA The purpose of this module is to introduce management students to the importance of effective communication within a business environment. This module covers the basics of communication, including various communication mediums within an organisation, communication in the digital era, how to deal with multicultural communication within the organisation, how to overcome barriers to effective communication and how to conduct meetings. MODULE 7: BUSINESS INFORMATION SYSTEMS Information technology is an essential component of the modern organisation. The evaluation, implementation, and management of Information Systems (IS) have become a part of business management. This module introduces students to the importance of reliable and accurate information in a business, the information needs of an organisation and the relationship between the information function and other viii Module 2: The Functions of Marketing in Business Management business functions. The student will also be able to differentiate between the various components of information systems and understand relevant IS terminology. The systems concept is discussed in terms of objectives and characteristics. Contemporary issues such as information in an online world and information as a management resource are also discussed. MODULE 8: MANAGING BUSINESS PROJECTS The purpose of this module is to introduce business management students to the basic concepts and principles applicable to manage a project within a business environment. A detailed overview is given of the project management life cycle and steps in planning, managing, and controlling a project, using the relevant methods and tools to manage projects based on scenarios related to real-life business situations. At the end of this module, students will be required to apply project management principles and practices to complete a basic project for a given scenario as part of the summative assessment. Copyright © Business Management Training College (Pty) Ltd ix ASSESSMENTS The Higher Certificate in Business Management consists of eight compulsory modules. The outcomes of each module are assessed through a formative and summative assignment per module. After completing all formative and summative assessments, students are required to complete a final integrated summative assessment and participate in a panel interview. An online formative assignment must be completed for module 1 to 8. • The pass mark for formative assignments is 50%. • The final formative assignment mark has a weighting of 25% towards the module mark. • Each formative assignment may be attempted more than once; • The final formative assignment mark will be the highest results obtained by the due date for the specific assignment. • Summative assignments must be completed for module 1 to 8 online. • Students are required to achieve a minimum mark of 50% to pass the summative assignment. • The final summative assignment mark has a weighting of 75% towards the module mark. • Students are allowed two opportunities to complete and pass each summative assignment. • Subject to approval by the Academic Council (AC), a student may be granted permission for a third opportunity to attempt a summative assignment for a module at a specific date and pay an additional submission fee. • Summative assignments submitted for second and third attempts will be capped at 65%. x Module 2: The Functions of Marketing in Business Management Note: All students are required to attend a panel interview when all formative, summative and integrated assessments for this programme have been completed to determine if the student has achieved BMT College Graduateness, in terms of scholarship, lifelong learning and ethical and responsible citizenship. The panel interview also serves as a security measure to verify the student as the authentic person who has attended and completed this online distance learning programme. Copyright © Business Management Training College (Pty) Ltd xi CHAPTER ONE The Concept of Marketing IN THIS CHAPTER: 1.1 INTRODUCTION ............................................................................................. 2 1.2 DEFINING MARKETING ................................................................................. 3 1.3 THE MARKETING ORIENTATION ................................................................ 12 1.4 THE MARKETING FUNCTION ...................................................................... 18 1.5 SUMMARY .................................................................................................... 20 INTRODUCTION CHAPTER 1: THE CONCEPT OF MARKETING LEARNING OUTCOMES On completion of chapter 1 you should be able to: • Explain definitions, concepts and terminology related to marketing management. • Discuss the marketing function in an organisation. • Explain the marketing process. 1.1 INTRODUCTION Although some may argue that certain business functions are more important than others, the reality is that every function of business management is essential. For example, the human resource function is concerned with the management of people working for the organisation. It is regarded as an essential component of the business because without people there will be no one to perform the tasks required to operate the organisation successfully. The financial management function is concerned with the management of the finances and the flow of money within the organisation. This function is regarded as an essential component of the business because without finances or resources, the organisation will not be able to deliver a service or a product. The same is true about the marketing function. Without marketing the organisation will not be able to define what customers want and need, and how to use the resources of the organisation (including human, finances, and information resources) to meet those wants and needs (Cant et al., 2017). Marketing is much more than simply placing an advert in the local newspaper, ordering a billboard, designing beautiful packaging or having a Facebook page. In this chapter, the marketing function, as the part of the business that essentially generates money from sales (from products or services), will be discussed in more detail and how the marketing function fits into the organisation. An overview of marketing instruments, segmentation of the market (to identify the target market), and market research will 2 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING also be discussed as components of marketing. Strictly speaking, strategic marketing forms part of the components of marketing but is important enough to warrant its own discussion. For now, it is important to know that marketing consists of various interlinked parts (functions, actions, components), that forms a cohesive whole (Cant et al., 2017; Kotler & Keller, 2012). 1.2 DEFINING MARKETING To better understand the marketing concept, it can be separated into several interlinking core aspects, as depicted in figure 1.1 below. FIGURE 1.1: CORE MARKETING ASPECTS Consumer Needs and Wants Exchange (eg money for service/product) Marketing The Marketing Gap Value Creation Source: Adapted from Cant et al. (2017 p.5) The marketing process involves: • understanding the market opportunities; • customer analysis for such market opportunities; • identifying the ideal target market or segment; • developing a marketing mix for the segment; Copyright © Business Management Training College (Pty) Ltd 3 DEFINING MARKETING • controlling the various marketing activities; and • managing the exchange (Cant, 2010). The American Marketing Association (AMA) defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” (American Marketing Association, 2017, para. 2) According to Cant et al. (2017), marketing is defined as “A process whereby an organisation, in its drive to meet its organisational goals, focuses on meeting customer needs and wants, by offering the right product, at the right price, at the right place, and by using marketing communication channels. Through this process, organisations also strive to establish relationships with customers and to develop and grow these relationships with relevant stakeholders in an ever-changing environment” (p. ) From the definitions, the following can be concluded: • Marketing is a process (not just unconnected actions or tasks). • The marketing process aims to meet organisational goals (if it is a business, then the primary objective is to make a profit). • There is a product, service or offering. • The marketing process focuses on meeting customer needs and wants with • Relevant products, services or offerings • At a price, the customer is willing to pay (an exchange will happen). • During the process, a relationship is established between the organisation and the customer (and other stakeholders). • 4 These relationships need to be managed and developed. Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING 1.2.1 THE EXCHANGE The primary purpose of business is to make a profit (Erasmus, Strydom, & RudanskyKloppers, 2013; Hellriegel, Slocum, Jackson, & Louw, 2013) because without profit a business cannot exist. Some business units exist within larger organisations with a strategic purpose to make a loss. However, that falls beyond the scope of this module. In its simplest form, profit is made by exchanging a good or service, for something of more value (usually money) that exceeds all the costs involved in producing that product or service. The central focus of marketing is the facilitation of this exchange process. According to Cant et al. (2017), five conditions are required for the exchange process: 1. At least two parties are needed. 2. Each party must have something (goods, services, money) that the other party wants. 3. Each party must be able to communicate their wants, needs and expectations about the exchange and be able to transfer or deliver the goods, services, or money to the other party. 4. Each party has a choice to make the trade. 5. Each party must be willing participants in the process. An exchange may not necessarily happen, even if all the conditions exist, because condition four states that ‘each party has a choice to accept or reject a trade’. To make this exchange process happen, or to facilitate this process, the parties must be brought together. Before the parties know about each other, or each other’s goods, services or money available for trade, the gap between the parties needs to be addressed. Copyright © Business Management Training College (Pty) Ltd 5 DEFINING MARKETING 1.2.2 THE MARKETING GAP Before (at least two) parties get together to make an exchange, they first need to know about each other. Products are not always made where customers for that product is situated. This creates a gap between the production of the goods and the customers who may want or need the goods (Cant et al., 2017). For instance, a clothing manufacturer has a factory in a strategically selected area, based on the availability of labour, overhead costs, distribution, and transport options, etc. This area may be in a foreign country or a different location, hundreds of kilometres away from the customers. The customer who wants to buy a specific size and colour shirt may not exactly know about the options available by the manufacturer, and the manufacturer may not necessarily know about the wants and needs of the customers, (i.e., what colour shirt is more in demand in a specific area). According to Cant et al. (2017), typical gaps in the marketing process include: 1. Space gaps: the physical (geographical) gap between the customer and the product as in the example above. 2. Time gaps: this refers to the time between the production of a good or service and the consumption or use of the good or service. For instance, a stylist wants to start his/her own hair salon (a service) while still working full time and can, therefore, only do customer’s hair after hours. However, the customers are not available after hours because they want to spend time with family. A time gap exists between the delivery of the service, and when customers can access the service. 3. Information gaps: customers need to know about all the product or service available. If the customer doesn’t know that the company is also selling shoes besides clothes, the customer will buy shoes from another manufacturer. Furthermore, the company needs relevant information about the customers, or the manufacturer may attempt to sell outdated or unwanted clothes to customers. 6 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING 4. Ownership gaps: Before the exchange is complete, ownership needs to change. Before the shirt lawfully belongs to the customer, the agreed trade needs to be complete (i.e., money for the shirt). 5. Value gaps: Value is what the customer expects and is willing to pay in exchange for the product. One customer may be willing to pay and is able to pay R2500 for an imported shirt from a unique brand while another customer may not be willing to pay or cannot afford to pay more than R125 for a shirt. (Once again, information about the customer is important). Value gaps are an important consideration in the marketing process. The manufacturer of the R2500 shirts may sell fewer shirts to a very specific market and may add value by tailoring the shirts for each of their customers. The manufacturer of the R125 shirt will probably sell a lot more shirts and it will be impossible to tailor each shirt at that price for every individual. However, the different groups will find different value in the shirts they bought. The buyer of the R2500 shirt may find value in the product such as brand status, the quality, and the specially tailored shirt, while the buyer of the R125 shirt may find value in the product through affordability and being able to buy more than one in various colours. 1.2.3 WHAT IS MARKETED? For clarity, this module will continuously refer to “goods and services” as a comprehensive term for what is being marketed. Marketing is however not limited to goods and services only. According to Kotler and Keller (2012), marketing can be done for virtually anything that can be exchanged for something else (as defined above), including: • Goods: Physical or tangible products. Goods include, inter alia, food (i.e., fresh, frozen, canned), electronics (i.e., televisions, cell phones, computers), appliances (i.e., washing machines, microwaves, dishwashers), clothes, toys, plants, etc. Goods can usually be transferred to several owners until it is completely or partly consumed. For example, a farmer produces freeze and packages vegetables on a farm (first owner), which is sold to a middleman Copyright © Business Management Training College (Pty) Ltd 7 DEFINING MARKETING (second owner), who sells the products to a distribution chain (third owner), who sells it to an outlet store (fourth owner), who sells it to the consumer (fifth owner). • Services: Services is work done for an exchange (usually in the form of money). More advanced economies will have a greater ratio of services to goods. Services can be combined with goods (mobile service provision for a mobile phone). Services are intangible and cannot be transferred to several owners (a haircut cannot be transferred to several owners, but the service of a haircut can be delivered to several clients). Doctors, rental companies, accountants, repair technicians, bankers, lawyers, programmers, all delivery services. • Events: The Soccer World Cup, 947 Cycle Race, the performance of your favourite pop star, are all time-based events that are promoted in some form or another. Marketing can be exclusive (opening of a new club or launch of a luxury car) to a select few, or open to everyone (opening of a new mass store outlet). • Experiences: A combination of goods and services can be offered as an experience such as a visit to Disneyland, a tour in Egypt, or meeting your idol. • Persons: Self-branding is no longer only for artists, musicians, athletes, doctors, or high-profile lawyers. With the advent and wide assimilation of social media, personal brands are easily accessible to potential employers. The Curriculum Vitae of a new employee are only part of the assessment and whether the specific brand promoted by the potential employee will fit in with the organisational brand. • Places: Cities, countries, industrial areas, and destinations are marketed as investment opportunities or tourist destinations. • Organisations: The values and principles of organisations are often marketed over and above the actual services or products of the company. • Information: The massive amounts of data produced every day can be analysed and packaged for specific users. 8 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING 1.2.4 WHERE IS THE MARKET? According to Cant et al. (2017), the primary markets used to be the physical spaces where traders would come together to exchange goods and/or services. Although the markets of old still exist in some form or another today (think of Farmer’s Markets), these are no longer the primary or major exchange platforms. Economists classify markets as a specific grouping of buyers and sellers (Kotler & Keller, 2012). In Figure 1.2 below the flow between markets are illustrated and is also known as the Circular flow of the economy (Schiller, Hill, & Wall, 2013). The outer flow in Figure 1.2 shows how the Consumer Market provides resources (in the form of work) to the resource market. The Resource Market provides resources to the manufacturing market to produce either services or goods to the Intermediary Market. The Intermediary Market sells those goods and services to the consumers. The inner flow depicts how money is exchanged between the various markets for resources or goods and services. FIGURE 1.2: FLOWS BETWEEN MODERN EXCHANGE MARKETS Source: Adapted from Kotler and Keller (2012, p. 30) Copyright © Business Management Training College (Pty) Ltd 9 DEFINING MARKETING A simple depiction of the marketing flow is shown in Figure 1.3 below. The Industry comprises of anyone who wants to sell something to a specific or various Markets. According to Kotler and Keller (2012), a market can be for a specific demographics group (i.e., young adults for specific TV series, movies or books), a group with specific needs (i.e., need for exercise and fitness), a product market (i.e., entertainment electronics such as TVs and HiFis), or a geographic market (i.e., concentrating a specific restaurant chain only in Cape Town or the Western Cape or the South African market vs the American market). The clustering of markets can incorporate various aspects, (i.e., the youth market in Asia for mobile phones). In the marketing context, this is specifically referred to as market segmentation. FIGURE 1.3: SIMPLIFIED MARKETING FLOW Source: Adapted from Kotler and Keller (2012, p. 31) Figure 1.3 shows how the Industry communicates the properties of the product or service to the Market. The Market, in turn, providing information to the Industry regarding the consumers’ specific wants and needs. Goods and/or services are exchanged between Industries and Markets for money. Although markets can be segmented into specific clusters, Kotler and Keller (2012) distinguish the following key markets: • Consumer Market (markets where customers purchase products for consumption that are not meant for resale); 10 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING • Business Markets (a marketplace where organisations purchase natural resources, components of other products or raw materials to resell to the public or to use in manufacturing other products); • Global Markets (markets where goods and services of one country are traded to people in other counties); • Non-profit markets (consists of organisations that are not driven by profit, such as charity, religious or environmental groups) and Government Markets (markets where the customers are local, state, and federal governments). In conclusion, in terms of marketing management, the market is not considered to be a physical space where goods and services are exchanged, but rather a cluster or segment of willing buyers for whom a specific product or service is offered. To conclude, the market is not necessarily always where the industry is, and in some way, the industry needs to manage the exchange process of the industry’s goods and services for the market’s money. 1.2.5 CLOSING THE MARKETING GAP Marketers use specific tools to close the marketing gap between the industry and the consumers or intended clients of products and services (Cant, 2010). A combination or mix of the different tools are used to inform a specific market about what is on offer, how or where it can be purchased, and at what cost (Blythe, 2009; Erasmus et al., 2013; Kotler & Keller, 2012). This is also known as the marketing mix or the Four P’s (product, place, promotion and price): • Product refers to the actual goods (products) or services. Key words: variety, quality, design, features, brand, packaging, sizes, services, warranties, returns. • Place or distribution refers to where the products or services can be purchased, how it is distributed and how it is delivered to the client. Key words relating to place include channels, coverage, locations, inventory, transport, delivery, distribution. Copyright © Business Management Training College (Pty) Ltd 11 THE MARKETING ORIENTATION • Promotion or communication refers to the communication methods used to inform potential customers about the products or services. Key words relating to promotion include sales promotion, advertising, sales force, public relations, direct marketing. • Price refers to the agreed value of the products or what the industry is willing to sell them for and what the customers are willing to pay for it. Key words relating to price include list prices, value, allowance, payment period, credit terms, discounts, sale. The tools described in the marketing mix are core to the decision-making process in terms of the intended exchange for both the industry and the consumers (Cant et al., 2017). 1.3 THE MARKETING ORIENTATION According to Cant (2010), top management may view the marketing function differently in different organisations. These marketing management philosophies have evolved over the years, even though some of these (older) orientations may still be observed in organisations today. 1.3.1 PRODUCTION ORIENTATION From the onset of the Industrial Revolution around 1760 up until the 1920s, the focus of most businesses was the transition to the then-new mechanical manufacturing processes (Cant et al., 2017). The standardisation of production allowed businesses to make a few specific or select products in much larger quantities, at reduced costs and in shorter periods. The manufacturers did not focus on what consumers wanted, but rather on streamlining production processes. The sentiment of manufacturers was to produce in bulk as much as possible, and the products will sell themselves. These products, however, did not continue to sell themselves and eventually top management realised that they need to focus on also selling the products. This introduced the sales orientation marketing phase (Cant et al., 2017). 12 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING Today production orientated business still exists. Small businesses often focus more on production and neglect to spend time on the marketing function of the business. Larger companies that do not have a lot of (or any) competition or who introduces a new product to the market may also be more production orientated. Think for instance of the electricity supplier, Eskom. Very little effort is made to actively sell electricity to consumers. Their focus is more on the production of electricity in larger quantities. Key Term: Consumers mostly favour products that are available and affordable. 1.3.2 SALES ORIENTATION During the Production Orientation phase, businesses often produced more products than what potential customers could consume and as more competition became available consumers now had a choice between products from different manufacturers. Top Management realised that time and effort must also be spent on selling products to consumers (Erasmus et al., 2016). In a sales-orientated organisation, the focus is on maximising sales. Sales volume is the key to profitability. Advertisements are used to inform potential clients of the products available. Little concern is usually given as to whether the consumer will be satisfied with the purchase or not, as long as the sale is made (Cant et al., 2017). According to Cant et al. (2017), examples of sales orientated businesses include mailorder businesses, which may advertise products that are not readily available or are not worth the selling price in a shop. Door-to-door and telesales (cold calling) have obtained bad reputations because some salespeople will not allow the customer to think about the purchase, and the product is “pushed” onto the customer. Working from scripts and often being excellent communicators, these salespeople can persuade customers to make hasty and foolish decisions. Key term: Consumers will not buy enough products unless a concentrated effort is made by the organisation to sell and promote the products, which may often be overpriced. Copyright © Business Management Training College (Pty) Ltd 13 THE MARKETING ORIENTATION 1.3.3 MARKETING ORIENTATION Previous efforts from top management focussed first on production and then on sales and price. However, customers’ buying behaviour also evolved. With more buying power, customers developed more refined wants and needs. During the 1950s top management realised other important factors need to be considered as well, such as the quality of the product, the distribution of products, packaging, and communication methods and channels. Advertising products and services became more widespread (Cant et al., 2017). From where the focus was mostly on either production methods or sales methods, the focus was now on the customer. According to Cant et al (2017), four principles make up the marketing orientation that focuses on (1) customers; (2) profit; (3) systems and (4) social responsibility of the organisation as illustrated in Figure 1.4 below. Focusing on the four principles, resulting in the marketing orientated organisations to align business processes and efforts to satisfy customer needs and wants at a profit. FIGURE 1.4: PRINCIPLES OF THE MARKETING ORIENTATION Customer Oriented Social Responsibility Marketing Orientation Profit Orientated Systems Orientated Source: Adapted from Cant et al. (2017, p. 12) 14 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING According to Cant et al. (2017), the four principles should be applied in a balanced manner. One principle cannot be ignored in favour of another. The organisation that ignores all or any of these principles, are not customer focussed or market-driven and may have short-term success and will not be sustainable in the long run. 1.3.3.1 Customer Orientated The first principle of the marketing orientation is to be customer focussed. All functions of the organisation should be aimed at satisfying needs and wants. However, this is not about individual clients but rather the needs and wants of a specific identified group (Cant et al., 2017). According to Cant et al. (2017), a customer orientated business understands the wants and needs of its target market and focus its efforts on satisfying the customer requirements of that target market. A business will strategically shape and form its product or service offering for a specific target market, at a specific price with specific terms and conditions that shapes the offering. A common misperception is that a customer focussed organisation or customer service means that the crazes of every individual customer should be catered for. If the focus of the business is on individual customer care, then the focus will be on the individual customer. However, a steep premium will usually be charged for such extreme customer focussed service. Customer-orientated businesses do not consider the task complete once the sale is made but continue to be in contact with the customers to evaluate their satisfaction levels with the product or service. This marketing information is used to inform on the improvement of products or services, which may be of benefit to the target group. Customer orientation further leads to relationship marketing where the focus is on customer loyalty and long-term customer engagement. Copyright © Business Management Training College (Pty) Ltd 15 THE MARKETING ORIENTATION 1.3.3.2 Profit Orientated Research has shown that organisations that are more customer focussed, (focus on the wants and needs of the target group), are usually more profitable (Cant et al., 2017). Customer focus can also increase customer loyalty, leading to organisational growth, and increased investor commitment (Kotler & Keller, 2012). The primary goal of any business is to make a profit (Erasmus et al., 2013). Profit in the marketing orientated organisation is made by offering a product or service that a target market wants and needs (and will come back for), at a price that both the organisation and the customer agree upon. 1.3.3.3 Systems Orientated A system is formed from various interrelated parts. These parts must work together for the system to function optimally or correctly. Some systems can form part of a larger system (Hellriegel et al., 2013). According to Hellriegel et al. (2013), the decisions made in a systems-orientated unit or business are informed by the analysis of how such decisions will impact the various parts of the system (i.e., customers, employees, delivery, communications). According to Cant et al. (2017), systems orientation means organisational integration. All the parts or departments of the organisation works together to achieve the organisational goals of making a profit by being customer focussed. 1.3.3.4 Social Responsibility As much as an organisation is a system, it is also part of a larger system in society. The organisation is responsible and can be held accountable for its performance within a society (Cant et al., 2017). Social responsibility can be demonstrated in many forms, from the small, medium, or micro-enterprise concentrating on making a profit and being sustainable up to the investment in infrastructure and community-driven projects of large organisations. 16 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING Social responsibility, according to Blythe (2009), is the social contract between the organisation and the society within which it operates. Blythe (2009) states that the company should act within the accepted morals of society to maintain good public relations. For long-term profitability and business sustainability, an organisation needs to consider how the public will perceive its actions. With the widespread accessibility of social media, the perceived amoral or unethical actions of a company and even that of its employees may cause severe harm to an organisation’s reputation and public image within minutes of a breaking story. Customer focussed, market-driven organisations may stretch the relationship even further by building long-term relationships with customers, suppliers, shareholders and other stakeholders for the benefit of the organisation (Cant et al., 2017). 1.3.4 RELATIONSHIP MARKETING Establishing positive long-term relationships with various stakeholders is beneficial to the organisation. A well-established good relationship between the organisation and its loyal customers can lead to more profitability and even market expansion when these customers introduce other customers to the organisation (Cant et al., 2017). However, according to Cant et al. (2017), relationship marketing does not stop at the customer. Other stakeholders, such as the employees of the organisation are also important. A good relationship between the organisation and its employees can lead to higher retention of key personnel. Employees may also be more driven to achieve the goals of the organisation. Relationships with suppliers are essential, especially if a specific delivery is required quickly for an out-of-stock item to maintain customer relationships. Relationship marketing goes beyond the scope of just the marketing department. Marketing is a system, as much as it is a part of the bigger whole of an organisation. Copyright © Business Management Training College (Pty) Ltd 17 THE MARKETING FUNCTION Relationship marketing includes various other departments or functions within the organisation such as the Human Resource Management, Financial and Operations departments. (Cant et al., 2017) 1.4 THE MARKETING FUNCTION Every organisation needs to perform certain tasks. In small businesses (i.e., a bed and breakfast), a single person (usually the owner) may perform several of the organisational tasks or functions of the organisation. These groups of tasks may include, amongst others, marketing, human resources, financial management, production, operations, and purchasing. However, in larger organisations with several departments, the organisation often requires specific managers or people to run these departments. Departmentalisation may be departmentalisation, product in various formats, such as or service departmentalisation, functional geographic departmentalisation, or customer departmentalisation, subject to the organisational set-up (Hellriegel et al., 2013). Depending on the organisational structure, the marketing department can therefore be responsible for all marketing activities in the organisation - marketing of a specific product, marketing in a specific region or wherever the marketing function fits into the organisational design. According to Cant et al. (2017), the marketing function is a key function in the organisation because of its relationship and knowledge about the customer, and its direct contribution to profit. The modern organisation will most likely be marketing orientated with an emphasis on systems design. This means that the marketing function cannot operate on its own, or independently from the rest of the organisation. The marketing function is therefore dependent on other organisational functions (such as the finances, operations, and human resources), and vice versa (other organisational tasks are dependent on the marketing task). 18 Module 2: The Functions of Marketing in Business Management THE CONCEPT OF MARKETING Marketing is defined as a much broader term than just advertising. Similarly, marketing management is the “ongoing process of setting the marketing goals for an organisation (taking internal resources and marketing opportunities into account), planning and executing the marketing activities needed to meet these goals, and measuring the progress towards achieving these goals” (Cant et al., 2017, p.p 25). Cant et al. (2017) further state that marketing also forms part of the planning cycle, to enable the organisation to continuously respond to external and internal changes in the organisational environment. The planning cycle of an organisation is an ongoing, repetitive process, and is essential for any organisation to remain relevant and competitive. According to Cant et al. (2017), the management task of marketing management is a continuous, repetitive task of planning, implementing, and controlling marketing activities, and include the following responsibilities: • Identifying opportunities and threats in the marketing environment; • Identifying relevant opportunities that can be utilised according to the organisational (internal) strengths and weaknesses; • Compiling marketing data; • Choosing a specific target market; • Deciding on the products that will satisfy customer needs and wants; • Deciding on a selling price that the customer is willing to pay, while the organisation still makes a profit; • Deciding on specific distribution channels; • Deciding on the relevant communication channels that will inform the specific target customers; • Organising and leading the activities of the marketing department; • Controlling the marketing process. Copyright © Business Management Training College (Pty) Ltd 19 SUMMARY 1.5 SUMMARY In this chapter marketing was defined as a process of various activities, including analysing the marketing environment, selecting a target market, communicating the products and services to consumers and facilitating the exchange process. The marketing gap is the term used for the lack of knowledge customers have about an organisation and its products or services, such as knowledge about the products and services, where or how it can be purchased, for what price it can be purchased, how the exchange process is managed and how the products will be delivered or distributed to the customers. The marketplace is seldom a physical space, but rather refers to groupings of people. Organisational orientations were discussed in terms of production orientation, sales orientation, marketing orientation and relationship marketing. As much as marketing is a process within an organisation, marketing management is an essential function of the organisation because of its direct relationship with the customers, management of the exchange process and role in ensuring profitability. 20 Module 2: The Functions of Marketing in Business Management CHAPTER TWO The Marketing Environment IN THIS CHAPTER: 2.1 INTRODUCTION ........................................................................................... 22 2.2 COMPONENTS OF THE MARKETING ENVIRONMENT ............................. 22 2.3 THE MICRO-ENVIRONMENT ....................................................................... 25 2.4 THE MARKET-ENVIRONMENT .................................................................... 27 2.5 THE MACRO-ENVIRONMENT...................................................................... 31 2.6 ANALYSING THE ENVIRONMENT............................................................... 37 2.7 SUMMARY .................................................................................................... 40 INTRODUCTION CHAPTER 2: THE MARKETING ENVIRONMENT LEARNING OUTCOMES On completion of chapter 2 you should be able to: • Discuss components of the marketing environment. • Explain how to use market research to understand the environment. 2.1 INTRODUCTION Organisations form part of a larger system in society and of the world. The organisation is also a system within this larger system. A way to think about it is your mobile phone. On your phone has various “applications” (apps) that interact independently from one another. However, the apps require the mobile phone (a larger system), to operate. The phone, again, requires an even larger system to be fully functional. The purpose of studying and understanding the marketing environment is to first understand where the organisation fits into the system. Secondly, for the marketing manager or general manager to understand how to react to the inevitable changes within the various types of environments in a way that ensures business sustainability and profitability. According to Cant et al (2017), the business environment is essentially made up of internal and external components. Because both environments are subject to changes, they must be monitored to make the necessary changes in the planning, organising, controlling, and leading activities of the organisation. 2.2 COMPONENTS OF THE MARKETING ENVIRONMENT The business environment is made up of an internal environment and the external environment. As shown in figure 2.1 below, the internal environment is also referred to as the “Micro-environment”. The external environment consists of the market- and macro environment. 22 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT Depending on what subject you are studying, the market environment can be referred to as the “business environment” or the “industry environment”. Because this module is focused on ‘marketing management, the external environment will be referred to as the “market” environment. FIGURE 2.1: THE MARKETING ENVIRONMENT Microenvironment (Internal) Marketenvironment (External) Macro Environment (External) Source: Adapted from Hellriegel et al. (2013, p. 179) 2.2.1 INTERNAL (MICRO) ENVIRONMENT The internal environment, also referred to as the micro-environment, refers to the business itself and the components within the management of the business has complete control over these components, such as, amongst others, the appointment of employees, the vision and mission of the organisation, and the marketing objectives. 2.2.2 EXTERNAL (MARKET AND MACRO) ENVIRONMENT The external environment consists of two environments namely the market environment nested within the macro environment. Copyright © Business Management Training College (Pty) Ltd 23 COMPONENTS OF THE MARKETING ENVIRONMENT The market environment is directly outside the internal environment and consists of clients or consumers, suppliers, and competitors. This environment can be partially controlled or influenced by the organisation. The macro-environment refers to those forces the business has no or very little control over such as political, economic, socio-cultural, technological, environmental, and legal forces. The macro-environment, however, can have a direct or indirect impact on the organisation. FIGURE 2.2: COMPONENTS OF THE MARKETING ENVIRONMENT Macro-enviroment Political Economic Market environment Socio-cultural Consumers Micro-environment Technology Physical Environment Suppliers Marketing strategy Resources Marketing mix Legal Competitors International Source: Cant et al. (2017, p. 35) An organisation cannot simply create a marketing or business plan and blindly follow that plan as it will be a recipe for disaster. A successful business continuously monitors all three environments and adjust the initial plan to react to changes within the environment. This may also require the business to shift its focus and objectives to remain sustainable and competitive within the market. For instance, Nikon in South Africa had to adjust its marketing strategy because of the technological shift in the macro-environment from film-based technology to digital technology. This technological change affected how consumers in the market 24 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT environment no longer use cameras as predominantly photographic equipment, but rather as communication tools. The popularity of compact cameras at a fraction of the price drove consumers to emerge and existing competitors. With a strong strategic marketing plan, Nikon was able to increase its market share from around 6% at the top end of the market, to be the industry leader in South Africa. (Nieuwenhuizen, 2012, p. 83). Another example is the BlackBerry cell phone, which was year after year named as the ‘coolest phone brand’ among South African youth, with BlackBerry Messenger (BBM) rated as the ‘coolest’ app. However, BlackBerry did not keep up with the technological changes, such as WhatsApp, which overtook BBM and BlackBerry was, almost overnight, no longer the ‘darling’ of the South African consumer. No matter how successful your business is today, it is important to keep abreast of changes in the macro-environment. 2.3 THE MICRO-ENVIRONMENT The Micro-environment is the business itself. According to Erasmus et al. (2016), the Micro-environment is all the internal factors of the company which can be controlled by management. Cant et al. (2017), extend this definition to include the ability of the company to meet the expectations of the customer. Marketing management does not directly control all the variables in the microenvironment. According to Cant et al. (2017), the marketing manager, as head of a core function in the organisation, will be able to influence some of the decisions made about the use of resources in other departments. Other functional managers, such as human resources, finances, and operations may also influence the decision made in the marketing function. The marketing manager is however directly responsible for the marketing activities and instruments. This involves planning, organising, leading, and controlling. Table 2.1 below shows the general elements controlled by marketing managers: Copyright © Business Management Training College (Pty) Ltd 25 THE MICRO-ENVIRONMENT TABLE 2.1: MICRO-ENVIRONMENT ELEMENTS CONTROLLED BY THE MARKETING FUNCTION Component Description Marketing Strategy Mission Statement Describes the direction of the organisation and its purpose. It often describes the actions and activities of the organisation and may reflect the organisation’s core values. Marketing Objectives Specific goals that must be achieved by the organisation to enact the mission statement. Identify targets that the organisation should achieve to make a profit - if it is profitorientated. Target Market Selection The target market selected to achieve the marketing objectives and described in terms of race, age, gender income or hobbies. (market segmentation) Resources Human Resources Refers to the skills and abilities needed for the marketing function to work and usually include product knowledge, sales skills, and customer support. Resources Control of marketing budget (financial resources), and facilities. The ability of the organisation to respond to threats and make use of opportunities (also include human resources) Marketing Mix Products (or Services) Products or services offered to meet the needs of customers (identified target market), considering the resources available to the organisation. Place (Distribution) Where the product will be sold, or the service will be offered. Price The price of the product or service must be relevant and reflected in the perceived value customers are willing to place on it. The marketing manager will also have to consider the economic climate, price of competing products or substitute products. Refers to how the target audience will be informed of the product or service offering. The decision is usually Promotion (Marketing influenced by resources available to the organisation, the Communication) target audience to be reached and the type of media available. Source: Adapted from Cant et al. (2017, p. 36) 26 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT 2.4 THE MARKET-ENVIRONMENT The market environment is directly outside the micro-environment (see figure 2.2). It refers to elements that the organisation may be able to influence but have no control over. According to Cant et al. (2017), the market environment always has a demandside and a supply-side. Demand in the market environment refers to all the possible consumers, including individuals, households, government, and organisations. It is any entity that demands something from the market, be it a service or a product. Supply in the market refers to any entity that supplies something to the market, be that a service or a product. Most entities in the market environment will both supply something to the market, and demand something from the market. For example, an employee supplies his/her service or work to the market for which the employee is compensated. The employee may also demand products from the market (i.e., food, housing, technology etc.) or services (i.e., hospital, doctors, haircut etc.). It should be understood that the participants in the market environment are not limited to private organisations but may also include government and government parastatals. FIGURE 2.3: DEMAND AND SUPPLY SIDES OF THE MARKET ENVIRONMENT Demand Supply • All possible consumers • Suppliers of raw material or services • Competitors offering similar or substitue products Market Environment Source: Cant et al. (2017, p. 42) Copyright © Business Management Training College (Pty) Ltd 27 THE MARKET-ENVIRONMENT The organisation itself forms part of the market environment. As a “consumer” it requires raw materials and services (demand), and as a supplier, it supplies a service or product to the market (supply). 2.4.1 SUPPLY As illustrated in Figure 2.3 above, the market environment has a supply side. This supply-side can be split into suppliers and competitors. • Suppliers: The organisation needs reliable suppliers to deliver its product or service to the customer. According to Cant et al (2017), without reliable suppliers, the organisation will be unable to meet its obligations towards the customers. The organisation’s supply chain and network are important factors in organisational success. Factors to keep in mind are cost and quality. If the raw material purchased or service delivered to the organisation is too expensive, then the organisation may be unable to be competitive in the market. • Competitors: According to Cant et al. (2017), any organisation has competition or competitors. In the marketplace, consumers have limited resources to exchange for goods and services. Organisations compete in some form or another for a share of these limited resources. • Competition may therefore be product or service orientated where similar products or services are offered (for example burger meal at Wimpy or a burger meal at McDonald's). • Competition may also be substitute orientated in terms of products (for example a health shake vs a burger meal). • Competition may also be needs orientated (for example the needs of a specific consumer could be for transport money, burger meals, school fees, data access, and concert tickets). The marketing manager must have sufficient information about the organisation’s consumers to effectively promote a product at an acceptable price at the right place. 28 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT 2.4.2 DEMAND The second element in the market environment is demand. Demand is created by the consumers who purchase products or services for personal consumption. It is also referred to as the end-user. An organisation that purchases paper to print letters and annual reports is a consumer. The market environment is however not limited to consumers (or end-users) only. Customers may purchase products or items for other purposes than personal consumption. Cant et al (2017) distinguished between five types of customer markets: • Consumer markets are the end-users (i.e., individuals, households, organisations) buying products or services for personal consumption. • Industrial markets (business-to-business markets) buy goods and services for further processing or use in the manufacturing process. • Reseller markets buy goods and/or services (usually in bulk) to be resold at a profit. • Government markets are local or national government departments that buy goods and services to deliver public services. • International markets are buyers from other countries and may include consumers (end-users), producers (industrial markets), resellers or governments. 2.4.2.1 The law of supply and demand equilibrium Figure 2.4 depicts the demand and supply equilibrium. The higher the price of a product, the lower the quantity consumers’ demand for that product and the higher the price of a product, the higher the quantity producers’ supply for that specific product. Copyright © Business Management Training College (Pty) Ltd 29 THE MARKET-ENVIRONMENT FIGURE 2.4: DEMAND AND SUPPLY EQUILIBRIUM Source: Debreu (1956) The consumer surplus is the difference between what a consumer is willing and able to pay and the actual price for the product or service. The producer surplus is the difference between the price of the product and the lowest price a producer is willing to pay. Producers want to sell their product or service at the highest price while still being competitive in the market. Consumers want to buy the product or service at the lowest price possible. The equilibrium price is the market price where supply and demand curves meet. If producers raise their price for a product too high, the demand will be less than what is offered, which will result in a surplus of the product that will force producers to lower the price until the entire supply is sold. When the price of a product is low, there would be more quantity demanded than supplied, which will result in a shortage in the market. 2.4.3 NEEDS AND TRENDS Kotler and Kotler (2012) state that a successful business supplies solutions for consumers’ needs that are not being catered for in the current market. A market niche can be identified where a customer’s needs are almost met, but not completely by existing providers. The question ‘Why our consumers would buy our products, and not the competitors’, can help to identify a market niche. 30 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT According to Kotler and Kotler (2012), products and services can be classified as fads, trends or megatrends. When identifying opportunities or analysing the market environment, the organisation may make different types of decisions regarding budgeting, product development or future plans, depending on which category best describes a product or service. • Fads are “unpredictable, short-lived, and without social, economic or political significance” (Kotler & Keller, 2012, p. 96). It is difficult to get the timing just right with these types of products and often requires mostly luck to successfully market them. • Trends are more durable and predictable than fads. According to Kotler and Kotler (2012), trends reveal and shape the future of products or services. For instance, a focus on health and wellness has brought more government legislation, such as listing the nutritional values of food on processed storebought products. Many restaurants have also expanded or adjusted their menus to include “healthier alternatives” to their patrons. • Megatrends are “large social, economic, political, and technological change that is to form, and once in place, influence us for some time” (Kotler & Keller,2012, p. 96). Think for instance of smartphones. Smartphones allow for more widespread access to mobile computing. Over the Top (OTT) applications, applications that make use of the smartphone operating system and mobile providers’ infrastructure (such as Facebook and WhatsApp), have changed how people communicate and share information. Kotler and Kotler (2012) however warn that identifying an opportunity in the market environment is not enough. Market research must be done to ensure that the product is properly introduced to the appropriate target market at the right time. 2.5 THE MACRO-ENVIRONMENT According to Blythe (2009), the elements in the macro-environment or external environment affect all organisations. It is a dynamic environment that is constantly subject to rapid changes. Since no organisation can exist in isolation, these rapid changes can impact the industry or business environment within a very short time. A Copyright © Business Management Training College (Pty) Ltd 31 THE MACRO-ENVIRONMENT changing business environment may create new opportunities or threats for the organisation that the marketing manager must respond to. Blythe (2009) claims that some very large organisations can also form part of the macro-environment, going so far as to suggest that some firms may even influence the elements in the macro-environment. However, even the largest companies may be influenced by the macro-environment. For the most part, technology giant Apple dictates to the market how its products will look and operate. Customers adapt to Apple’s products, and not Apple to its customers. To remain efficient and streamline production, Apple standardised the production of its phones to the point where a specific model would be as similar as possible, globally. That is, until the introduction of the iPhone Xs that was launched in September 2018. The Xs model featured dual SIM (Subscriber Identify Module) technology, one physical SIM and one “e-SIM”. However, because of various restrictions in the Chinese market, Apple could not release this technology in China, Hong Kong or Macau. Instead, Apple produced a phone with two physical slots for SIM cards, specifically for this market. Apple did this because of the importance of the Chinese market, which in 2017 generated about 20 percent of Apple’s total annual sales (Apple Bends to China’s Will Again With Latest iPhone Feature, 2018). The marketing manager must constantly evaluate the macro environment to ensure that the organisation reacts appropriately to changes in the macro-environment. According to Kotler and Kotler (2012), the major forces to consider when evaluating the macro environment is the political-, economic-, social-, technological- and legal environments. Cant et al (2017), identified the international environment as another major force to consider in the modern business world. A popular mnemonic to remember this is PESTELI. PESTELI analysis forms an important part or should be done in conjunction with SWOT analysis where opportunities and threats are concerned. 32 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT NOTE: PESTELI is traditionally referred to as PESTEL or PESTLE analysis. However, with international businesses and globalisation, very few organisations can still afford to have the notion that some activities happen in isolation. Considering international trends, and the impact of international businesses on local markets is essential in the modern marketplace. 2.5.1 POLITICAL AND LEGAL ENVIRONMENT Investors want assurance that their investment will be safe and that it will grow. An entrepreneur may find it difficult to get investors for a business idea that will be set up in a country with political instability. Cant et al. (2017) state that any uncertainty about political stability can halt investments and limit tourism. This usually affects a country’s economy in the form of increased interest rates, higher inflation, and lower credit ratings. Organisations must also be aware and comply with the relevant laws where it operates, be that provincial, national, or international. According to Cant et al. (2017), legislation can impact individual businesses differently. For example, AGOA (The African Growth and Opportunity Act) is a United States (US) trade act. It promotes market access to the US for qualifying Sub-Saharan African countries. Under this act and in conjunction with the US Generalised System of Preferences (GSP) Programme, approximately 6500 product tariff lines have Dutyfree access to the U.S. market. This meant that, before 2018, several industries in South Africa (which included the steel and aluminium industries), could export their products to the US duty-free. During this time South African officials and US officials were trying to reach a solution, under the AGOA agreement, regarding concessions on the import of US poultry, and specifically chicken, to the South African market. After a long battle, a quota of 65,000 tons of meat that could be imported duty-free to South Africa was agreed upon. This agreement was in part to preserve the benefits other South African industries enjoy under the AGOA agreement. Copyright © Business Management Training College (Pty) Ltd 33 THE MACRO-ENVIRONMENT Although the agreement benefitted other industries, the effect was almost devastating on the South African poultry farmers. Many South African farmers could simply not compete with the US producers, who were able to sell the US chickens way below the cost of production. During 2018, some of the industries that originally benefited from the AGOA agreements were left in the dark after President Donald Trump reverted on some of the old tariff-free line items and imposed huge import tariffs, specifically 25% tariffs on steel and 10% on aluminium, under his “Bringing jobs back to America” campaign (About AGOA, 2018; Bavier, 2018; Mkentane, 2018; Reuters, 2018). The local industries may have very little or no impact on decisions made in other countries, although as a consortium the industry may attempt to influence local policymakers. Notwithstanding the outcome of such attempts, the local company must be able to react to the legislative and political changes in a strategic manner that leads to the best outcome for the stakeholders of the organisation. 2.5.2 ECONOMIC ENVIRONMENT Cant et al (2017) state that the economic environment of a country affects every business and consumer. The economy in turn is affected by many variables, of which the political and legal forces are the most influential. According to Cant et al (2017), the mismanagement of the economy by a country's government will have serious and often disastrous consequences on a global scale. The variables in the economy may in turn affect organisations in various ways. Organisations must be aware of these forces and react appropriately to changes or economic events. Some of the economic variables to consider include: • Inflation has a direct impact on the price of products or services, and how much consumers can spend on these products and services. For instance, if inflation is above average annual salary increases, consumers will not be able to spend relatively the same amount of money on products and services. 34 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT • Interest Rate is the premium paid to borrow money. Businesses that are established on business loans will be very sensitive to even minor changes in the interest rates. For instance, a 0,5 percent or 50 basis points increase in the prime lending rate by the reserve bank will lead to an increase of an additional R 4167 in monthly interest fees alone on an R10 million business loan. For a new business, this may be devastating. • Unemployment is a serious economic problem and rising unemployment have serious repercussions for the economy of any country. Lower demand for products and services often lead to additional layoffs or retrenchments, leading to even higher unemployment figures. • The exchange rate influences how much-imported goods cost and how much local producers can get for exports. Higher exchange rates may be favourable to exporters, but the cost of imports such as oil, directly influences the price of petrol and diesel, thereby increasing transport costs. 2.5.3 SOCIO-CULTURAL ENVIRONMENT According to Kotler and Kotler (2012), the socio-cultural environment informs our worldviews, usually in an unconscious manner. These worldviews determine the relationship people will have with other people, organisations, society and nature. Core values and beliefs are passed on from parents to children and reinforced by social institutions such as schools, businesses, governments, and religious institutions. Cant et al (2017) reckon that social and cultural changes are strongly influenced by the economy and technology. Social trends determine the marketing strategies an organisation will use to communicate a product to a specific target market. Social trends can help organisations determine consumer needs and thereby influence purchasing decisions. 2.5.4 TECHNOLOGICAL ENVIRONMENT Cant et al (2017), describe technological innovation as "the process that expands people's capacity." Technological innovation originates in the research and development departments of both private and public organisations (businesses, government, parastatals, military). For example, according to Cant et al (2017), 80 Copyright © Business Management Training College (Pty) Ltd 35 THE MACRO-ENVIRONMENT percent of medicine in use today was invented in the last 5 to 10 years because of technological innovation. Technological advances influence how businesses operate, deliver products, design marketing campaigns, and interact with their customers. Marketing communication tools have expanded to the use of social media marketing. Some experts estimate that, by 2021, a huge chunk of internet activity will be by bots, a small computer programme that performs specific tasks, such as answering customer queries on messaging programmes or searching for information and reference on the internet related to marketing decisions. 2.5.5 PHYSICAL ENVIRONMENT (THE ENVIRONMENT) Colloquially when referring to "the environment", most people will assume that reference is being made to nature in general that includes natural resources such as water, coal, oil, gold, and other minerals. The basis of the economy is to satisfy people's unlimited wants and needs with limited resources. Businesses must be aware that only a limited amount of resources are available and determine if the number of resources available for a specific product or service will be enough for the company to continue making a profit. For example, data costs and mobile communication in South Africa is extremely expensive when compared to international providers. Part of the problem is the limited radio spectrum available to mobile operators. Although the SA Government has recently made way for mobile companies to have additional spectrum available in the 700Mhz and 800Mhz bands, mobile companies and subsequently, their customers, may still have a long wait ahead of them before these bands become available. Currently, these bands are still occupied by outdated analogue TV broadcasts, simply because analogue broadcasters have failed to switch over to digital broadcasting. The extended delays in digital migration are costing South African consumers, and the economy dearly (McLeod, 2018; McLeod, 2017; Mofokeng, 2018; Nair, 2018). 36 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT The digital migration example above is not only an example of limited natural resources. It is also an example of how the different forces in the macro-environment influence one another, the market, and the organisation. 2.6 ANALYSING THE ENVIRONMENT According to Blythe (2009), the marketing department, like any other department, relies on information for effective decision making. The information must be reliable, valid and extensive. Depending on the resources available, the organisation may have a limit on how much information is available or can be sourced. According to Blythe (2009), some of the information may be available internally, usually in raw format or in a different format other than for marketing purposes. This means the marketing department must evaluate all information available and disseminate what can be used for marketing decision-making purposes. For example: • A drop in third-quarter income (a financial report), may indicate that the seasonal products are not relevant for the target market. • However, combined with national indicators, the drop-in sales may be a result of a rise in fuel prices during the same period. • But when compared to industry performance, it shows that consumers adjusted quickly to the new fuel prices and resumed their normal spending habits. Further investigation reveals that a substitute inferior product was introduced by an international competitor. Each bullet in the example indicates relevant and valid information relating to the product line. An organisation that only uses internal information to make decisions may have decided to introduce a completely new product based on the financial figures. With a little more information, the marketing department may decide to incentivise consumers who buy their products or offer free delivery. Copyright © Business Management Training College (Pty) Ltd 37 ANALYSING THE ENVIRONMENT It is with the final bullet when all relevant information is gathered, that the marketing department can respond appropriately, by probably rewarding customer loyalty. Remember, consumers will not just know that this product is superior, marketing communication is about informing customers about the product. An adjusted marketing campaign may then focus on the superiority of a product (long-lasting, most durable, guarantee and warranty policies may be extended etc.). What other alternatives can be used to retain customers? It is important to understand that marketing is never-ending. Change happens constantly, and the business must respond appropriately. The only way to do that is to constantly evaluate the various environments to ensure that the organisation is performing optimally. 2.6.1 THE SWOT ANALYSIS The SWOT analysis helps managers to identify internal Strengths and Weaknesses and external Opportunities and Threats. According to Cant et al. (2017), an underlying principle of the SWOT analysis is that an effective organisational strategy will maximise strengths and opportunities and minimize threats and weaknesses. According to this type of strategy, the organisation should therefore use its internal strengths to exploit external opportunities and eliminate external threats. Internal weaknesses must be minimised, or plans should be adjusted to avoid such weaknesses affecting the implementation and success of the plan. Important with SWOT (or any type of analysis) is the quality of information. The evaluator will need to gather extensive information about the organisation itself, the market (needs and wants), and competitors. Cant et al. (2017) describe the components of SWOT as: • Strengths – Internal resources or skills that are superior to the competition. It is the advantage an organisation has in the market. A strength is therefore more 38 Module 2: The Functions of Marketing in Business Management THE MARKETING ENVIRONMENT than what the organisation can do and is rather what the organisation can do exceptionally well. An organisational strength is a unique position that sets it apart from everyone else in that market. • Weaknesses – Internal deficiencies or severe limitations in resources, skills and capabilities that may affect the performance of a plan or business. It is not simply “everything that is not a strength”. Weakness is what makes the organisation perform below par compared to the industry. • Opportunities – Elements within the market environment may present themselves because of legislative or regulatory changes, changes in offerings by competitors, improved relationships with suppliers, the introduction of new technologies, access to new markets or any other chance that can advance the organisation’s position in the market. • Threats – Any unfavourable change that may negatively affect the effective offering of the product or service in the current market environment. FIGURE 2.5: SWOT ANALYSIS Source: Sargeant (1999) Copyright © Business Management Training College (Pty) Ltd 39 SUMMARY 2.7 SUMMARY In this chapter, it was highlighted that organisations do not operate in isolation. Several forces, both internal and external, influence the success of the organisation and its marketing activities. The marketing environment consists of an internal and an external environment. The internal environment is the organisation itself where management has complete control over all elements. It was also discussed in this chapter that organisations have limited or no control over the external environment where the market environment is nested within the macro environment. The market environment is influenced by forces of supply and demand for the products and services offered by the organisation and its competitors. Included in the market environment are the consumers (demanding the product) and suppliers of the organisation (and competitors). This chapter concludes by explaining that fluctuations and often rapid changes in the macro-environment influences both the market environment and the organisation, although the market and micro-environment mostly have an insignificant impact on the macro-environment. Some of the major forces in the macro-environment includes the Political-; Economic-; Socio-Cultural-; Technological-; Legal and Natural Environment (PESTEL). The SWOT analysis was also discussed and can be applied to analyse the internal Strengths and Weaknesses, and external Opportunities and Threats for an organisation. 40 Module 2: The Functions of Marketing in Business Management CHAPTER THREE Understanding the Target Market IN THIS CHAPTER: 3.1 INTRODUCTION ........................................................................................... 42 3.2 CONSUMER BEHAVIOUR ............................................................................ 43 3.3 MARKET SEGMENTATION .......................................................................... 51 3.4 MARKET RESEARCH AND INFORMATION ................................................ 54 3.5 SUMMARY .................................................................................................... 57 INTRODUCTION CHAPTER 3: UNDERSTANDING THE TARGET MARKET LEARNING OUTCOMES On completion of chapter 3 you should be able to: • Describe consumer behaviour and determinants of consumer behaviour. • Apply market segmentation principles. • Market research, market research methods and the power of information are explained and applied. 3.1 INTRODUCTION Part of the responsibilities of management is the efficient use of resources to ensure the profitability and success of a business. Spending money on marketing activities that do not yield optimal results, is not an efficient use of resources. For instance, it will not be viable for an auditing firm to have a stall at the annual Rage expo. (Rage is an expo dedicated to electronic gaming, geek culture, esports and technology drawing over 30,000 visitors throughout the event (Rage Expo, 2018). The more knowledge marketers have regarding their customers, the more targeted marketing efforts can be. Some of this information is readily available, a lot of the information must be researched and disseminated from raw data, and a little bit of intuition is sometimes required to fine-tune marketing efforts. Unfortunately, a lot of "lazy" marketing is done with very little or no effort to understand a target market, literally meaning millions of Rands are wasted on ineffective marketing. For example, when a single guy gets a Facebook advert pop-up for maternity clothes. With the tools and information available from print- and online publications, marketers can ensure that they target their specific market. This, however, also means that the marketer must understand and have a clear idea of who their target market is and how their consumers behave. 42 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET Cant et al. (2017) claim that connectedness and abundant availability of information makes customers more knowledgeable than ever. It is tougher for salesmen or organisations to convince customers to buy their products with confusing information or sales tactics. Getting an opinion on a product or service is as easy as posting a question on social media where existing or previous customers are more than willing to share their experiences. The phrase "the customer is king" is truer than ever. Cant et al. (2017) reiterate that a business cannot exist without customers. It is therefore not only important to know what a target market will buy, but also how customers make their decisions to buy specific products and services. 3.2 CONSUMER BEHAVIOUR According to Blythe (2009), consumer behaviour consists of all the activities people undertake when obtaining, consuming and disposing of products and services. Blythe (2009) further states that studying consumer behaviour should focus on determining what influences people to behave in a certain way. Essential to effective marketing is to understand how a consumer thinks about making a purchase. The motivation to buy, the decision-making process, how people make the transaction and the post-purchase behaviour of the consumer all play a role in determining what the marketer should focus on when promoting a product to potential customers. 3.2.1 DETERMINANTS OF CONSUMER BEHAVIOUR According to Parumasur and Roberts-Lombard (2012), there are three major determinants of customer behaviour: customer types, customer roles and activities. Copyright © Business Management Training College (Pty) Ltd 43 CONSUMER BEHAVIOUR FIGURE 3.1: CUSTOMER TYPES, ACTIVITIES AND ROLES Source: Parumsur and Roberts-Lombard (2012, p. 3) Parumasur and Roberts-Lombard (2012), distinguished between an individual or household customers and business customers. The authors reiterate that the customer is usually the focal point of any business. They also state that there is a difference between consumers’ (individuals or households) buying behaviour and business’ buying behaviour. Parumasur and Roberts-Lombard (2012), also state that there are three roles customers can fulfil in relation to any transaction: • The customers participating in selecting or choosing products are the ones responsible for the choice of product or service procured. • The customers participating in paying for the products are physically responsible for the finances in purchasing the product or service. • The customers participating in using the product enjoys the benefits of the service or the actual user or consumer of the product. Customers may play one, two or all three roles in the purchasing process. However, marketers need to consider all three roles when focussing their marketing efforts. For example, consider the three roles in a medium office or business unit regarding the purchase of a new laptop for an administrator. The administrator needs to be able to use the laptop effectively to do the work required, the procurement officer must be convinced that the laptop is the best option available, and the financial manager must be willing to pay for the purchase. The price must be right for the payer role, the quality of the product and distribution (place) must be right for the chooser role and the usability of the product must be right for the user of the laptop. 44 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET The activities involved in the buying process include: • Physical activities such as visiting a store or website, talking to a salesperson or gathering information for comparison and buying the product or service. • Mental activities occur when customers consider if the product or service will satisfy their needs. Customers will consider personal perception about the brand, their knowledge about the industry or other brands (even if such knowledge is incorrect), experience regarding the brand and any other views or information about the brand. According to Cant et al. (2017), the buying decision is not determined by a single factor but is influenced by several factors. Figure 3.2 below provides an overview of consumer behaviour during the buying process. The figure illustrates that several factors influence the buying decision and not only individual or internal determinants. The environment, group behaviour and marketing efforts influence the final decision an individual will make about a product or service. Copyright © Business Management Training College (Pty) Ltd 45 CONSUMER BEHAVIOUR FIGURE 3.2: CONSUMER BEHAVIOUR MODEL Source: Cant et al. (2017, p. 57) 3.2.2 INDIVIDUAL FACTORS THAT INFLUENCE CONSUMER BEHAVIOUR According to Cant et al. (2017), individual factors (or internal determinants) refer specifically to factors that determine human behaviour. The authors state that it is not (currently) possible to completely understand how the human mind works, or exactly how the mind transforms inputs or stimuli into outputs or a purchase decision. It is however possible to determine how certain stimuli will influence the purchasing decision. Cant et al (2017) state that modern marketing is based on needs and more specifically consumer needs. "Needs are the essence of the marketing concept. The key to a company's survival, profitability and growth in a highly competitive marketing environment is its ability to identify and satisfy unfulfilled consumer needs better than the competition." (Cant et al. 2017, p 58) 46 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET Internal determinants include motivation, perception, learning ability, attitude, personality, and lifestyle. 3.2.2.1 Motivation as an influence on consumer behaviour If a marketer knows what motivates a consumer to buy the product or service, the marketing of that product will become much easier. According to Cant et al. (2017), understanding motivation is to understand why consumers do what they do. It is one thing to have a need, but it is another to do something about it. Cant et al. (2017) provide the following definitions: • Need - "A need is a gap that exists between the actual state the consumer is in and the state he or she would like to be in" (Cant et al., 2017, p 59). • Motives – "Motives are the psychological drives or urges that compel individuals towards actions that satisfy their needs" (Cant et al., 2017, p 59). Abraham Maslow identified specific human motives and classified these motives in a hierarchy of needs. According to Maslow's theory, an individual is motivated to fulfil whichever need is most strongly felt at any given moment. This means an individual can at any specific moment in his or her life, have needs at different levels of the hierarchy. For instance, an individual may have Physiological Needs related to medicine to feel better, while at the same time have Self-Actualisation Needs to travel and explore the world to experience different world cultures. According to Parumasur and Roberts-Lombard (2012) Maslow's hierarchy of needs is based on three basic ideas: 1. People adopt a set of motives through genetic endowment and social interaction. 2. Some motives are more basic than others. 3. The most basic motives need to be satisfied to a minimum level before other, more advanced motives come into play. Copyright © Business Management Training College (Pty) Ltd 47 CONSUMER BEHAVIOUR The basic idea that basic needs must be satisfied before more advanced motives come into play may seem like a contradiction when compared to the statement that a person may have a basic physiological need while also having an advanced selfactualisation need. These are however two distinct categories of needs, as portrayed in table 3.1 below: TABLE 3.1: MASLOW'S HIERARCHY OF NEEDS AND MARKETING MOTIVATION LEVEL OF HIERARCHY Physiological TYPE OF NEED Basic needs Safety or EXAMPLE OF AN PRODUCTS APPEAL Medicines, basic food "Relieves wet & dry items (staples) coughs" – Vicks Acta Plus Basic security needs Social needs RELEVANT Basic (belonging) Insurance, alarm "Insurance, good systems, retirement and proper." annuities - Santam Fashionable clothing, "It starts with you" grooming products, - Nivea Men beverages Advanced Esteem or ego Cars, furniture, credit "Live for cards Greatness" - Rolex needs Cosmograph Daytona Selfactualisation Advanced Hobbies, travel, "Prosperity through education Knowledge" needs - BMT College Source: adapted from Parumasur and Roberts-Lombard (2012, p. 171) Table 3.1 shows the basic and advanced needs as identified by Maslow, relevant products, and examples of appeal for those types of products. 48 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET It is important for a marketer to understand what type of product or service is offered, to ensure that the marketing message or communication appeals to the right audience. For example, Rolex will probably not appeal as an ego or esteem need if their marketing message were something like: "Accurate time, every time, for anyone" unless Rolex drastically adjusts its pricing strategy. 3.2.2.2 Other Individual Factors that influence consumer behaviour Cant et al. (2017) identified several other internal determinants, namely: • Perception is influenced by what a consumer knows about a product, service or brand or what the consumer has learned about the product, service or brand. It is very difficult to change a perception once it is formed. Perception is formed in four distinct steps namely: (i) exposure, (ii) attention, (iii) interpretation, and (iv) recall. • Learning ability is important to marketers as everything a person learns about an object or situation influences that person's behaviour. Different people learn differently and learn different things about objects and situations. All learning consists of stimulus, response, reinforcement, and repetition. • Attitude is the positive or negative opinion a person has about an object or situation. Marketers try to influence a person's opinion or attitude positively about the organisation. It is important to note that attitudes are mostly influenced by beliefs and that such believes do not need to be correct or true, but the believes only need to exist. • Personality is the inner psychological characteristics that determine and reflects how a person will respond to the environment. The characteristics are made up of qualities, attributes, traits, and mannerisms that distinguish one person from another. • Lifestyle refers to how a person spends their time, what the person finds interesting and important, and what a person values. A set of values plays an important part in how individuals will spend their money. Desired lifestyles influence needs and desires, and therefore spending habits. Copyright © Business Management Training College (Pty) Ltd 49 CONSUMER BEHAVIOUR 3.2.3 GROUP FACTORS Have you ever you the expression ‘No man is an island’?. Learning does not happen in isolation. Most people tend to be part of society in some form or another and are involved with a group, be that family, cultural groups, social groups, reference groups or opinion leaders. According to Cant et al. (2017), these groups have a major influence on how a consumer behaves. • Family is the most important group when it comes to shaping a consumer's behaviour. Family (and people) that live in close contact for many years gradually develop similar and fixed patterns of spending and consumption. Most children acquire their spending habits or consumer behaviour from their parents or close relatives. • Cultural groups share common values, rules, norms, symbols, and experiences that are passed down from generation to generation. Culture also determines a person's priorities in respect of products and activities. • Social classes are the different groups of people with the same social standing (i.e., high earning celebrities, income groups, political leaders, education level) and who shows similar patterns of behaviour. Social classes are generally defined as lower-, middle- and upper class. Consumers' relevant social classes are usually a good indicator of what products or services they would be interested in. Marketers often know what consumers generally aspire for to experience a sense of belonging to a "higher" social class. Therefore, some marketing campaigns may claim that buying a certain product may elevate a consumer to a higher social level. • Reference groups are what a consumer uses as a standard when making a purchasing decision. Types of reference groups include membership groups, automatic groups (i.e., male, female, age, occupation), negative groups (i.e., groups the consumer avoids), associative groups (i.e., groups that the consumer want to belong to). • Opinion Leaders are very similar to reference groups but refer to an individual or reference person. These are specific people who are respected or whose opinion are valued by other people. 50 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET 3.3 MARKET SEGMENTATION Marketers can and do utilise a broader total-market or market aggregation approach when it comes to more widely used, everyday consumables (e.g. milk or bread). However, even within a broader approach, there are divergent needs and wants to influence consumer behaviour. This necessitates a more tailored product and thus a more consumer-specific marketing approach. For instance, health-conscious individuals may search for a healthier alternative to conventional bread products. As stated by Cant et al. (2017), market segmentation is the process by which marketing professionals may divide their consumer group into specified subsets, according to the group’s specific needs or wants. As discussed in the previous chapter, an essential part of effective marketing is to understand how a consumer thinks about making a purchase. Therefore, creating these segmented groupings can facilitate a more streamlined, consumer-specific marketing process in accordance with the consumers’ behaviour. Once a market has been segmented, the marketer will be better equipped to create a tailored plan addressing that segment’s specific needs- this is known as target marketing. For example, MAC Cosmetics may tailor its advertising towards young women who have recently entered the workforce. This target market would now be able to afford these products and might identify with the prestige of the brand. By using product positioning techniques, marketers can create the image of a product in the minds of their target consumer. In line with the MAC Cosmetics example, marketers may choose to market the product to young women as an accessible luxurythrough placements on social media or celebrity collaborations. This will provide the perception of glamour that might appeal to their target demographic. Copyright © Business Management Training College (Pty) Ltd 51 MARKET SEGMENTATION 3.3.1 BASES FOR SEGMENTATION As segmentation forms the basis of the marketing approach and strategy to follow, time and careful attention should be utilised when choosing the organisation’s basis for segmentation. The major market segmentation bases are outlined below: • Geographic Segmentation: Geographic segmentation is the oldest form of segmentation. This involves dividing a market into geographical areas on the assumption that people who reside in a specific area have similar needs. For example, population groups in a colder area will have a greater need for home heating devices than those who live in a more tropical geographic location. • Demographic Segmentation: Demographic segmentation involves division by characteristics such as age, gender and ethnicity. This is used as the most common form of segmentation and can be utilised with ease in concurrence with other variables. By this method; twenty-something, female mothers may be the target market for many consumable products as they are conventionally the individual in the home who does the grocery shopping. • Psychographic Segmentation: This form of segmentation involves classifying attributes such as social class and personality to better understand the consumer behaviours of that specific grouping. For example, a gentleman of the upper-middle class will be classified as the target market for a sports car, as the individuals entering this specific social class have endeavoured to purchase a sports vehicle as a status symbol. • Behavioural Segmentation: Behavioural segmentation is the division of markets according to their buying behaviour. This form of segmentation has a wide scope and many subsets, including benefits sought segmentation (i.e., the requirements of a customer and the value that the consumer is willing to pay), user status segmentation (divide all customers into segments based on the characteristics they share i.e. region, language, age etc.), brand loyalty segmentation (i.e., a pattern of customer behaviour through which customers are committed towards a specific brand or product and will make repeat 52 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET purchases) and buyer readiness segmentation (i.e., the state of willingness or preparedness to purchase a product). Another example includes, the rate of usage of shampoo will vary from household to household. By segmentation, marketers will be able to target high-volume users towards making their brand the brand of choice. Cant et al. (2017) identified three factors that should be considered when choosing the bases of segmentation: 1. The buying behaviours of individuals or groups can be incredibly complex, and it is thus difficult to trace the outcomes back to one single segmentation factor. 2. In acknowledging the first point, marketers should recognise that there are important interactions between factors that can be useful in narrowing down the relevant target market. 3. Finally, although there are norms that guide the segmentation bases within an industry, the objectives, strengths, and weaknesses of the specific organisation will and should play a large part in their segmentation decision making. 3.3.2 LEVELS OF MARKET SEGMENTATION Depending on the size of an organisation, its objectives, strengths, weaknesses, the nature of its product and the size of the intended market, the organisation will utilise a chosen level of market segmentation. These levels act as a strategic guideline for decision making. As the market size decreases, the level of marketing segmentation will vary. These levels are micromarketing (a marketing strategy in which advertising or marketing efforts focus on a small group of targeted consumers), niche marketing (an advertising strategy that focuses on a unique target market), segment marketing (dividing a market of potential customers into groups or segments based on different characteristics) and mass marketing (advertising or promoting a product to a wide variety of audiences). Copyright © Business Management Training College (Pty) Ltd 53 MARKET RESEARCH AND INFORMATION For products that have a much larger target market, a single message communicating the efficiency of the product can be utilised. For example, a company that sells bread might make marketing the freshness and thus superiority of their bread a priority as this is a marketing message that appeals to a wide segment of their market. Whereas niche marketing will require more attentive segmentation and a more tailored message. 3.4 MARKET RESEARCH AND INFORMATION Marketing research is described by Erasmus et al., (2016, p. 417) as a ‘function that links the people from the public including the customers of an organisation to the marketer through information. Expanding on this market research is defined by (Cant et al. (2017, p. 126) as the ‘process of gathering, analysing and interpreting information about a product or market and in researching the characteristics, spending habits and needs of a target market or industry as a whole. Although these terms differ in their definition, the overall objective of both terms is aligned. The major objective is to better understand the market and its many complexities to ensure that they are able to identify and influence the targeted consumers and tailor their consumer behaviours. The information retrieved from the market research can be used for a variety of purposes including, but not limited to marketing strategy formulation, defining target markets, refining existing strategies, identifying emerging market needs and providing checks and balances for strategies in effect. The basic processes of marketing research as displayed in figure 3.3 below can be adapted and can vary from project to project. However, the basic steps can be found in some form in all research endeavours. 54 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET FIGURE 3.3: CONSUMER BEHAVIOUR MODEL Step1 Step 2 Step 3 Step 4 Step 5 Step 6 • Describing the research problem and objectives • Selecting the research design • Preparing the research design • Fieldwork • Processing, tabulation and analysis • Reporting the research result Source: Cant et al. (2017, p. 127) 3.4.1 TYPES OF RESEARCH Depending on the objective or the nature of the information required, a choice must be made on the type of research conducted. The various types of research design are outlined below (Cant et al., 2017): • Qualitative Research: This form of research tends to be more exploratory in nature, eliciting free-flowing information through open-ended interview questions about a specific topic. For instance, a researcher may gather information about a proposed change to the packaging of a product by forming a focus group and allowing for a mediated discussion to take place, whilst the researcher notes the relevant reactions and opinions. • Quantitative Research: Quantitative research tends to be more statistical in nature. Using information-gathering tools such as surveys and questionnaires, statistical analysis tools are used to process this information, providing outcomes that are descriptive in nature. This information can be used as the basis for decision making or can be used to verify an identified target market. Copyright © Business Management Training College (Pty) Ltd 55 MARKET RESEARCH AND INFORMATION • Predictive Research: This form of research is useful as a forecasting tool. Using existing and garnered research, the researchers can outline the potential of a target market or the success of a product. For instance, looking to celebrities as trendsetters may enable researchers to pre-emptively meet the demand created by a celebrity by ensuring that a supply is readily available. • Causal Research: Causal research focuses on assessing the effect of one variable on another For example, research may find that consumers purchased fewer frozen dessert items during specific months of the year, the variable affecting this change is the weather. • Ex Post Facto Research: This research focuses on studying an occurrence after the fact. For instance, reviewing the sudden craze for a specific children’s toy will provide insight into the strength and/or weaknesses of the research strategy and provide a guideline for future strategy. These research methods and their outcomes can be used on their own or concurrently. However, the most important factor is not the research or the corresponding information, but how the information is utilised through decision making. 3.4.2 THE POWER OF INFORMATION Information needs might differ according to the nature of an organisation and/or their product/s as well as their overall mission and objectives. Research endeavours are likely launched to retrieve a specific form or nature of information for a specific purpose. These market research objectives usually fall into two broad categoriesproblem-identification research helps marketers identify what types of problems they might endeavour, and problem-solving research helps identify ways to solve those problems through segmentation and segmentation mix. Without being equipped with the necessary information, marketing departments and marketers are simply using their past experiences and/or intuition to gauge an understanding and make decisions. Therefore, information is the key that allows the marketing department to come up with a holistic strategy, ensuring that all variables are accounted for. Although information can predict some of the relevant outcomes, the usage of gathered information towards a strategy tends to be more useful. 56 Module 2: The Functions of Marketing in Business Management UNDERSTANDING THE TARGET MARKET There are three sources of information marketers utilise to ensure they consider all the variables (Cant et al., 2017): 1. Marketing Research: The problem solving or problem identification research mandated by the marketing management. 2. Internal Data Sources: This includes, but are not limited to productivity reports, sales records and tax filings. 3. External Data Sources: Taking the organisation’s external environment into account, such as published research papers, identified shifts in global trends and market rivals and finally, statistical records. 3.5 SUMMARY We have learned in this chapter that marketing management is a fundamental organisational function. Ensuring that the product of an organisation (whether a physical product or a professional service) is efficiently showcased to the correct target market at the correct time will decide the success or failure of the organisation’s profit creation efforts. Therefore, information gained from market research is an essential means by which marketing managers can make informed decisions about the direction of their marketing strategy and predict their outcomes (Cant et al., 2017). In this chapter it was highlighted that understanding consumer behaviour, identifying the determinants and motivations behind consumer decision making can be done using tools such as market research and information processing, to more effectively segment the market and tailor the marketing message. Essentially this comes down to one point; the more marketers know about their target groups, the better their potential for marketing success. Copyright © Business Management Training College (Pty) Ltd 57 CHAPTER FOUR The Marketing Instruments IN THIS CHAPTER: 4.1 INTRODUCTION ........................................................................................... 60 4.2 PRODUCT DECISIONS ................................................................................ 61 4.3 DISTRIBUTION DECISIONS ......................................................................... 64 4.4 COMMUNICATION DECISIONS ................................................................... 65 4.5 PRICING DECISIONS ................................................................................... 65 4.6 SUMMARY .................................................................................................... 66 INTRODUCTION CHAPTER 4: THE MARKETING INSTRUMENTS LEARNING OUTCOMES On completion of chapter 4 you should be able to: • The marketing mix instruments (product, price, promotion and distribution decisions) are described and compared for two organisations by conducting an e-site visit. • Apply basic marketing principles and practices to create a marketing mix. • The five layers of a product are determined with examples. • The major factors that need to be considered when choosing a distribution method are described. • Marketing communication decisions and communication tools are explained and applied. • The factors influencing pricing are discussed. 4.1 INTRODUCTION Identifying and efficiently segmenting a market is only the beginning of the overall marketing journey. As discussed in the previous chapter, the information gathered from the above endeavours is only useful if it is correctly utilised. This entails ensuring that the product of an organisation (whether a physical product or a professional service) is correctly showcased to the correct target market at the correct time. This is where the marketing-mix comes into play. The marketing mix, also known as the 4 P’s, entails decision making on the stipulated aspects: product, price, place and promotions. In most cases, these decisions are ongoing and require modification in reaction to changes in the environment and other influencing factors (Erasmus et al., 2016). However, the mark of an effective marketing mix is that these macro-environmental factors are usually accounted for when making these decisions to ensure that contingencies are in place as a safeguard (Cant et al., 2017). 60 Module 2: The Functions of Marketing in Business Management THE MARKETING INSTRUMENTS A marketing mix is only as good as its weakest component. Therefore, each variable of the mix requires attentiveness and efficient application to the relevant market. Ensuring that you have a strong product or marketing approach is not enough to ensure the success of a product. For example, if a makeup product intended for the luxury market was packaged in cheap plastic, this market might not acknowledge the product for its opulent nature. This in turn limits the product’s potential for success. A shortcoming or ill-conceived idea regarding one component can limit the effectiveness of the other component (Lamb, Hair, McDaniel, Boshoff, & Terblanche, 2008) As an aspect that is under the direct control of marketing management, it is of utmost importance that these decision-makers are well informed about the outcomes or results of the research. This information will provide a most vital source for decision making (Cant et al., 2017). Likewise, decisions should be made with the desired target market in mind, ensuring that the plan is specifically tailored to an organisation’s desired outcomes. 4.2 PRODUCT DECISIONS In defining a product, Cant et al., (2017, p. 162) stated “a product is more than what is seen by the eye. A product includes everything that a customer receives in an exchange”. The product component (variable) can be broken down into five layers or subsets that all work together in collaboration to provide a cohesive experience for the consumer regarding the product (see Figure 4.2.) • Core Product The core product is considered the ‘dominant benefit’ that a consumer expects when purchasing either a physical product or a professional service. At this level, marketers are not selling a product, but the benefits of this product. For instance, you are not simply purchasing an item of makeup, you are purchasing the way the product makes you feel when applied. Marketers need Copyright © Business Management Training College (Pty) Ltd 61 PRODUCT DECISIONS to acknowledge that the objective of product design is primarily to ensure that the target market understands the benefits and not simply the specifications of a product. • Tangible or generic Product Tangible products can be defined as the actual physical product or specification of service. It is those characteristics that are absolutely necessary for a product to function. This is considered the stage at which the core product is made ‘real’ for the consumer. As this is the point at which branding, quality and design become a factor, it is important to distinguish these factors as a cut above the rest. For instance, to process digital images could be satisfied by a low-end, generic, personal computer, using free image processing software. • Expected product The expected product is the characteristics that consumers normally agree with and expect when they purchase a product. For instance, a specific type of computer is specified to deliver fast image processing and has a high-resolution colour screen. • Augmented Product An augmented product is the non-physical part of a product and usually consists of lots of added value for which a customer may or may not pay a premium. For example, when buying a car, part of the augmented product would be the service support and warranty offered by the manufacturer. • Potential Product Finally, the potential product is the quantification of the adjustments and/or developments that can be made to ensure that a product remains the leader in its market. In other words, the potential product includes all the augmentations 62 Module 2: The Functions of Marketing in Business Management THE MARKETING INSTRUMENTS and transformations a product might undergo in the future. For example, Apple has ensured that they remain the leader in their market by constantly highlighting the fact that they are constantly striving for innovation in their marketing campaigns. The five different levels of a product are depicted in Figure 4.1below: FIGURE 4.1: PRODUCT LEVELS Source: Kotler, Kartajaya and Setiawan (2010) Classification of a product is also an important factor, as characteristics of a product can vary between classes. For instance, a consumable item such as milk is required weekly by consumers as it has the potential to spoil. Whereas canned food products have the potential to last much longer in the homes of consumers. Identifying the classification of a product allows marketers to identify some market norms for their product and can influence decisions of aspects such as price and packaging (Cant et al., 2017). Copyright © Business Management Training College (Pty) Ltd 63 DISTRIBUTION DECISIONS 4.3 DISTRIBUTION DECISIONS Distribution channels are described by Cant et al., (2017, p. 294) as consisting of ‘producers, consumers, and any other intermediaries that are aligned to provide a means of transferring title or possession of a product or service from a producer to a consumer. The major factors that need to be considered when choosing a distribution method include: • Availability • Location • After-sale services • Convenience • Price For instance, marketers may ensure that their prices are kept low by removing a distribution channel. A milk production company may purchase their own trucks and remove the distributors from their distribution channel. This can in turn lead to a reduction in price. The figure below is an example of basic food distribution channels, which will provide you with a brief insight into the major players in this process (Figure 4.2). As stated above, channels can be removed and/or added to ensure that the product is made available at the right time and in the right location. FIGURE 4.2 BASIC FOOD DISTRIBUTION CHANNELS AND INTERMEDIARIES Importers Producers Manufacturers Suppliers Food Processors Food Wholesalers Distributors Retailers Restaurants Hotels Takeaway Outlets Retail Food Chains Source: Cant et al. (2017, p, 296) 64 Module 2: The Functions of Marketing in Business Management THE MARKETING INSTRUMENTS 4.4 COMMUNICATION DECISIONS The main purpose of communications decision making, according to Lamb et al., (2008), is to convince target markets that the goods and/or services offered provide a differential advantage over competitors. For instance, Apple promises that their technology is the most cutting edge. They promote the fact that they are constantly innovating which in turn implies that their consumers are at the cusp of technological wonder. Therefore, communication decisions are based largely on the segment of the market that the research team has identified. The promotional methodology is utilised best if a combination of tools and processes are used. Choosing the correct tool to ensure that their message reaches the desired target market is the most important aspect of the promotional methodology. Examples of the promotional options include advertising, personal selling, shopper marketing, direct response marketing, public relations, sponsorship or event marketing and a very popular emerging tool, digital media marketing. 4.5 PRICING DECISIONS Simplistically, ‘price is the value expressed in Rands and cents’ (Cant et al., 2017, p. 249). However, this variable is much more complex than this definition - an organisation’s profits are as a result of pricing (Lamb et al., 2008). Pricing has to cover the variable costs of the product, whilst still earning a profit (Cant et al., 2017). However, as much as profitability is the main aim of any pricing endeavour, marketers also need to consider the market norms and the perceived value of the product in the eyes of the consumer (Cant et al., 2017). Therefore, pricing decisions need to be considered from the product conception and/or product production stage/s. In this way, every stage of the process is mediated to ensure that the product pricing remains competitive. Copyright © Business Management Training College (Pty) Ltd 65 SUMMARY As pricing is a variable that can be more easily adjusted than other marketing mix variables, price tends to be the most fluid factor and a competitive weapon, even once the product has been on the market for a while and has proceeded toward the end of its life cycle (Lamb et al., 2008). For instance, when introducing a new product to the market, the price can be reduced for a period to garner interest and brand intrigue. Many influencing factors contribute to the way that decisions are made by marketing management, including the availability of substitute products, the pricing and availability of complementary products, the size of the market and the income of the desired target market, and price elasticity (Cant et al., 2017). There are also external factors that influence the pricing of a product, depending on the degree to which they hold power in that product market. These include; consumer behaviour, competition, supplier behaviour, government regulations and economic condition (Cant et al., 2017). These factors cannot be controlled but can be accounted for during decision making. For instance, an upcoming increase in import taxes by the government can be factored into the price. Pre-empting this regulatory increase will allow for fewer forced price increases and sudden decision making at a later stage. 4.6 SUMMARY In this chapter, it was highlighted that the overall objective of marketing strategy and thus the marketing mix is to ‘produce mutually satisfying exchanges with target markets’ (Lamb et al., 2008, p.398). Depending on the comprehension and considerations of a given marketing mix, it can equip the organisation with a competitive advantage within their given market. Making the marketing mix an instrumental key in ensuring the success of a product, whether a physical product or professional service. 66 Module 2: The Functions of Marketing in Business Management THE MARKETING INSTRUMENTS We have also learned in this chapter that the concepts or variables of a marketing mix cannot be considered in isolation. Factoring in the interaction of the variables and the external influencing factors will be a deciding factor in the successful utilisation of marketing instruments. Likewise, the process of implementing the marketing strategy will bring its own issues as there are many factors that we can only predict to a certain point, whereafter the marketing plan has to be evaluated, adjusted and reimplemented (Lamb et al., 2008). Copyright © Business Management Training College (Pty) Ltd 67 CHAPTER FIVE Customer Service IN THIS CHAPTER: 5.1 INTRODUCTION ........................................................................................... 69 5.2 DEFINING CUSTOMER SERVICE ............................................................... 69 5.3 PERCEIVED VALUE ..................................................................................... 70 5.4 IS THE CUSTOMER ALWAYS RIGHT? ........................................................ 73 5.5 CUSTOMER RETENTION ............................................................................ 74 5.6 SUMMARY .................................................................................................... 76 CUSTOMER SERVICE CHAPTER 5: CUSTOMER SERVICE LEARNING OUTCOMES On completion of chapter 5 you should be able to: • Explain customer service and the importance thereof. • Explain perceived value and the different types of perceived value. • Describe what is customer retention and ways that customers may be retained. • Explain and reflect on the importance of customer service as the centre of the marketing strategy. 5.1 INTRODUCTION Harley Davidson was named one of the most customer-centric organisations of the 2017/2018 business year, by Forbes Magazine (Morgan, 2018). Harley Davidson has created a brand identity that revolves around community. They have implemented this by creating platforms for their customers to connect and share in the excitement of the Harley experience. Harley Davidson identified what their customers were looking for - a brand with a powerful emotional appeal and a relationship-building experience (Hasanaj, 2017). By identifying the needs of their market, they can cater to and cultivate the feeling of belonging to a quality brand. In doing so, Harley Davidson has captured the essence of customer service; they have cultivated loyalty in their customers by attending to their emotional needs. 5.2 DEFINING CUSTOMER SERVICE The long-term survival of an organisation is in part dependent on its customer service initiatives (Cant et al., 2017). It is therefore in the best interest of the organisation and marketing team to ensure that customer service is their top priority. Copyright © Business Management Training College (Pty) Ltd 69 PERCEIVED VALUE Customer service can be described as any form of activity that enhances the customer’s experience and thus fosters loyalty (Erasmus et al., 2016). However, customer service cannot be limited to this definition. It is all about finding a solution that is specific to the targeted market. For instance, you would expect attentive and knowledgeable service when purchasing an expensive item, such as a car. However, you would not expect the same level of attentive service when visiting a supermarket to purchase a carton of milk. Front line employees (those that deal directly with customers) are instrumental in creating the perception of customers care that certain target markets require. It is not simply a product or service that they are selling, but the impression of an overall culture of care on the part of the organisation (Erasmus et al., 2016). Customer service can take many forms, including but not limited to incentive schemes as a show of appreciation and improvements in quality for existing products, thus showing a willingness on the part of a company to meet both the needs and wants of their targeted market (Erasmus et al., 2016). For instance, rewarding loyal customers with in-store vouchers, VIP events or first access to new products. The main objectives of customer service are thus to make the customers of an organisation feel appreciated, their opinions heard and create the perception of a willingness to act when a customer is dissatisfied with their experience (Erasmus et al., 2016). It is an approach that is translated into actions by employees on behalf of an organisation. 5.3 PERCEIVED VALUE The perceived value of products, services and/or organisations can provide an organisation with a competitive advantage (Nanang et al., 2018). By initiating the perception of value to a targeted market, organisations are set on a path toward both customer satisfaction and brand loyalty. 70 Module 2: The Functions of Marketing in Business Management CUSTOMER SERVICE Identifying and matching the pre-determined expectation of consumers to the capabilities of an organisation is an efficient means by which the perceived value of a product and/or service can be managed (Erasmus et al., 2016). 5.3.1 TYPES OF PERCEIVED VALUE There are many forms of perceived value. Some of these paradigms are briefly outlined below: • Perceived Value for Money In a discussion about quality and benefit, the concept of value for money is sure to enter the debate. Consumers are only willing to pay what they perceive a product or service is worth. Therefore, creating the impression that the “benefits of a product gained by the consumer are greater than the long-term costs he/she might be paid for a product” is the key to ensuring that consumers believe that are receiving value for their money (Nanang et al., 2018, p. 2). For instance, food items that are sold at a lower cost if purchased in bulk provides the consumer with the impression that they are receiving value for their money. • Perceived Utility Value Utility value quantifies the benefits a consumer receives from using a product. This form of value can be tricky as the market may be flooded with similar products. Therefore, certain benefits or features that would set the product of a given organisation apart would be its utility properties. The various types of utility value include (Kenton, 2018): o possession utility. This utility refers to the value customers have when buying a product. Some companies allow customers to buy products on credit or in instalments so that the customer can take possession of the item before it is paid in full. Copyright © Business Management Training College (Pty) Ltd 71 PERCEIVED VALUE o place utility: The place utility is the premise that customers need convenient access to products. For example, retailers try to set up shops in standalone or mall-based locations that make them accessible to target customers. o information utility: This utility refers to the communication companies engage in with customers to trigger the buying activity and to manage purchasing processes. Promotional messages through advertising are used by companies to share product, service or company information. The goal is to attract interested buyers. Sales associates at car dealerships who share useful information with customers is an example of information utility. o form utility: Form utility is a simple utility and involves the development of a product that meets the size, shape, format, and scope that customers need. For example, sleek nature and small size are primary traits required in the form of a compact car. o time utility: This utility refers to the efficiency with which a customer gets to experience a solution or product after desiring it. An example of time utility is the availability of a plumber after regular working hours. • Perceived Brand Value A company’s brand “plays a vital role in developing attitudes and customer behaviour” (Nanang et al., 2018, p. 3). The perception of quality and/or luxury can be established through a brand by positioning itself in a certain light. The brand creates an ideal that its target market connects with and can only be attained when associated with the said brand. For instance, a luxury shoe brand may be introduced to an emerging market as the key to tapping into a luxury lifestyle. The marketing team would create an element of esteem that surrounds the brand, by placing their brand within an idealistic vision, in this case, likely on the feet of celebrities and the incredibly wealthy. 72 Module 2: The Functions of Marketing in Business Management CUSTOMER SERVICE In this way, the power of brand identity has ensured that consumers are willing to pay large sums of money to partake in even a small part of the esteem the brand carries. 5.4 IS THE CUSTOMER ALWAYS RIGHT? There is no simple answer to this question. There tends to be a bit of a grey area when it comes to balancing the needs of an organisation’s consumers with the needs of the organisation’s employees and the organisation overall. For instance, front line employees who are forced to deal all the time with demanding customers (due to issues that are not in their control), might begin to feel frustrated and demoralised by the situation. In this way, the bottom line of the organisation is attended to, but other issues might arise such as high staff turnover and explosive confrontations between customers and employees, due to pure frustration. The nature of the business should also be considered. For instance, front line staff in a day spa will be expected to attend to the customers’ overall experience, whereas the baker at a corner cafe is not expected to ensure the clients’ overall experience at the café. This is because the objectives of the consumer in visiting the varied establishments are quite different. In his article, ‘Right or wrong, the customer always matters’, Mr Skapinker (2010), cited the phenomenon experienced by Mr Bethune and Mr O’Leary in their efforts to rescue Continental Airlines from the dire financial situation they experienced in the 1990s. He told staff that for every month the airline was in the top five for on-time arrivals in the United States, each employee would receive a $65 cash bonus. By incentivising customer service for each employee, towards a greater organisational level goal, Mr Bethune created a self-serving ethos of excellent customer service directed behaviour. Likewise, if the airline failed to meet this overall goal and customers remained frustrated, despite every effort by the airline, he would protect and support his employee. He held the belief that employees, who experienced being Copyright © Business Management Training College (Pty) Ltd 73 CUSTOMER RETENTION protected and supported by their managers would be willing to do more for a customer, in line with the incentivised objective, and in doing so trusted their decision making when it came to customer service matters. Although many organisations have experienced success in a ‘the customer is always right or a ‘the customer is the reason we are here’ approach, this is not necessarily the only means by which to elicit good customer service from their employees. Skapinker (2010) concluded with the statement “Customers may not always be right, but they certainly matter. Unless you can give them what your competitors cannot, you have no business”. This profound statement epitomises this debate, it comes down to the organisation finding a customer service approach that works for their specific target market, and enhancing it for positive, long term effects. 5.5 CUSTOMER RETENTION Considering customer services as covered in this chapter, and its immense impact on customer loyalty, the philosophy of customer retention follows. As stated by Cant et al., (2017, p, p. 481), customer retention is the maintenance of a ‘trading relationship with profitable customers for a specific period. The motivation behind this approach is that it tends to be more economical to engage in customer retention than customer acquisition. Likewise, an engaged customer is more likely to recommend the product and/or brand to other consumers (Cant et al., 2017). Therefore, customer retention is a tool that has the potential to ensure that organisations can maintain and/or grow their business whilst utilising minimal resources. Some of the incremental ways in which customers may be retained include; ensuring that your customers are delighted by the offerings being communicated to them, cultivating a perception that they are receiving value and are valued, alongside feeling socially bonded with the brand, organisation and/or product (Cant et al., 2017). 74 Module 2: The Functions of Marketing in Business Management CUSTOMER SERVICE An example of this would be how certain brands have been engaged with their customers on social media. Responding to both positive and negative feedback on the media platforms with helpful, sometimes quirky and extremely timeous feedback, the brands are humanising themselves and engaging in a manner that consumers understand. FIGURE 5.1: EXAMPLE OF PERSONALISED CUSTOMER ENGAGEMENT ON SOCIAL MEDIA Source: Rose (2017) Customer retention, when carried out correctly, is about creating ease of choice in the minds of their customers (Cant et al., 2017). In the case of MacDonald’s example above, they are using social media engagement as a means of reinforcing themselves in the minds of their consumers as the most obvious choice when craving fast food. Copyright © Business Management Training College (Pty) Ltd 75 SUMMARY 5.6 SUMMARY In this chapter, we have learned that the benefits of a satisfied, engaged customer base go beyond the immediate profit-earning capacity of an organisation. The success or failure of customer service planning is dependent on how efficiently a plan is tailored to a targeted market and their needs. Knowing your market is the key to tapping into your market and ensuring their loyalty to your brand and/or product. It was also highlighted in this chapter that the lasting impact of ensuring that customer service endeavours are appropriately tailored to the specified market includes product/brand loyalty, favourable word of mouth reviews, habitual brand/product purchasing and inevitably customer retention (Cant et al., 2017). It was further conveyed in this chapter that the main objectives of customer service are to (1) ensure that the customers of an organisation feel appreciated; (2) that their opinions are heard; and (3) a willingness to act if a customer is dissatisfied with a situation - to not only attract interest in a product but to retain the purchasing loyalty of the targeted market (Erasmus et al., 2016). 76 Module 2: The Functions of Marketing in Business Management CHAPTER SIX A Basic Marketing Plan IN THIS CHAPTER: 6.1 INTRODUCTION ........................................................................................... 78 6.2 INTENTION AND OUTCOMES ..................................................................... 79 6.3 MARKETING PLAN FRAMEWORK .............................................................. 79 6.4 SUMMARY .................................................................................................... 88 INTRODUCTION CHAPTER 6: THE BASIC MARKETING PLAN LEARNING OUTCOMES On completion of Chapter 6: you should be able to: • The intention and outcomes of a marketing plan are described. • A marketing plan framework and steps in marketing planning are outlined. • Create a simple marketing plan for a business organisation based on a given scenario. 6.1 INTRODUCTION Creating, implementing and monitoring a marketing plan is an intensive process that is instrumental in assuring the long-term survival and growth of an organisation (Cant et al., 2017). The structure of marketing planning is fairly standardised. Before any real strategic decision making can be undertaken, information needs to be gathered, empirical evidence alongside estimations and projections, to make informed decisions, and that all the potential outcomes of a marketing plan have been considered. The process of marketing planning, although somewhat laborious and overwhelming due to constant changes in both the internal and external environment of an organisation, is worthy of the time and effort it requires. The main objective of an organisation as per Cant et al. (2017), is the maximisation of profitability. There is no deviation from this objective when it comes to marketing planning. If profit is the objective, marketing planning is simply a fundamental means to an end. 78 Module 2: The Functions of Marketing in Business Management THE BASIC MARKETING PLAN 6.2 INTENTION AND OUTCOMES The intent and desired outcomes of a marketing plan do not have to be singular and/or separated. Multiple outcomes can be actualised by a single plan. For instance, a marketing department might want to introduce a new product, whilst simultaneously desires to build brand identity, through a single campaign. In this way, the company attends to both present and future market conditions (Cant et al., 2017). However, conceiving the desired outcomes of a marketing plan cannot be done without considering the capacity of the organisation and its ability to carry out this plan at every level. The overarching aim of all marketing planning is to achieve a level of synergy achieved, the marketing instruments giving way to strategic decisions that underpin each other. Marketing planning is not a standardised process, but a means by which to explore opportunities, assess risks, strategies, implementation and streamlining the approach, and in so doing, ensuring a greater likelihood of success (Cant et al., 2017). An effort towards co-operation is required to assure the success of a given marketing plan. Marketers should be willing and able to work with upper management, towards their desired outcomes and overall strategic decisions for the organisation. Besides planning, marketers will also be required to work with various functional departments, to ensure that the means justify the end, as well as ensuring transparency and accountability (Cant et al., 2017). 6.3 MARKETING PLAN FRAMEWORK The steps of marketing planning can be efficiently grouped into basic phases. These phases are not limited to chronological ordering. Marketers may arrive at their goals and objectives before endeavouring to research the market or marketers could begin with an existing plan which they endeavour to research and adapt to a current market. MARKETING PLAN FRAMEWORK Likewise, phases can run parallel to each other, allowing for an interaction that could prove quite fruitful. Marketers are then empowered to research as they formulate objectives and build on a plan that they can then adjust as they gain further information. Figure 6.1 below breaks the planning process down into 7 steps. These steps are discussed below as phases for ease of reference, conveying the fluidity and interaction of the steps and their fundamental importance in ensuring the efficiency of a marketing plan. FIGURE 6.1: STRUCTURE OF THE MARKETING PLAN 7. Review of plan 1. Investigation of the past 6. Implementation 2. Evalaution of internal and external factors 3. Gathering estimations and assumptions 5. Strategy formulation 4. Formulating goals Source: Adapted from Cant et al. (2017) 6.3.1 THE RESEARCH PHASE As stated above, planning cannot occur without considering the context. In line with this thinking, the first step of the planning process involves a large portion of research and evaluation. 80 Module 2: The Functions of Marketing in Business Management THE BASIC MARKETING PLAN This research can include an evaluation of historic trends, analysis of internal and external environments, investigating segregations in the market, SWOT analyses and forecasting potential trends and opportunities (Cant et al., 2017). The use of planning models reduces risks in the planning process. Using matrixes in the market growth-market share matrix facilitates the categorisation of products into predetermined groups that indicate their position as a representation of their market share or potential market share. The market attractiveness- enterprise-strength model focuses on the rate of return strength a product holds. This is measured on several indexed variables per category. These models can be used together to provide a more complete understanding (Cant et al., 2017). 6.3.1.1 Market growth-market share matrix The market growth-market share matrix is designed to help with long-term planning and to help a business consider growth opportunities by reviewing its products to decide where to invest. This matrix is divided into four quadrants, based on an analysis of market growth and relative market share, as shown in FIGURE 6.2 below: FIGURE 6.2: THE BCG (MARKET GROWTH-MARKET SHARE) MATRIX Source: Barksdale and Harris (1982) MARKETING PLAN FRAMEWORK • Quadrant 1: Dog: These are products with low market share or growth. The marketing advice in this quadrant is to aim to remove any ‘dogs’ from your product as they are a drain on resources. • Quadrant 2: Question mark (or problem child): These are products in high growth markets with low market share. In this quadrant, it is not known if the product will become a star or drop into the dog quadrant. These products often require significant investment to push them into the star quadrant. However, a lot of investment may be required to get a return on investment. • Quadrant 3: Star: These are products in high growth markets with a high market share. These products can be the market leaders although it will require ongoing investment to sustain. • Quadrant 4: Cash cows: These are products in low growth markets with high market share. The rule here is ‘Milk these products as much as possible without killing the cow’. These products are often well-established, mature products. Companies such as Procter & Gamble which manufactures Pampers nappies have often been regarded as a ‘cash cow’ company. 6.3.1.2 The market attractiveness-enterprise strength model The market attractiveness-enterprise strength model is a two-dimensional matrix that depicts a company’s products or strategic business units, showing the industry or market attractiveness on one axis and the business ability or strength on the other axis. The position of each product on the matrix gives guidance as to which product can be used for further investment and growth and which products might be eliminated. The matrix has nine boxes which are used as a strategy tool. The Y-axis measures market attractiveness while the x-axis measures the business strength. The scale is high, medium and low, as illustrated in Figure 6.3 below: 82 Module 2: The Functions of Marketing in Business Management THE BASIC MARKETING PLAN FIGURE 6.3: THE GE MCKINSEY MATRIX (MARKET ATTRACTIVENESSENTERPRISE STRENGTH MODEL) Source: Udo-Imeh, Edet and Rajunor (2012, p. 111) Market attractiveness is a dimension that helps to determine the attractiveness of the market by analysing the benefits an organisation is likely to get by entering and competing within a market. Some facts that are studied in this analysis are the size of the market, profit potential and the weaknesses and size of the competitors within the industry. An assessment in the Business strength helps to determine whether a company has the required competence to compete in a particular market. Internal factors such as market share, development of the market share, creativity, handling of market changes, assets etc. are taken into account. The external factors such as legislation, environmental concerns, energy consumption etc. are also used to determine the strength of the business. MARKETING PLAN FRAMEWORK 6.3.1.3 Difference between the BCG (Market growth-market share matrix) and GE McKinsey (Market attractiveness-enterprise strength model) matrix Table 4.1 illustrates the differences between the Market growth-market share matrix and the Market attractiveness-enterprise strength matrix: TABLE 4.1: COMPARISON BETWEEN THE BCG AND GE MATRIX BASIS FOR BCG MATRIX GE MATRIX COMPARISON Meaning BCG Matrix is a growth share GE Matrix implies multifactor model, representing the growth portfolio matrix, that assist firm in of business and the market making strategic choices for product share enjoyed by the firm. lines based on their position in the grid. Number of cells Four Factors Market Nine share and Market Industry growth Objective attractiveness and Business strengths To help companies deploy To prioritize investment among their resources among various various business units. business units. Measures used A single measure is used. Multiple measures are used. Classification Classified into two degrees Classified into three degrees Source: Udo-Imeh et al. (2012) 6.3.2 THE FORMULATION PHASE 6.3.2.1 Objectives and directives Once a clearer, holistic understanding of the current and potential environment has been established, objectives can be more efficiently discussed and specialised goals can be set for the marketing project. The goals of the project must be aligned with the wider goals of the organisation. The marketing objectives set out will be most effective if they encompass the following requirements (Cant et al., 2017). 84 Module 2: The Functions of Marketing in Business Management THE BASIC MARKETING PLAN Objectives should be: • Quantifiable and measurable • Specific and void of generalised wording • Time-specific • Reachable and reasonable (considering the implications of the research ascertained) • And finally, officially ranked as per their importance and/or timeline 6.3.2.2 Strategy Marketing objectives need to become a marketing strategy. The necessary tasks, programmes, steps, and responsibilities need to be outlined in detail. Whether the plan is communicated verbally or in writing- the objectives, timelines and expectations need to be made clear for everyone involved. 6.3.2.3 Assessments Assessment of the plan at this stage entails rechecking its feasibility in terms of the market share, sales, costs and profits. At this point, the plan should be acceptable to the major stakeholders, technically feasible, cost-effective and adaptable where necessary, amongst other criteria (Cant et al., 2017). 6.3.2.4 Budget A budget needs to be formulated- considering all the needs of the marketing plan as well as the contingencies and the resources these contingencies may necessitate. Activities within the plan can then be assessed by comparing the financial cost of an activity against the expected return and overall impact it will have on the organisation’s profit-making capacity (Cant et al., 2017). Completing the plan with a comprehensive budget will assure management and relevant stakeholders that circumspect has been used in the allocation and utilisation of available resources. MARKETING PLAN FRAMEWORK 6.3.3 THE IMPLEMENTATION PHASE Perpetuating successful change in an organisation has become increasingly difficult and requires not only a well-thought plan but also an adaptable plan. With more than 70% of organisations failing to successfully implement new strategic initiatives, the pressure is on management to ensure that planning was not been carried out in vain (Cant et al., 2017). Planning and implementation cannot function as two separate steps or phases: the success of implementation is based on the efficiency of the planning and the success of planning on the adaptability of the implementation. Conceiving an elaborate strategy without considering the intricacies of implementation is an act in futility (Cant et al., 2017). The driving forces that are influential inefficient implementation of marketing endeavours include organisational structure, organisational leadership, organisational culture and managerial processes (Cant et al., 2017). In contrast, there are distinct barriers to implementation that will need to be addressed either during planning or as a contingency during implementation. These barriers may include deviation from the schedule, poor communication, lack of coordination from management and resistance from lower levels and poorly planned activities. A solution to poor communication might be to provide a communication stipulation in your planning, outlining what is expected of management when it comes to ensuring that staff are not only informed but efficiently prepared to handle all the phases of the implementation process. For instance, organisation-wide memos on movements from phase to phase and their impact on the day-to-day running of specific departments (Cant et al., 2017). 86 Module 2: The Functions of Marketing in Business Management THE BASIC MARKETING PLAN 6.3.4 THE REVIEW PHASE As stated by Cant et al. (2017, p. 542), “no strategy or project can be successfully implemented if proper control is not administered, and the effects and effectiveness of the project are not evaluated”. Evaluation and review are useful tools in assessing performance, displaying accountability, and promoting learning in an organisation and fundamentally when inciting change during marketing endeavours. Various methods can be used to evaluate the efficiency of marketing planning. This may be carried out through a sales analysis, marketing cost analysis, an efficiency analysis, customer value analysis, regular customer feedback, business review comparing to set standard to those achieved. Additionally, if periodic assessments are required, standardised audits can be scheduled to ensure that systematic investigations are carried out. The audit should assess elements such as environment, strategy, organisation, systems, productivity and function. This comprehensive approach ensures that all relevant dimensions are assessed by their directive and rectifications made where necessary. Review and evaluation act as a powerful tool in ensuring that every aspect of a given endeavour is kept according to the plan, by constant redirection and adaptation (Cant et al., 2017). SUMMARY 6.4 SUMMARY Having a means by which to plan, implement and review marketing endeavours is essential in simplifying and streamlining this process for both small and large organisations. To ensure the efficiency and success of a marketing endeavour, not a single phase can be marginalised or forsaken. We have learned in this chapter that the phases do not have to run in chronological order, but they do need to be comprehensive. A marketing department may choose to utilise the tools as they wish as they have decided on product, brand or service-specific outcomes. However, the major objective remains the same; ensuring that the product, brand or service has been brought to the attention of the desired market in the correct manner, at the correct time (Cant et al., 2017). 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