Chapter 8
Personal use only
Marketing
Strategies
Marketing strategies refer to ways the marketing function goes about achieving the marketing
objectives. It all starts with a sound understanding of the market and the needs of customers in
that market. The best way to understand that market is to break it up into smaller parts where
customers have common characteristics. This is called market segmentation and the smaller
parts are called segments.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Next, the marketing function has to decide which segments have a good match or fit with the
business’s resources - in other words, a fit between what customers need and the ability of the
business to meet those needs really well. The business may well decide to develop products
across a number of segments. This is called product/service differentiation. It will then be
necessary to decide what image - in terms of price and quality of the business and its products –
it wants its customers to have. This is called positioning.
After this work has been done, it is time to develop the products that will most competitively
meet the needs of customers, price, promote and then distribute them.
Many successful businesses may well look to the global markets as a way of gaining growth and
increasing the value of the business. This is what marketing strategies are concerned with –
working out ways to achieve marketing goals that are consistent with overall business goals.
Market segmentation
Television is an excellent example of the enormous differences in the total market for this
aspect of entertainment. Many viewers do not speak English and want programs in their native
language. Many older viewers hate the video music segments. Many younger viewers are totally
bored with programs such as Gardening Australia. There are so many people in the total market
who have very different needs. No television channel could effectively design products to satisfy
all those different needs (although pay television certainly satisfies more needs than free-to-air
television because it has specialist channels).
It is because customer needs in the total market are so varied that most businesses focus their
effort on a particular group of those customers who have similar needs. For example, a clothing
manufacturer may focus on designer clothing for young women. This becomes the target
market. The target market is the group of customers with similar characteristics who are the
focus of the marketing effort.
Segmentation is important because it enables a business to develop a more competitive product.
Market segmentation is the process of breaking the total market into parts, or segments.
Segmentation has enormous benefits to the business. By focusing its efforts on one or more
parts, the marketing department can really understand the needs of customers in that group.
It can provide better products for that particular group of customers and, as a result, be more
competitive.
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Markets can be segmented on the basis of a number of variables. Some of the most important are:
Gender
It is not just clothes that are designed to meet the different needs of men and women. Cars,
housing, furniture, entertainment and foods are often designed to meet gender needs. Take a
minute and see if you can think of some examples.
Age
The age of customers is one of the most important factors in determining their needs. Families
with babies are the main target market for nappies. It is rare to see old men in baseball caps.
Children and teenagers are the main market for bicycles.
Income
Cars, clothing, entertainment, housing and furniture (including whitegoods) contain segments
directed at the rich. Does your family have a $16 000 ‘internet’ refrigerator? Again, take a
minute to think of other examples.
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Lifestyle
Lifestyles vary enormously. Some people are interested in drag racing, others in bushwalking.
Some enjoy gardening and many people in the 18 – 34 age group are really into the healthy
lifestyle. Many products such as magazines and gyms are designed to meet different lifestyle
needs.
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Product/service/differentiation
Often businesses decide to compete across a number of segments by changing their products
to meet the specific needs of the customers in each segment. This is called product/service
differentiation. Take, for example, the smartphone market. Apple Inc has decided to compete
in all segments with the iPhone 4, as indeed another key competitor, Blackberry, has done. But
HTC has decided to differentiate its products by fine-tuning them to better meet the specific
needs of each customer group. They have developed a phone with surround sound, for example,
called the HTC Aria to better meet the needs of customers who use their phones to store
and listen to music as well as the call, email, and text functions. This strategy has been very
successful and has enabled HTC to improve its global market share to 8% in 2011.
Product/service differentiation is better able to satisfy customer needs in a particular segment
but it is a more expensive or higher cost strategy than having a standardised product designed
to generally meet the needs of all customers in all segments. A standardised product can take
advantage of economies of scale to lower costs. Economies of scale are the cost savings, such
as bulk buying, associated with large-scale production. However, customers are increasingly
heterogeneous. The success of HTC and the fact that the growth in market share for the iPhone
4 seems to have stalled at 15% seems to support this view.
Literacy Development
Heterogeneous means customers are diverse or different in character. It comes
from two Greek words – hetero meaning ‘different’ and genus meaning ‘species’
or ‘class’. The opposite of ‘hetero’ is ‘homo’ (same) - hence ‘homogeneous’.
Positioning
Positioning provides the fit between the customers in a particular market segment and the
business resources and skills required to develop a product that will successfully meet the needs
of customers in that segment. Positioning is a perception or image that potential buyers have of a
product compared with its competitors. Imagine, for example, a restaurant that includes a 3 star
Michelin chef among its human resources. It is likely the owners of this restaurant will position
it at the top of the market in terms of price and quality and then develop products (dining
experiences) to match that position. You will not get a $5 hamburger here! On the other hand,
other restaurants may position their products in terms of ‘value for money’. Businesses like Best
& Less and Kmart adopt this sort of positioning, and their customers know they will get value
from their shopping experiences.
The following diagram shows the relationship between market segmentation, product/
service differentiation and positioning. It is a most important diagram because it shows the
relationships between the main elements of a marketing strategy.
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153
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THINK, INK, PAIR , SHARE
Jot down the smartphones (or cars or clothes) you consider to be at the top
of the market and the middle of the market. Try to describe the customer
needs of one of the target markets. How has the positioning determined other
features, such as styling, warranty, quality and after-sales service? Jot down your
responses and discuss them with your learning partner
Changing needs
of customers
154
Market
research
People
movers
SUvs
Sports
cars
family
cars
Position the business
to get a good fit
between the needs of
customers and the
resources of the
business
Product
price
Positioning
Image in the minds
of customers in
terms of price and
quality
Promotion
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Place
brand
support
positioning
with brand
Products - goods and/or services
There are two aspects to a product. The core product refers to the benefits the product offers
to customers. A can of drink gets rid of thirst, a meal removes hunger and a car gets you from
point A to point B. Lots of businesses compete to provide the basic benefit. However, the
actual product is designed to ensure potential customers purchase our product rather than our
competitor’s. The actual product includes benefits but also added features, positioning, brand
and packaging. It may also include intangible features such as a guarantee, possibly delivery and
installation and after-sales service. The actual product is often called the augmented product.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Product strategies refer to the ways a product itself can be used as a strategy to improve
competitiveness. For example, a car or a washing machine could be made more competitive
by improving the warranty. Remember that customers do not buy a product so much as the
benefits of that product. The peace of mind that comes with a good warranty is one of the
benefits.
Typically the core product is augmented with features such as:
** Quality
** Styling
** Warranty
** After-sales service
** A brand name that can be trusted
** Provision of credit, including interest-free periods
** Packaging
155
Augment means ‘to add to’
or ‘to increase’. So the core
product has these extra
features added to it.
This is the augmented product. The competitive features of products can best be discussed
under the strategies of branding and packaging.
Branding
A brand is the very heart of marketing (and indeed business). Marketing is all about making
the business’s products different from its competitors’ products. If a customer doesn’t see a
difference, then he or she will buy the cheapest product or perhaps the most convenient in
terms of accessibility. A brand is a logo, name symbol or design (often a combination) that
distinguishes a business’s products from other products in the market place. Over time the
customer identifies the product with the characteristics of the brand. These characteristics may
include such things as style, reliability, price, features and so on. A satisfied customer develops
total confidence, satisfaction and often loyalty to the brand.
The brand is developed to support the positioning. Sony does not need to convince customers
of the quality every time they release a new product. The Sony brand is sufficient. Of course
the Sony brand has been built over a long time and a great deal of money has been invested to
achieve this dominance in the market place. Successful brands are expensive. In 2005 the giant
global business Procter and Gamble (P&G) purchased Gillette and its brands for $57 billion.
Most of the money was for the Gillette brands.
Getting Better Results
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
The importance of brands to customers is indicated in an interesting experiment on taste testing
of Coca-Cola and Pepsi. When the people doing the testing were unaware of the brands, they
preferred Pepsi to Coca-Cola, 51% to 44%. When the same group was aware of the brands, they
preferred Coca-Cola to Pepsi 65% to 23%. (Creating Brands, Chematory, Heinemann, 1992.)
156
When a business such as Coca-Cola achieves brand dominance, it leads to high profit margins
and long-term brand loyalty. Customers want to buy successful brands and retailers want to sell
them.
THINK, INK, PAIR , SHARE
List the three most important brands you buy. Would you consider buying a
competing brand or do you have total confidence in the brand? Compare your
list with your learning partner.
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Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Case Study
Using a United Kingdom based business to illustrate the importance
of brand: Innocent drinks
The fruit juice industry in the United Kingdom, as it is in Australia, is highly
competitive and in every case their brands promise customers things like ‘fresh,
natural and healthy’. Why then would you enter such
a competitive market? This is exactly what a group of
college students in the United Kingdom did. In 1999
they went to a local market with lots of fresh fruit
and a blender and sold ‘fruit smoothies’. Next to their
stall they had two rubbish bins for the used cups, one
labelled: ‘Yes, we should give up our jobs and market
smoothies’ and the other labelled: ‘No, we shouldn’t’.
Customers were asked to choose. At the end of the
day the ‘yes’ bin was overflowing.
Today, the business employs 200 people, has
sales revenue of roughly Sterling 150 million, is
the largest buyer of fruit in the United Kingdom
and the dominant smoothie manufacturer in the
United Kingdom. The business is growing in value
by about 25% a year. How could they achieve
this success in such a competitive market? It is
worth going to their website to get some insights
into their success. The web address is – www.
innocentdrinks.co.uk.
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Image - Courtesy of
Innocent Drinks.
A little bottle of their
blackberries, strawberries
and boysenberries
smoothie.
Positioning and branding have been responsible
for the success of this business. Customers know
that, when they purchase an Innocent product ,
they are buying into a fun and healthy lifestyle.
The brand (a piece of fruit such as an orange in
the shape of a smiley face, with two eyes and
a halo) consistently reinforces the image of fun
and healthy lifestyle. The language includes
typical words and phrases such as: ‘hand picked
and squeezed’ and ‘nothing but fruit’, ‘simple’, ‘honest’ and ‘fresh’. The harvest
game (a brilliant adaptation of the old space invaders game) is typical of the
fun characteristics associated with the brand. The delivery vans are decorated
as cows and the phones are called banana phones. (Make sure you have a look
at ‘All about us’ on the website, particularly the section on ‘our ethics’ and ‘our
story’).
Innocent only use 100%
crushed fruit and pure
juices in all of their
smoothies.
It is interesting to note
that Kmart, a Wesfarmers
Limited business, no
longer sells major brands,
in order to reduce prices.
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Image - Courtesy of
Innocent Drinks.
Pure fruit juice with a
splash of spring water,
making it perfect for kids
to enjoy.
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The packaging supports the brand and the positioning. The
fruit juice containers have a unique shape and the word
INNOCENT as the dominant feature. The packages are really
well designed and the description of products on the
packages, for example, ‘No bits. No rubbish. Just a
tubeful
of pure fruit puree to keep your little
ones
(and their lunchboxes) nice
and healthy’, consistently
reinforces the fun, healthy lifestyle image.
Because the business has used its positioning and
brand to differentiate so effectively its products from
the competing products, it is able to charge a premium
price. This premium price we call a price skimming
strategy. It is one of the reasons the business is so
profitable.
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Group Work
1. As a group go to the website www.innocentdrinks.co.uk
2. Go to ‘Family’ on the top navigational bar and choose the innocent AGM and
watch the short film on the AGM. (AGM stands for Annual General Meeting)
3. How is this meeting different from what you imagine an AGM would be like?
4. How does the video reflect the brand and positioning of Innocent Drinks?
5. Where was the AGM held?
6. How does the venue reflect the brand and the positioning?
7. Compare the website of Innocent Drink’s Australian equivalent, Boost Juice.
What things could the managers of Boost Juice learn from Innocent Drinks?
Have each member of the group look at ONE aspect of the website; juice,
things we make, us, blog, bored?, press, kids, health and careers.
1. Outline the key ideas in that section for the rest of the group.
2. Explain how that aspect of the website supports the brand.
3. Ensure you have a group competition on the Harvest Game to establish the
group champion.
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Marketing Strategies
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Group Work
Innocent Drinks was able to achieve market leadership in a beverages market
that was highly competitive and included businesses such as Coca-Cola,
which is highly experienced in the beverages market and which has currently
purchased a small interest in Innocent Drinks for 30 million sterling. The success
was due to a brilliant marketing strategy, particularly a positioning and branding
strategy.
• Do you think there is a similar opportunity in the Australian beverages market?
• Can you think of a brand as good as Innocent?
The UK does not use the
Euro but has retained its
own currency, the pound
sterling.
• As a group look at the ethics section on the website. Do you think the ethical
stance the business has taken has contributed to their success?
Packaging
159
Packaging is both functional and has an important marketing role. Functional features of
packaging include that it protects goods in transit and that it contains information, such
as identification of the brand, the weight of the product and possibly instructions for use.
Marketing features include getting potential customer attention and making the product more
competitive.
Packaging can be an important aspect of the product. CocaCola, for example, uses packaging to get to different target
markets. It packages its soft drinks in single units, ‘fridge
packs’, packs of 18, 24 and 30-can units. Packaging can also
give information about possible uses and dangers associated
with incorrect use. The packaging may also add to the
aesthetic features of the product.
Packaging is important because it impacts significantly on
the costs of distribution. Products need to be packaged to
protect them during transit. It is important that the packaging
be calculated to maximise space in things like standard
containers.
Another really important aspect of packaging for a lot
of businesses is that the packaging needs to support the
positioning and the brand and portray the image associated
with the brand. You will notice, for example, when you
purchase an Apple product, the great care that has been taken
to design the packaging to support the Apple brand.
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ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
THINK, INK, PAIR , SHARE
Think about a couple of other examples where the packaging effectively supports
the positioning and the brand. Discuss your ideas with your learning partner.
160
Frederic Baur invented the
Pringles unique packaging
system more than 40
years ago, in 1960. The
packaging is essential to
the brand. Do you agree?
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Price including pricing methods
There are three key methods of pricing a product.
1. Costs
Large numbers of businesses price their products by working out how much the product cost
to develop, manufacture and distribute. They then add to this cost the profit they want and this
becomes the selling price of the product.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
2.Market
Businesses producing commodity products such as wheat, wool, coal and iron ore have little
control over the price. The demand and supply for the industry as a whole determine the
equilibrium price where individual suppliers can sell as much as they like at the ruling market
price.
3.Competition-based
This form of pricing refers to a situation where a business carefully considers the prices charged
by competitors for similar products. Experience has taught these businesses that if they charge
higher prices customers go to the competitors. If they charge lower prices the competitors follow
and all businesses are worse off.
Pricing strategies
Prices are not static. They can be used as a strategy to gain an advantage over competitors. You
may have noticed, for example, the way the cost of a 1.25 litre bottle of Coca-Cola varies in
supermarkets. If the market share of other products increases at Coca-Cola’s expense, they will
quickly lower their price below the competitor for a period of time until they get the lost market
share back.
The key pricing strategies/tactics are:
Skimming strategies
Skimming is a strategy where the business sets a relatively high price at first and then lowers
the price over time. This strategy allows a business to recover its development strategies before
increased competition forces a lower market price.
Skimming strategies refer to pricing a product
at what ‘the market will bear’. Nike, for example,
conducts research to find the highest price they
can charge to maximise their revenue. The highest
price will vary between countries and so too does
the Nike price.
When a product such as the PlayStation 2 first
came on the market, it could charge more because
it had a 1 year head start on comparable products
such as the Xbox and Nintendo Gamecube. Not
long after the Xbox arrived Sony had to lower the
price of the PlayStation 2 to keep its market share.
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Marketing Strategies
162
Xbox 360 and Playstation 3
sales as of June 2011
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Case Study
Using the XBox 360 to demonstrate skimming
When the Xbox 360 was released in early 2006, Microsoft was able to adopt
a skimming strategy because there
was no competition for a product
with features such as high definition
graphics, integrated online gaming,
and media centre capabilities. The
price set was above $500 where
previously the price was about $250
for both the Sony Playstation and the
previous model of the Microsoft Xbox.
Despite the skimming pricing strategy
the Xbox 360 sold over 55 million
consoles worldwide with 1 million in
Australia. The PlayStation 3 that was
released about a year later sold 51
million consoles worldwide.
The skimming strategy was
accompanied by a strong promotional
strategy using advertising and public
relations. The Xbox 360’s capabilities
were advertised worldwide on MTV
hosted by Lord of the Rings star Elijah Wood. MTV, of course, is an ideal way to
communicate with the potential target market.
Reflect
1. What was Microsoft’s goal in giving the Xbox 360 additional product features?
2. Why was Microsoft able to charge twice the normal price for the Xbox 360?
3. Why was MTV the ideal way to communicate with the target market?
Penetration strategies
Penetration pricing is a strategy where a business sets a lower price (below its competitors) in
order to increase market share. A successful penetration strategy will increase sales, increase
market share and usually lower per unit costs through economies of scale.
Penetration strategies are used to gain new market share at the expense of competitors or regain
lost market share. A penetration strategy is setting a price below a competitor’s product for a
period of time. It is important to remember that a penetration strategy will impact on profit
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and needs to be carefully considered although the increase in volume may lower the cost of
producing the product through what are called ‘economies of scale’. Economies of scale are
the cost reductions that occur from being able to buy raw materials in bulk and mechanise
processes.
Loss leaders
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Loss leaders are prices set at a very low level to encourage consideration of a product newly
introduced to the market or to encourage customers to consider other products. Sometimes this
strategy can approach ‘bait advertising’, where a few products are priced at absurdly low prices
to get customers into the store. Bait advertising is illegal.
Price points
Customers think of a retail price as one of a number of possible competitive prices. It is purely
psychological and refers to cut-offs in the minds of customers. A price of $9.99 is below the
psychological price point of $10. In this instance the price of $10 is perceived as relatively high.
Like most computer manufacturers, Dell sells a range of computers. They range from those
with relatively simple functions to those with very complex functions. Each model is carefully
priced with a specific target market in mind. There is a range of price points. The price point is
the psychological price reference in the minds of customers. Low entry-level prices can create
a perception of value for money for the whole product range. Currently Kmart are successfully
employing a price points strategy and advertising it with slogans such as ‘look what you can buy
for $10’. One of the main reasons prices are low is that Kmart management has decided not to
sell any licensed brand material such as Disney characters because the licence fees add to the
price.
163
Case Study
Using an Australian-based global business to illustrate the concept of
price points: Qantas and Jetstar
Initially, Qantas was under competitive pressure from Virgin in the leisure
segment of the airline market and Qantas was losing market share because of
its pricing strategy. The first thing management considered was a penetrationpricing strategy. A penetration strategy refers to setting a price below that of
competitors. It is a typical marketing strategy to gain
market share.
This strategy was dismissed for two reasons: first,
because management thought it likely Virgin
would retaliate and a price war would develop and
second, because this pricing strategy would affect
their highly profitable government and business
segments. A penetration strategy was simply not a
long-term solution.
Getting Better Results
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ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Management decided on a strategy of highly competitive price points. Qantas
management decided to increase the product range by developing new valuefor-money products for the leisure segment of the travel market. This meant
some products would need to be repositioned as value-for-money products.
Positioning refers to the image of the product in the minds of consumers.
Positioning new products is best done with a multi-brand strategy so there is no
confusion in the minds of customers. They supported the positioning with a new
brand – the Jetstar brand.
Price points refer to the entry-level products and create an overall impression of
value for money in the minds of customers. Do you remember the series of $19
airfares to places such as the Gold Coast? These were highly competitive price
points.
164
It is important to understand that the managers will use a range of pricing
strategies. Sometimes, depending on how competitive a route is, Qantas will use
skimming strategies, at other times they will fight to retain market share with a
penetration strategy. The price points strategy is often used as a promotion to
emphasise value for money compared to Tiger Air.
Reflect
1. Why was Qantas management reluctant to use a penetration strategy when the
business was losing market share to Virgin?
2. What is the relationship between positioning and brand? Why was it necessary
to have a new brand for the new, value-for-money product Qantas was
offering the leisure market?
3. Why is it difficult for Virgin to respond to the promotional price points?
Price and quality interaction
Customers are individuals and consequently very different. Some customers are price sensitive.
Price sensitive means that price is the dominant criteria when a customer makes their choice
between competing products and services. Other customers consider quality, service and image
as the dominant criteria when choosing between competing products and services.
For this reason it is essential to have a good understanding of what factors most influence the
buying decisions of individual customers. Indeed, it is very important to segment customers by
price sensitivity. Qantas is an excellent example. Some Qantas customers are so price sensitive
a 5%, or less, increase in prices means they will choose a cheaper competing airline. Other
customers insist on the full service, excellent meals, drinks and entertainment available when
they require them.
The solution to the price and quality interaction is multi-branding. Multi-branding is the
development of several products, positioned in terms of quality and price, and supported by a
logo, name or symbol the customer associates with the value of or quality the product offers.
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Qantas developed a price sensitive product and used the Jetstar brand to support the positioning
of that product. The Qantas brand was associated with the full service quality product. There is
no confusion in the minds of customers.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Case Study
Using an Australian business to illustrate the range of pricing
strategies: Dulux Paints
Dulux paints was a part of the Orica Group but was sold to the general public
in what is called a ‘float’. The reason Orica sold the business was to focus their
efforts on the things they did best – supplying the mining industry with products
such as explosives.
Dulux paints are positioned at the top of the consumer market in terms of quality
and price.
Dulux paints are priced on the basis of manufacturing cost, the way the product
is distributed and the actions of competitors. Overall, the pricing is a skimming
strategy. The price is set at what the market will bear. This strategy applies to
their main product Dulux Wash and Wear and is generally priced just above
competing high quality products such as Wattyl I.D. It is interesting to note
that if Wattyl makes a significant reduction in the price, Dulux tends to react
by bringing out a new 6 litre product priced slightly above the original 4 litre
product. The customer can see the value in the 6 litre product and the business
maintains market share.
Dulux also has effective product differentiation where they have products for
customers who are price sensitive. They use a multi-branding approach so that
the quality image of Wash and Wear is not compromised. The business uses a
penetration strategy with a 6 litre British Paints brand to effectively meet the
needs of price sensitive customers.
Multi-branding is also important in a price points strategy. At every point in the
market Dulux has a product to effectively compete at that price. At the lower
quality, price sensitive end of the market Dulux competes with the Spring and
Walpamur brands. At the middle level the brand is British Paints In Colour and at
the highest quality level the Wash and Wear brand.
Reflect
1. Why does Dulux use different strategies to price its products?
2. How has Dulux differentiated their products? What was the purpose of this?
3. What is the purpose of multi-branding?
4. What is the relationship between multi-branding and pricing strategies?
165
Marketing Strategies
Last century, the Sydney
Royal Easter Show was
the first mass-marketing
program to introduce the
visiting country folk to free
products, ranging from
toothpaste to chocolates.
Now one million showgoers are willing to pay
significant money for
‘promotional’ show-bags of
dubious value.
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Promotion
Promotion is about effective communication with customers. A business could have the best
product in the world but will sell very few if customers are unaware the product exists. It is
important to realise that there are a number of techniques a business can use to communicate
with its customers. Advertising, which is paid communication, is only one of the available
techniques. Most businesses have a mix of techniques called the promotions mix.
Elements of the promotion mix
Most businesses use a range of communication techniques that reflect the particular
circumstances of the business at a particular time. The promotion mix refers to the way
techniques such as advertising, personal selling and relationship marketing, sales promotions,
publicity and public relations are combined in a way that effectively meets the communication
requirements of a particular business at a particular time.
Advertising
Advertising can be very effective and very expensive. Advertising is paid communication with
the target market and it is usually designed to be persuasive. The marketer pays various types of
media such as television, newspapers, magazines and radio to carry the message to customers.
Social media, such as Facebook and Internet advertising of search engines such as Google, are
among the most effective carriers. Have you noticed that even buses and trams are sometimes
painted to do this task?
An interesting trend in advertising is the development of ‘viral advertising’. Viral advertising
is promoting products in such a way (usually humorous) that customers want to send the
advertisement (usually by e-mail) to friends. Cadbury’s ‘drumming gorilla’ and John West’s ‘man
attacks bear’ were highly successful viral advertisements.
Advertise comes from the
Latin ‘advertere’, meaning
‘to turn towards’. So
advertisements direct our
attention towards their
products or services.
A great deal of advertising is designed not so much to sell a product but rather to support the
brand and the positioning. The milk aspects of the Cadbury advertisements, for example, are
really designed to suggest the quality nature of the product and positioning towards the top of
the market.
THINK, INK, PAIR , SHARE
Think about an advertisement you consider highly effective. Jot down the
characteristics of the target market you think the advertisement is directed at. Do
you think the advertisement supports the positioning of the business or product?
Personal selling and relationship marketing
Personal selling is probably the most important promotional tool. It is much more than ‘would
you like fries with that?’, even though a great deal of selling is conducted in this way. Personal
selling is what teams of sales representatives employed by manufacturers do when they sell
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products to retail outlets.
Increasingly, personal selling is becoming a partnership between the supplier and the retailer.
The Dulux sales representative to Bunnings, for example, will replace stocks of paint as they
are sold, clean the shelves and ensure the display is attractive and often even serve customers.
The sales representatives will also do a great deal of point-of-sale advertising by setting up the
promotional material on display where the product is sold. This will includes things like display
racks, displays, stands and posters.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Relationship marketing is concerned with building a long-lasting relationship, not only between
manufacturer and retailer customer but also between the retailer and their customers. Did you
know, for example, that Myer gets 60% of its business from customers who own a Myer card and
consistently shop at Myers? Coles also has a type of loyalty card called Flybuys and Woolworths
has the Everyday rewards.
There is also an ethical dimension to relationship marketing. Increasingly, social media is used
as a tool to build relationships and some of the relationship marketing is dubious. Have a look at
the Smarties and Paddle Pop pages in Facebook. We would argue this is relationship marketing
directed at children too young to understand the impact of these products on their health. What
do you think?
167
Case Study
Using an Australian business to illustrate the importance of personal
selling and relationship marketing: Dulux Paints
Dulux paints was a part of the Orica Group but was sold to the general public
in what is called a ‘float’. The reason Orica sold the business was to focus their
efforts on the things they did best – supplying the mining industry with products
such as explosives.
You would be familiar with Dulux paints and would undoubtedly recognise
the Old English Sheep dog that is the symbol of their brand. While you would
be aware of the advertising that is occasionally used to support the brand you
might not be aware that the focus of their promotions mix is personal selling and
relationship marketing.
The marketing function at Dulux Paints is very good indeed. They understand the
importance of finding out their customers’ needs and developing products to
meet that need. This how they explain this idea:
Dulux is committed to gaining a total understanding of end users’ current and
future needs, and to satisfy those needs by developing superior, innovative
products and services.
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However, it is the development of long-term relationships with major customers
that is the main reason Dulux has been so successful. The marketing function
has, for example, successfully developed a long-term relationship with Bunnings
Hardware. The Dulux sales team monitor the sales of Dulux paints in every
Bunnings Hardware store. They replace items that have been sold, clean the
shelves and display the products. This is called vendor-managed inventory and it
benefits both Dulux and Bunnings Hardware. Dulux has a great deal of expertise
in this sort of sales force management. Dulux argues that:
Strategic long-term relationships with major customers are at the forefront of
Dulux’s success.
The business also has a great deal of expertise in call centre management.
This is personal selling to end customers. Customers, such as architects, trade
professionals and retail customers, can easily contact colour consultants to assist
them in choosing an appropriate colour. Dulux argues this approach has ‘built a
loyal customer base’.
Reflect
168
1. What is the evidence in this case study that Dulux managers understand the role
of marketing very well indeed?
2. What is the main purpose of the ‘English sheep dog advertisements’? Why do
you think they are necessary to the success of the business?
3. Give some examples of how personal selling operates at Dulux.
4. What is the purpose of developing long-term relationship marketing?
Sales promotion
Sales promotions are non-media communications. Typically, they include promotional activities
such as vouchers and special offers by a store, loyalty card offers and competitions on the back of
packaging. They are very cost-effective promotions.
Often they include special displays in retail stores that are set up by the sales representatives. The
marketing department often does sales promotions rather than an advertising agency. This is the
promotional material on display where the product is sold. It includes things like display racks,
displays, stands and posters.
Publicity and public relations
Publicity and public relations are increasingly used to communicate with a target market. Public
relations is a planned effort to present a business and its products in a positive light; that is, to
ensure the business has a strong public image. Public relations are activities that are not paid
for directly. Most large businesses have specialist public relations departments to deal with
any media aspect that has the potential to affect the image of the business. Indeed, the really
large businesses tend to use specialist public relations businesses when an important issue
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arises. Public relations are often conducted through newspapers, television and magazines and
typically involve interviews and news stories about the business.
Publicity is concerned with creating newsworthy stories about the business and its products.
One of the best ways to do this is by using celebrities to do things such as wear the products or
talk about them. There is a great demand for sporting celebrities to endorse products because
young people, in particular, listen to the message from sporting celebrities. Again there is the
ethical dimension when the products endorsed are things like tobacco and alcohol. However, it
is all about creating and reinforcing an image of the business in the eyes of customers.
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Although public relations is mainly about achieving positive coverage so that the media is
carrying positive stories about the business it is also about ensuring every aspect of the business
- its packaging, stationery, brochures and uniforms - give a positive message customers feel good
about. One of the most effective ways of creating a positive media image is through sponsoring
special events and sporting teams.
THINK, INK, PAIR , SHARE
169
Think about a sporting team you follow. Who are their sponsors? Do you think
the sponsors are trying to advertise a product or put the business in a positive
light? Jot down your thoughts and discuss them with your learning partner.
The communication process - opinion leaders, word of mouth
Marketing is all about communicating with potential customers or buyers in a way that will
influence their behaviour. There are two aspects that are important. The first aspect is to
understand what influences buyer behaviour and the second is concerned with who influences
buyer behaviour.
It is important to have a good understanding of both aspects. The key influences on what people
buy include things like personal and psychological factors as well as the social and cultural
environment in which they live.
However, it is almost inevitable buyer behaviour is influenced by other people who do things
such as suggest buying a product or service and also often influence decisions, such as whether
to buy it or not and even where to buy the particular product.
The people who influence buying decisions in this way are called opinion leaders. Opinion
leaders are the people you respect and tend to agree with their views on a whole range of thing,
including fashion and taste. The Internet and social media, such as Facebook, have increased the
influence of opinion leaders greatly. The biggest problem from a marketing perspective is that
it is difficult to identify local opinion leaders. However, national sporting figures and celebrities
tend to be very effective opinion leaders. This is why businesses such as Nestle and Kellogs use
celebrities to endorse products like Milo and Nutri Grain.
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Word of mouth communication relies more on local opinion leaders and can be very important.
Word of mouth refers to personal endorsement by people who are regarded as opinion leaders.
With the advent of social media, such as Facebook and Google+, the influence of opinion
leaders can be very significant. This is why the information collected by businesses such as
Google and Facebook is so valuable.
THINK, INK, PAIR , SHARE
Do opinion leaders in your circle of friends influence your buying decisions? If
so, jot down some examples and discuss them with your learning partner. Why
do you think the information collected by Facebook or Twitter on such things as
where a person has purchased a product (written in casual conversation) might
be valuable? Discuss your thoughts with your learning partner.
170
Place/distribution
Distribution is an important management decision because it can cost so much. Indeed,
some businesses spend up to 50% of the price the customer pays on distribution. This means
that there is an important relationship between distribution and profitability. Improving
the efficiency of distribution channels allows a business to become more cost-competitive.
Distribution is also important because the channels tend to be long-term and decisions to
change the way products are sent to customers cannot be easily changed.
Distribution channels
The distribution process is about allowing the customers access to the product when they want
it. The distribution channel links the point of manufacturing to the final customer. In recent
years there has been considerable change in the way this happens.
In the traditional distribution channel manufacturers produced a product that was then
purchased by a wholesaler who would then sell and deliver the product to a retailer. The retailer
in turn would then stock, sell and deliver the product to a final consumer. The difficulties with
this system (and it still applies to a lot of products) are that each business in the distribution
system is trying to achieve its own goals, often at the expense of the business before or after
them. It is not easy to ensure that the distribution system as a whole is highly efficient and costeffective.
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One of the key changes is where distribution systems become vertical. A vertical distribution
system is where the one-business designs, manufactures, sells and delivers the product to the
final customer. Walmart is leading this approach to distribution. Woolworths is following
strongly with its Select brand. These retailers arrange to have a product they have designed,
positioned and branded manufactured and distributed to the final customer through their
own distribution system. This approach enables great cost efficiency, where every aspect of the
distribution system can be carefully monitored.
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Channel choice
It is most important to choose the right type of channel. Poppy King started a business
manufacturing and distributing a line of lipsticks. Initially, it was very successful, but she chose
an exclusive channel to distribute her lipsticks. The business failed. Had she chosen a selective
channel it is likely she would have been successful. The intensity of the distribution refers to the
number of outlets selling the product.
The main channels are:
1. Intensive distribution
An intensive distribution
channel is chosen when the
manufacturer wants to use as
many outlets as possible. CocaCola is an example. They use supermarkets, convenience stores, service stations and vending
machines to ensure the distribution is as intensive as possible.
171
By using vending machines
in Toyko, Japan, CokeCola is able to intensively
distribute its products.
2. Selective distribution
The selective distribution channel is used when the manufacturer wants the product widely
distributed but not quite to the degree of intensive distribution. Groceries, clothing and
furniture are examples of this type of channel choice.
3. Exclusive distribution
This channel choice is often made for products positioned at the top of the market. It is a
high-quality product, the price indicates the exclusivity, and the promotion and distribution
also supports the exclusivity. Cars such as the Rolls-Royce and designer clothing are typical
examples.
Prada’s store in New York
City is an example of
exclusive distribution.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Physical distribution issues
Physical distribution is about efficiency – using as few resources as possible to achieve the goals.
Physical distribution is extremely important because it is an important cost component of the
final product. For this reason a business can gain an advantage over its competitors if it can
manage transport, warehousing and inventory more effectively than its competitors.
1. Transport
Cost-reduction advances in transport have been very significant. The most important is
standardisation of packaging to ensure that pantechnicons and containers are fully loaded and
that a business is minimising its unit cost of transport. Another significant cost saving is the
adoption of pallets and the fitting of automatic ‘roll on roll off ’ conveyor belt technology to
trucks. This means the driver can load and unload without assistance.
2. Warehousing
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The technological advances in warehousing have also led to significant cost reductions. In fact,
the reductions are so considerable that a competitor must follow when there is an upgrading
in warehouse technology so that, for example, both Coles and Woolworths have recently
completed major distribution centres. These centres are very different from the old sheds where
goods used to be warehoused. They are totally sealed, have no lights or windows. They are totally
automated and run by computers. Very few people work in these centres and they warehouse
and distribute incredibly large amounts of product.
3. Inventory
Inventory refers to the product stored in case customers want it. Having a product available
when the customer wants it is an important aspect of customer service. However, it is also an
important aspect of the total cost of the product.
Case Study
Using a global business to illustrate exclusive distribution: BMW and
the Rolls-Royce brand
You can pick up the latest model of the Rolls-Royce for just a little over
$900 000. Rolls-Royce is a brand manufactured by the German-based global
business, BMW. The product is positioned in terms of
quality and price at the very top of the car market.
The ride is magnificent. According to the motoring
writers you simply do not feel the bumps in the road,
and all exterior noise is very effectively screened from
the interior. The car also has a drink holder.
Unfortunately, no matter where you live, you will have
to drive to Darlinghurst in Sydney to get one. They
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only have one very exclusive distribution channel.
Reflect
1. In what ways are the distribution systems of Rolls-Royce and Coca-Cola
different?
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
2. Do they have anything in common?
3. Why do you think BMW retained the Rolls-Royce distribution system when they
acquired the business, rather then save costs by distributing through the BMW
channels?
Distribute comes from the
Latin ‘distribuere’, which
means ‘to grant, allocate
or deal out in portions’.
Hence distribution is
the dispersal of goods to
consumers.
Case Study
Using a global business to illustrate the variations in distribution
systems: Dell Computers
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Dell is a great global business. Dell Computers dominate the personal computer
market. The main reason for this is the way the marketing mix is used to
effectively meet customer needs. The marketing mix refers to the blending, or
combining, of the 4Ps in order to achieve specific market objectives.
Product
Dell has a range of computers that meet the needs of a variety of customers:
business, household, games and so on. The products have features that are
highly competitive in terms of such things as ram, memory and graphic cards.
The products also have highly competitive additional features such as warranty
and after-sales service. The products are positioned towards the top of the
market and the positioning is supported by the Dell brand. The brand indicates
quality and reliability.
Price
The pricing strategy is based on price points. There are a number of different
products and each is priced at carefully selected psychological reference points:
under $1 000, just under $2 000 and so on. The entry-level product represents
value-for-money and this perception then applies generally to the Dell brand.
The same strategy is often used by Qantas to price the Jetstar brand.
Promotion
Advertising is the main promotional technique. Advertising is paid
communication. Dell focus their advertisements on the print media. This is
because they want to communicate a lot of technical information. Dell often use
inserts in magazines and newspapers. Dell also effectively use e-mail advertising.
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Their promotion is effective.
Place
Until recently, Dell’s distribution process was quite unique. The products were
delivered directly to customers. In theory this was an exclusive distribution
channel. In practice, through the Internet and telephone ordering it is a very
intensive distribution channel. The distribution system is e-marketing. However, in
2008 Dell decided to include the Wesfarmers-owned Officeworks stores as part
of their distribution system. Dell says it ‘recognises that some people still want to
touch and feel products before purchasing’.
Reflect
1. Compare the way Dell distribute their products with Apple Inc.
2. Do you think Dell computers have the same positioning as Apple computers?
3. Why, do you think, Apple are generally able to charge higher prices for
computers that are similar to a Dell model?
174
People, processes and physical evidence
The classical 4Ps of the marketing mix typically relate to traditional manufacturing. Increasingly,
though, businesses are providing services rather than manufacturing goods. A great deal of
manufacturing is now outsourced to low-wage countries, so it is very important to extend our
understanding of the marketing mix to include the people, processes and physical evidence that
are crucial parts of the marketing mix in a service business. And, of course, it would be helpful
at this stage to recall the following statement from the goods and services section from the
operations section of this course: ‘it is not helpful to differentiate between a good and a service
because the service component is present in all products’.
People are central to most businesses. We made it clear in the operations section of the Kmart
case study that one of the key reasons for the success of that business was the delivery of high
levels of customer service. The employees of Kmart undergo a comprehensive training system
on how to deliver customer service. Kmart managers have focused on ensuring employees
are polite and considerate to customers and have the knowledge and skills to give customers
excellent customer service. This applies to all businesses, but where businesses have a high
service component it can be crucial.
This is why the recruitment and selection of employees is so important. Employees are selected
because they have the basic skills required to do a particular job. However, training is required
to give them the skills to do that job really well. Even interpersonal skills that are so important
when employees interact directly with customers can be enhanced with appropriate training.
You would be aware, for example, of the different levels of skills in the standard greeting you
often experience when you go through the cash register aisle in a retail shop. Some employees
do it really well, and this is a factor you consider when you are deciding if you will return. Once
all the money has been invested, it is important that really skilled employees are looked after and
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adequately rewarded and their effort recognised.
Processes are also extremely important in many businesses. Again you would be aware of how
absurd it is when food in a fast food restaurant is far from fast. Businesses such as McDonalds
have put an enormous amount of thought into ensuring their drive-throughs are as fast
as possible. Even an improvement saving a few seconds can give a business a competitive
advantage in the market place. Other businesses, such as banks for example, require processes
that are both fast and very reliable. In 2011, for example, the National Australia Bank (NAB)
suffered the embarrassment and potential loss of customers when the online credit and
debit cards were unable to access ATMs on several occasions. In 2011 the major credit card
businesses, such as Visa and Mastercard, eliminated the need for a pin number or signature on
credit card transactions below $35 to make the process faster.
Many service businesses can gain a competitive advantage in the marketplace through the
physical evidence where the service is delivered. Physical evidence is the part of the marketing
mix where the customer makes judgements about the business. Obviously, for example, if you
go to a restaurant, you will be influenced on the quality of the product not just by the food but
also the ambience and the service. Every time a customer goes to the business premises or uses a
product, they make judgements about that business. We would argue, for example, every time a
customer picks up the unique Innocent drinks container with the often witty and fun statement
somewhere on the container, they make judgements about the business and its products.
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175
Of course sometimes the physical evidence is the most important factor in the customer’s
evaluation of a product. If, for example, you book a ticket in first class on an aircraft or take a
cruise on a ship, you will have very firm expectations about what you expect, and if the physical
evidence does not meet your expectations you will not return and will probably be negative in
your word-of-mouth comments to potential customers.
THINK, INK, PAIR , SHARE
Jot down 3 examples of Australian businesses where you think either people,
processes, or physical evidence is really important. Discuss your choices with
your learning partner.
e-marketing
The potential of e-marketing is enormous. E-marketing is concerned with using the Internet to
research customer needs and develop a brand to meet that need. Many businesses then use the
internet to sell their products. We will use as examples two businesses we have mentioned before
– www.bookdepository.co.uk and www.shoes.com, but you would be aware of many more,
particularly ebay. Both the book depository and shoes.com cater to customers who are generally
price sensitive. When the Australian dollar is strong, products purchased from these businesses
are generally cheaper than businesses providing competing products. Indeed, the
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www.bookdepository.co.uk was often mentioned as a reason for the failure of the two
large book-retailing chains in 2011, Borders and Angus and Robertson, because customers
increasingly decided it was more convenient and cheaper to buy their books through
e-marketing.
The potential for e-marketing is in two areas. The first is access to customers. The purchasing
power of the Internet target market is enormous. Because the market is so large, there is a great
deal of potential to develop a product that satisfies a small niche in that market. You need only
go to the iPhone4 apps market to see the possibilities. Of course building a global brand that
customers know about is an entirely different thing. This is very difficult.
The second aspect of e-marketing potential is in the area of costs. Businesses such as www.
bookdepository.co.uk are able to set up factory-type processes using relatively unskilled labour
and consequently they have low costs. Competing businesses are often very high cost, with
highly skilled employees and very expensive retail premises.
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E-marketing is growing very rapidly. The range of products offered for sale in this market
place is also growing very rapidly. And it is not just consumer products bought and sold in this
market. A whole range of business services is also available. These include the call centres that
are so important to telephone businesses and banks, graphic artists and computer programming
as well as traditional accounting services. A large number of businesses in the United States, for
example, send the raw data for their business transactions to Indian businesses each evening,
and overnight the data is processed and the finished accounting reports are sent back in time
for the start of business the next day. Increasingly, functions in business are outsourced in the
e-marketing environment.
Research activity
Go to www.catchoftheday.com.au or www.dealsdirect.com.au and find out how
these businesses conduct their marketing and operations.
1. What do these businesses sell?
2. What aspects of their business make them more cost-competitive?
3. Describe the target market of these businesses.
Global marketing
It is so very tempting to expand a business’s operations into the enormous potential of global
markets. The Australian market is 22 million. Imagine the sort of money you could make if your
business could successfully sell products into the Chinese market with 1 400 million potential
customers. Any business that tries such an expansion needs to carefully consider a number of
important marketing concepts, such as global branding, standardisation, customisation, global
pricing and competitive positioning, before it takes the risks in this sort of expansion.
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Global branding
We have already made the point that branding is the very heart of a business, and this is
particularly the case with global businesses. The reason you bought your iPhone or Nokia,
or perhaps the HTC Desire HD, is because you had total confidence in the brand. If the
brand didn’t matter, you would have purchased the
cheapest phone. But brands do matter. A brand is a
logo, a design or a name (often a combination) that
distinguishes the business’s products from competing
products in the marketplace.
In the past most brands were local, but in recent years
there has been an increasing focus on creating global
brands. A global brand is a symbol or logo recognised
in most countries. There are two main reasons for this.
The first is the growing internationalisation of tastes
and buying patterns. This is very obvious in products
like smartphones, computers and other electronics.
The second reason is the economies of scale (cost
savings associated with large-scale manufacturing). Businesses like Apple Inc and HTC have
been able to achieve high-quality, low-cost products.
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There is a number of advantages associated with building a global brand. First, there are
potential cost savings. Activities such as design,
packaging, logo and name can be standardised across
countries, and this means they can be done more
cheaply. Second, customers are increasingly mobile
and tend to purchase familiar brands when they travel.
Third, strong brands attract good prices and significant
market share. You need only to think about the prices
Coca-Cola can command compared to competing
brands and, despite the higher prices, Coca-Cola
dominates market share. However, building a global
brand is a difficult long-term task that requires a great
deal of money. Brands need to be supported with
expensive advertising.
Coca-Cola advertisement
Munich train station.
THINK, INK, PAIR , SHARE
Think about how Coca-Cola supports its brand. Jot down the various ways it
does this. Discuss your list with your learning partner. Coca-Cola managers
might be tempted to improve profitability in the short-term by reducing the
massive expenditure on advertising the brand. What do you think would be the
consequences of such as action?
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THINK, INK, PAIR , SHARE
Why, do you think, so many global brands are American? Work with your learning
partner to try and list 3 Australian, 3 Asian and 3 European brands.
Case Study
Using a global business to illustrate the importance of a global brand:
Nescafe
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Nescafe is a global brand of instant coffee marketed by the Swiss global business
Nestle S.A. The brand is widely recognised in most countries. A range of Nestle
subsidiaries manufacture the product. In Australia it is manufactured and
marketed by Nestle Australia. In Indonesia it is manufactured and marketed by
Nestle Indonesia and so on throughout the globe. Nestle considered this was the
best way of meeting the diverse needs of its global customers – a global brand
but a different marketing mix in each country.
At one stage another global business, Aldi, the German-based chain of
supermarkets, started to source Nescafe from Brazil and Indonesia and sell
the product in its Australian supermarkets at prices below the retail prices
recommended by Nestle Australia. Aldi sold, for example, Nescafe Matinal, which
it sourced from these countries at $4.70 for a 200 gram jar. A 150 gram jar of
Nescafe Blend 43 sourced in Australia was sold in Aldi stores for $6.49. The jars
were similar in appearance but the cheaper jar was larger.
Nestle Australia was furious. It argued customers were complaining that the taste
was different. Aldi argued that the products were clearly labelled as to where
they were sourced and customers were telling Aldi the taste was the same.
Nestle Australia reacted to the Aldi move by refusing to supply the supermarket
with other Nestle products such as Milo. Of course, it all ended up with
complaints to the Australian Competition and Consumer Commission.
Reflect
1. Why, do you think, Nestle wanted to develop a single global brand, Nescafe,
rather than a range of brands specific to each country where Nescafe was sold?
2. Why was Nescafe selling a similar, if not the same, product more cheaply in
Indonesia, using the same global brand?
3. How did Nestle know it needed a different marketing mix in Indonesia and Brazil?
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Case Study
Using a global business to illustrate the importance of a global brand:
Virgin
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What product does the Virgin brand mean to you? The Virgin brand was
established in the music industry. It was called Virgin Music. The message the
brand conveyed to customers was about value-for-money - good bands, good
music at reasonable prices and the key idea in the message is innovation. The
brand was then successfully transferred to air transport. Businesses such as Virgin
Atlantic and Virgin Blue (now Virgin Australia) used the brand to signify cheap and
reliable air travel without the frills.
In 2004 the brand was used to establish a global financial services business in
superannuation and credit cards. The Virgin Credit Card, issued by Virgin Money,
had a very competitive interest rate. It was one of the best products in the
marketplace. It is interesting to note, however, that when Westpac bought Virgin
Money it rebranded the products as Ignite.
At the same time Virgin Money was recognised throughout the globe, the
Commonwealth Bank had very limited success in gaining global recognition of
its brand.
Reflect
1. Why has the Virgin brand been successful in the global marketplace when so
many businesses have failed to make their brand recognised in global markets?
2. What do you think is needed to make a brand globally recognised?
Standardisation
Increasingly, localised and national markets are breaking down under the forces of travel,
communication and transport. Customer tastes and needs are increasingly alike, or similar.
This is particularly the case in electronic products such as television sets, electronic games and
computers. It is also increasingly the case with clothing (think jeans), music and food. It makes
sense then, to market a standardised product and brand, such as the Apple iPhone, to customers
in a global market. A standardised product is a product designed to meet the needs of every
market segment in a particular market.
Standardised products can achieve significant economies of scale. Economies of scale are the
cost savings that result from large-scale operations. In the case of the Apple iPhone things like
the case, the screen and the microprocessor can all be manufactured more cheaply because
of the large numbers. The fixed costs are spread over many units, making each unit cheaper
to produce. Economies of scale can result in high quality at lower prices and can achieve
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a significant competitive advantage over a product
manufactured to meet the needs of a more local market.
The advantages of a standardised product are significant.
There can be a high degree of similarity in putting together
effective marketing campaigns and advertising in different
countries and in supporting the brand generally. There
are also cost savings in having such things as the same
packaging and staff training. This approach has been
highly successful with products such as Lynx deodorant,
where the brand promises every young man he will get the
girl regardless of where he lives. Red Bull relates to extreme
sport, fun, vitality and youth in all markets.
THINK, INK, PAIR , SHARE
Do you think customer tastes and needs are increasingly alike? Do you think a
standardised product such as an iPhone effectively meets your individual needs?
Would you prefer to pay more for a product that was designed to meet your
specific needs? Jot down your responses to these questions and discuss them
with your learning partner.
Customisation
Few products, if any, can be marketed in exactly the same way. Most require some degree of
customisation. Customisation is concerned with ensuring there is a better fit between the needs
of customers in a global market and the product. The barbie doll, for example, is a standardised
product. But if you are still into barbie dolls, you can customise them through the clothing
and other accessories to meet your specific needs. Even products such as Coca-Cola are not
as identical as you may think. Coca-Cola is much sweeter in Mexico and southern European
countries in order to meet the specific preferences of its customers in those countries.
The degree of standardisation varies with the product and market. National values are quite
important in food products but relatively unimportant with electronic products. Cultural values
are much less important to the young and the affluent but still relatively important to the more
elderly and those on low incomes. The reason is possibly that the young and affluent are more
exposed to global attitudes and values through things like social media, Twitter and Facebook.
The basis for segmenting global markets is no longer geographic boundaries, but the segments
still exist. It is just that particular segments may exist in Paris, London and Sydney and these
segments will relate more to things like income, education and sociocultural criteria than
geographical boundaries.
Customisation provides opportunities to better meet the needs of customers in a global market.
We mentioned before that the Apple iPhone was an example of a standardised product that
had been accepted by customers in a global market as generally meeting their needs. However,
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growth in the Apple iPhone market share has stalled at 15%. There is a new entrant to the
market, making rapid growth in the smartphone market through customisation.
HTC at first made smartphones for other brands such as Compaq. It now makes its own. They
made their first smartphone in 2005. HTC has used a customisation strategy as the basis of
its growth in global markets. It is worth having a look at their website to see the full range of
its smartphones but if you are, like most teenagers, into music, you should have a look at the
features in the HTC 7 Mozart, or if you find touch screens annoying the HTC Desire 2 comes
with a keyboard. There are other phones with Windows or Android operating systems, 3G and
GPS. If you want surround sound, you might get the HTC Aria, or if you are into games you
should have a look at the HTC Trophy. Customisation has enabled HTC to achieve 8% of the
smartphone global market and their market share is still growing.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Research activity
You would think there is not a lot of difference in beer. Why then does the
Foster’s Group, a former large Australian based global business, have 24 brands
of beer? The reason is that consumer tastes are always changing. When groups
of consumers change their tastes, there is an opportunity to develop a product
that meets that taste. Multi-branding is essential to avoid confusion.
Go to www.fostersgroup.com and have each member of the group find an
answer to one of the following questions. When everyone has conducted the
research, have each member of the group make a brief presentation and discuss
the main ideas in the presentation.
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Foster’s Group was sold to
SABMiller in September
2011 for AUD $9.9 Billion
1. Check out the overview in the navigational bar under About. Develop a quick
mind map to show the rest of the group what this business is about.
2. Go to The Business and explain and develop a diagram that will show the rest
of your group how Fosters has developed its brands within Australia and the
brands it has developed for its international, or global, activities.
3. Go to Investors on the top navigational bar and check out the Investor Day
Presentation. What is this all about? Make a brief summary so you can explain
to the rest of the group.
4. Go to Investors on the top navigational bar and check out the Investor Day
Presentation. What is Carlton and United Breweries? What is meant by the
statement will commence at 11am (AEDT) on Thursday 21 October 2010?
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5. Go to Brands on the top navigational bar. Create a mind map, or some sort
of diagram, that will enable you to explain to the group the variety of the
business’s brands and how they are organised.
6. Go to Investors on the top navigational bar and find out some financial details
about the business including such things as the current share price and the
profit the business made in the previous year.
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ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Global pricing
Global pricing is a difficult concept. This is because every product sold in a particular country
is sold in that country’s currency. Imagine, for example, that we own a business selling
computer games for AUD$50 in Australia. This means it would be sold in Indonesia for 454 595
Indonesian rupiah, in Argentina for 216 Argentinian peso and in Iran for 585 670 Iranian rial
(these were roughly the exchange rates in mid 2011). Now further imagine that the Argentinian
peso strengthens because the country finds a lot of oil and an Australian dollar now buys only
108 Argentinian peso. What do
we do? The price of the game in
Argentina is only AUD$25. What if it
cost us AUD $35 to manufacture the
disk, package the disk and transport
it to a shop in Argentina? Every
program sold results in a loss when
we convert the currency back into
AUD to send back to Australia.
Currencies change their value in
relation to other currencies all the
time. For example, in 2010 the
Australian dollar could be exchanged
for (at one stage) 87 cents USD.
In 2011 (at one stage) it could be
exchanged for 1.10 USD. This sort of
variation can be a real problem when the business may have a margin between cost and price of
between 20% and 40%.
Pricing is important because it is the link between marketing and the business’s profitability. If,
for example, in our imaginary games business we are making a net profit of 10% and a currency
movement results in a price decrease of 10%, our profits could disappear completely.
The purpose of the business is to deliver value to the customer and pricing is the technique
that enables this to happen. If customer perception of enhanced value can be achieved through
achieving an effective global brand, then prices can be raised quite significantly above costs. This
is what Apple Inc has been able to achieve in the global market through pricing policies that
have often achieved profit margins of some 40%. Indeed, Apple Inc’s pricing is interesting. Often
the prices it charges in Australia exceed the United States price, even when the AUD was 1.10 to
the USD. The price should have been cheaper and many people were tempted to buy things like
the iPad 2 online. However, Apple Inc is taking no risks on currency movements. They want a
certain price in each market and they are going to get it.
The managers at Apple Inc are very good at global pricing. It is no good competing in the global
market with businesses from low-wage countries. The challenge is to demonstrate value. In
the case of products like the Apple iPad 2, the value comes not just from the price but also the
design, the applications and the intuitive operation. There are very cheap tablets available in the
global marketplace, often below $200. Indeed, the co-branded Yes Optus ZTE tablet was selling
through Big W for $99 in 2011 and may well be even cheaper at the time you are reading this.
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But Apple has linked its pricing policy to the positioning and branding of its products and is
able to demonstrate to potential customers that the iPad2 gives them value in terms of things
like technology, innovation, design, intuitive use and applications at the price they are charging.
Competitive positioning
There is a number of factors that influence the competitive positioning of a business and its
products in a global market. Competitive positioning is concerned with creating an image in the
minds of customers of the value the business’s products can give the customer in a global market
where competitors are trying to create an image that their product offers the customer better
value. It is all about value. Previously we used an example of the marketing approach where a
salesperson was selling a $50 000 photocopier. It appears expensive, but not if the photocopier
could reduce the labour hour requirements of the business by $60 000. This product represents
value to the customer. The purpose of positioning and branding is to make the value clear to the
customer.
One of the main factors influencing the competitive positioning of a product is the number
and size of competing businesses in that market. Consider, for example, the global smartphone
market. There are three big competitors in the global market, Nokia, Apple and Blackberry.
Imagine you were the marketing manager of HTC in 2010. You have the best products on the
market but the brand is relatively unknown. In terms of quality, technical features and design
your smartphones are among the very best. But how would you price the phones? What sort of
an image of the products do you want customers to have? Surely we want potential customers to
have an image of our phones as more cool, well-designed, innovative, easy to use, classy, and at
the forefront of technology, than its competitors. We will complete the image by setting a price
that reflects the rest of the image.
Another factor influencing competitive positioning is the relationship a business develops with
its customers. This is, perhaps, the major reason Apple Inc. has been so successful. Apple has
placed great importance on keeping its customers informed. The Apple stores in major cities
provide the expert help and the opportunities to try products. The business has also used social
media, particularly YouTube, very effectively, in such things as launching new products. This
relationship reinforces the image of innovation, meeting customer needs, design and great
technology. Combine these aspects with the enormous number of applications available and
customers are getting an image of considerable value. Every time they see the Apple logo, they
have an image of value. HTC, on the other hand, struggle to achieve the sort of image Apple has.
The third factor influencing competitive positioning is product and technology development.
HTC, for example, is building a formidable image of a business that develops new products
that increasingly better meet the needs of customers. The business has an image of product
differentiation. Product differentiation, you will recall, means competing across a number of
segments by changing products to meet the specific needs of the customers in each segment.
But HTC still needed an alliance with major distributors, such as Vodafone, before they could
effectively position their products in a global market. Vodafone does the advertising and the
HTC phones enabled it to compete effectively with distributors linked with Apple. A great deal
of very expensive advertising is needed to support the competitive position of a global business.
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183
Marketing Strategies
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Memory Work
Carefully review the work you have done in this section.
Distinguish between market segmentation, product/service differentiation and
positioning.
Market segmentation is the process of breaking the total market into parts or segments based on
age, sex, income or lifestyle. By focusing on one or more segments of the total market, the needs
of the customer can be identified and catered for.
Product/service differentiation refers to the decision to compete in a number of market
segments by fine-tuning the business’s products to better meet the needs of specific groups of
customers.
Positioning is the perception or image that potential buyers have of a product in terms of price
and quality.
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Discuss how branding and packaging add to the product being marketed.
Consider the choices available in a drink-vending machine and the advantages Coca-Cola
has over its competitors. Well-known brands (logos or symbols) distinguish a business’s
products from those of competitors and customers will, over time, develop loyalty to and
confidence in the brand and its products. Packaging is both functional (it protects goods and
contains information) and has an important marketing role in getting the attention of potential
customers.
Packaging is also important in supporting the positioning and the brand for a large number of
products, such as Apple Inc products.
How is price determined?
* Cost of production plus profit
* Market forces of supply and demand
* Competitors’ prices are matched
What are the key pricing strategies?
* Skimming: setting a relatively high price at ‘what the market will bear’ for products. This is
often used for new products or where there is a monopoly producer, such as Viagra or other
new pharmaceuticals.
* Penetration: sets a lower price than competitors in order to increase market share; for
example, Chinese Chery cars at $11,990.
* Loss leaders: prices set at a very low level to encourage customers to consider newly
introduced or other products; for example, McDonalds’ 30¢ ice cream cone.
* Price points: psychological price references in the minds of customers; for example, motel
accommodation at $95 rather than $100.
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What is the price quality interaction?
Price quality interaction is concerned with understanding how price sensitive customers are
and, if necessary, adopting a multi-brand strategy of offering different products; some for the
value for money customers and some for those who regard quality as the main criteria for
choosing between competing products.
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
What is meant by elements of the promotion mix?
The promotion mix refers to the way elements of communication such as advertising, personal
selling and relationship marketing, sales promotion, publicity and public relations are combined
to meet the business’s communication objectives.
What is the purpose of advertising?
* Advertising is paid communication.
* Various types of media such as television, newspapers, magazines, radio, social media, such as
Facebook, carry the message to customers.
* A great deal of advertising is concerned with supporting the brand and the positioning of the
business – examples include Apple and Cadbury.
What are the promotional techniques of personal selling and relationship marketing?
* Personal selling is perhaps the most important promotional tool.
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* Personal selling refers to the use of sales representatives whom manufacturers use to sell to
retailers.
* Increasingly, personal selling is becoming a partnership between supplier and retailer – for
example, Dulux and Bunnings.
* Relationship marketing is most important.
* Relationship marketing is concerned with building a long-term relationship between the
business and its customers.
* Relationship marketing employs the extensive use of loyalty cards, such as Myer cards and
Flybuys.
What is the role of sales promotion in the promotions mix?
* Sales promotions are non-media communications with customers.
* Typical examples of sales promotion include vouchers on special offers by a store, loyalty card
offers and competitions.
* Sales promotions often include special displays, tasting products, free samples.
* Sales promotions are often done by the in-house marketing function rather than an
advertising agency.
What is publicity and public relations?
* Public relations is concerned with ensuring the business is seen in a positive light.
* Most large businesses have specialised public relations functions to ensure media stories
reflect the business in a positive light.
* Every aspect of a business including its packaging, stationery, uniforms and buildings need to
project a positive image of the business.
* One of the best ways to project a positive image is through special event and sporting sponsorship.
Getting Better Results
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
How do opinion leaders and word of mouth influence the communication process?
* Marketing is concerned with influencing potential customers in a way that will influence their
behaviour.
* It is important to understand both what influences buyer behaviour and who influences those
decisions.
* Opinion leaders are very influential – social media, such as Facebook and Twitter, collect
valuable information on what opinion leaders are saying, even at the local level.
* Word of mouth refers to personal endorsements by people who are opinion leaders. Sporting
figures and celebrities are very important in this area.
Why it is important to get place/distribution right?
* Distribution channels are concerned with the way the product gets from the manufacturer to
the final customer.
* Distribution is important because it impacts on the cost of the final product and consequently
affects the profitability of the business.
* The traditional distribution system was from manufacturer to wholesaler to retailer to final
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customer. The problem with this system is that each business in the distribution chain is
focused on achieving its own goals and it is more difficult to ensure cost effectiveness.
* There are three types of distribution channels - intensive, selective and exclusive. It is most
important to choose the channel that will be most effective for the particular needs of a
specific business.
* Physical distribution issues of transport, warehousing and inventory are important because
they directly affect costs and customer satisfaction and through these profitability.
The classic 4Ps of the marketing mix need to be extended to include people, processes and
physical evidence for service businesses.
* People are central to service businesses such as Kmart because customer service is so
important in achieving growth in revenues.
* Recruitment, selection and training of people have to be done very well if a business is to gain
a competitive advantage through the quality of its people.
* Processes are important in achieving cost advantages against competitors.
* Physical evidence is important, because potential customers are constantly making judgments
about the business on the basis of physical evidence such as its premises.
E-marketing reflects the significant changes in markets.
* E-marketing refers to the use of the Internet to research customer needs to develop products
and sell products.
* E-marketing enables a business to reach a much greater potential market while, at the same
time, incurring lower costs because factory-type processing can be used rather than retail
premises.
* E-marketing is growing very rapidly and has enormous potential across a very large range of
businesses.
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Global marketing – global branding is the heart of a business.
* Branding is the very heart of marketing because it affects the profitability of the business.
Apple is able to charge $500 to $700 for its iPhone because of the brand.
* Global brands matter. A global brand is a logo, a design or a name (often a combination) that
distinguishes the business’s products from competing products in the global marketplace.
* Global brands enable a business to make cost savings, but the main advantage is the higher
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
prices that come with an effective brand and through this higher profitability.
Global marketing – standardisation lowers costs.
* A standardised product is a product designed to meet the needs of every market segment in a
particular market.
* Standardisation enables very significant cost savings, often associated with economies of
scale and the cost savings associated with such things as common advertising campaigns and
packaging.
Global marketing – customisation better meets the needs of specific segments.
* Customisation is concerned with getting a better fit between global products and the needs of
customers in particular segments of the total market.
* Even though geographic barriers are breaking down, the segments still exist, but they are
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based on things like income, education, lifestyle across national borders.
* Businesses like HTC have been highly effective in adapting a standardised smartphone to
better meet the needs of particular segments.
Global marketing – global pricing is difficult.
* Global pricing is more difficult than domestic pricing because products are sold in local
currencies that are often appreciating or depreciating in value.
* Pricing is the link between marketing and the business’s profitability and it is very important
to get it right.
* It is important not to have price too low. The brand is essential in promising value to the
customer.
Global marketing – competitive positioning is complex.
* Competitive positioning is concerned with ensuring customers see that the business’s products
represent superior value compared to the products of competitors.
* Competitive positioning is the relationship a business develops with its customers.
* Product and technology development is an important aspect of competitive positioning and
the aim is to be seen as an innovative market leader in product development.
Getting Better Results
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
Topic Test - Chapter 8
Marketing Strategies
1. A Queensland resort is going through the process of designing entertainment activities
to suit the needs of different types of potential customers.
Which of the following best describes this aspect of the marketing process?
(a) Market segmentation
(b) Developing marketing strategies
(c) Developing market objectives
(d) Developing criteria for the target market
2. In its latest marketing plan Channel 10 decided to focus its efforts on viewers aged 16 - 39.
188
Which of the following terms describes this group of viewers?
(a) Customers
(b) Target market
(c) Market segmentation
(d) Viewer differentiation
3. GE refrigerators have designed a range of different models.
Which of the following are most likely to be the variables they have used to segment the
market?
(a) Lifestyle and age
(b) Income and gender
(c) Lifestyle and gender
(d) Income and lifestyle
4.There is a great deal of competition in the mobile phone market. Telstra wants to
convince its customers that its products are better than those of Optus.
Which of the following describes the process Telstra will use to convince its customers?
(a) Market segmentation
(b) Customer appreciation
(c) Target market development
(d) Product/service differentiation
5.A customer shopping for clothes at David Jones would expect to pay a higher price
compared to that of a similar product at Target.
Which of the following concepts describes the higher prices for higher quality products at
David Jones compared to Target?
(a) Branding
(b) Positioning
(c) Target market
(d) Segmentation
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6. A manufacturing company introduces a new product. There is no competition for the
product in the marketplace and the owner decides to price the product in a manner that
allows him to recover the development costs.
Which of the following pricing strategies will the business use?
(a) Price points
(b) Loss leaders
(c) Skimming strategies
(d) Penetration strategies
Marketing Strategies
ISBN 978-0-9775849-7-0 © 2012 Don Sykes & Kim Crawford - www.redpeg.com.au
7. A number of businesses (Nudie Juice and Krispy Kreme Doughnuts are examples)
promote their products by giving away ‘free samples’.
Which of the following promotional mix strategies describes the promotional activities of
these businesses?
(a) Advertising
(b) Public relations
(c) Personal selling
(d) Below-the-line promotions
8. Smith’s Chips are everywhere. They are sold in distribution channels ranging from
vending machines to supermarkets.
Which of the following describes the channel choice for this product?
(a) Intensive distribution
(b) Selective distribution
(c) Exclusive distribution
(d) Distribution channel
9. A manufacturing company introduces a new product. It has repositioned the product in
the market as a value-for-money product. The company is developing a new logo to be
associated with the repositioned product.
Which of the following describes the new logo?
(a) Brand
(b) Positioning
(c) Price points
(d) Segmentation
10.The owner of a magazine publishing business has decided on a special introductory low
price of $2.95, even though the normal price will be $9.95.
Which of the following describes this pricing strategy?
(a) Price points
(b) Loss leaders
(c) Skimming strategies
(d) Penetration strategies
189