Business management chapter 10
Revising the marketing strategy Once the results of the sales, market share and profitability analyses have been calculated, the business is in a position to assess which objectives are being met and which are not. Based on this information, it can modify its marketing plan. Modification of the marketing plan is as important as all the other steps involved in creating successful marketing strategies.
10.11 Issues in marketing — technology and globalisation KEY CONCEPT New technology has opened up many marketing opportunities, as has access to worldwide markets. The role of technology in marketing Technology, especially information and communications technology (ICT), has had a profound impact on marketing. (Refer to section 7.4 for an explanation of recent ICT developments.) Two areas of marketing that have undergone remarkable change due to ICT include social media advertising and global marketing
Global marketing We live in a global world rather than a world limited by national borders Australia is part of the global economy and, since the mid 1980s, global influences have been instrumental in bringing about revolutionary change in the Australian business environment. A business that wants to be globally competitive must adopt the appropriate technology. If it is quick to use and exploit technology, a business is likely to succeed: it will be able to capture a greater market share and develop a sustainable competitive advantage.
10.12 Ethical and socially responsible management and legal requirements KEY CONCEPT In marketing, as with all business practices, ethical and legal
10.1 The marketing function and its relation to business objectives and strategy Key concept: A market-focused business needs to create and market products that consumers will purchase in order to make a profit The marketing plan is a document that lists activities aimed at achieving particular marketing outcomes in relation to a good or service Marketing is 'the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives' To achieve common objective of profit maximisation, marketing plan must be prepared outlining actions and strategies necessary to achieve them Both short term and long term planning should be focused around marketing plan because: It outlines strategies used to bring buyer and seller together. Identifies: Where market is Who will buy Why and how often they will buy Satisfy existing customers leading to repeated sales Marketing is the revenue generating activity of a business. Nothing is achieved until sales are made. The marketing concept is that a customer's needs and wants are met while achieving business objectives. A customer-oriented approach means that businesses should direct all policies, plans and operations towards customer satisfaction. Marketing plan must be integrated into all aspects of business
10.2 Market research processes KEY CONCEPT Market research is the process of gathering information to assist business owners in making informed decisions about the marketing of the business The collection and study of statistics and other relevant data help managers understand the needs of potential customers or clients as well as providing information on what business competitors may be doing. Releasing a new product on to the market is risky. Working to help minimize the risk is the main purpose of market research. By collecting and assessing information about the needs and wants of consumers, a more accurate and responsive marketing plan can be designed and, therefore, the risk of market failure can be reduced. Market research attempts to identify and outline both marketing opportunities and problems, as well as evaluating the implementation of the marketing plan. Market research is the process of systematically collecting, recording and analyzing information concerning a specific marketing problem.
The primary target market is the market segment at which most of the marketing resources are directed. A secondary target market is usually a smaller and less important market segment Niche market An extension of the market segmentation approach is that of the niche market, which is a narrowly selected target market segment. Such businesses market to a narrow, specific customer base.
10.4 Market attributes — consumer trends and behaviour KEY CONCEPT Businesses can predict consumer trends and how they may react to particular marketing strategies, if they are aware of the factors that influence the buying behaviour of consumers. Marketers closely examine the behaviour of consumers to understand what motivates an individual to purchase a particular product. As well, businesses try to influence consumer buying behaviour by developing a mix of marketing strategies. While market research asks questions such as 'Who are our customers?', 'What do they buy?', 'When do they buy?' and 'How often do they buy?', customer behaviour asks 'Why do they buy?'
Government influences Governments use a number of economic policy measures to influence the level of economic activity. These policies directly or indirectly influence consumers' spending habits.
10.5 Key elements of a marketing plan: Establishing objectives and market description KEY CONCEPT A marketing plan gives a purpose and direction to all of a business's activities. Everyone in the business needs to know the plan, so all departments are working towards achieving the business's objectives. Such a plan is referred to as an integrated marketing plan. Each plan will reflect the individual characteristics of the business. However, all marketing plans should have two features in common: They should be realistic, given the business's present situation. They should be achievable within the business's resources and budgets.
Market description The market description section of the marketing plan provides a description of the current state of the market in which the business operates. The main purpose of preparing a market description is that it determines a clear direction for the marketing efforts. A market description will include the following. Details of the target customers- Who are the target market customers? Where are they located? How much will they buy and from where? At what price will they buy the product? What is their household income? Details of the competitors- Who are the competitors? What is the level of competition? Where are they located? What are their product range, price points and marketing strategies? What are their strengths and weaknesses? Most of the answers to these questions will come from the business's market research. Then, from this information, conclusions can be drawn regarding the demand for the business's products.
10.6 Key elements of a marketing plan: The marketing mix (product and price) KEY CONCEPT A business controls four basic marketing elements to reach its target market: product, price, place (distribution) and promotion (the four Ps). The four Ps, product, price, place (distribution) and promotion, are referred to as the marketing mix. The marketing mix is the centrepiece of the marketing plan. The 'product' element of the marketing mix Goods are real, physical objects that can be touched and owned; they are tangible. Goods and services are both products. A product is a good or service that can be offered in an exchange for the purpose of satisfying a need or want. The relationship between a business and its customers is based mainly on the product.
Personal selling involves the activities of a sales representative directed to a customer in an attempt to make a sale. The major advantage of personal selling is that the message can be modified to suit the individual customer's circumstances. Complex and technical products in particular require the personal contact of a sales representative to familiarise the customer with the product. The success of the marketing plan often depends on the competency of the business's sales force, without which sales and revenue would soon decrease. Publicity and public relations Publicity differs from advertising in that it is free and its timing is not controlled by the business. The main aim of publicity is to enhance the image of the product. A business will use publicity to raise awareness of a product, highlight the organisation's favourable features and help reduce any negative image that might have been created. Public relations are those activities aimed at maintaining a favourable relationship between a business and its customers. It is the role of public relations personnel to design, implement and manage the publicity events of the business.
Advertising Advertising is a paid, non-personal message communicated through a mass medium. Given the myriad of products available, advertising is an essential tool for successful marketing. The main advantage of advertising is that it provides businesses with the flexibility to reach an extremely large audience or focus on a small, distinct target market. Advertising media refers to the many forms of electronic and print communication used to reach an audience
10.8 The product life cycle: Innovation, introduction, growth, maturity and decline Key concept: The life cycle of a product passes through many stages from its introduction to its eventual decline. A business must be able to launch, modify and delete products from its range in response to changes in the product life cycle. Failure to do so will result in declining sales and reduced profits. A product's life cycle: consists of the stages a product passes through: innovation, introduction, growth, maturity and decline. Innovation stage The innovation stage is the stage where a new product is created. Sometimes the products that are created that have never before been offered to consumers. Development stage for a product Introduction stage In the introduction stage there will most likely be a lot of advertising and promotions happening in order to raise awareness of the product or service. Sales are usually low, since the customer base hasn't been fully established. In this stage the business may spend a lot of money on things such as: -Research and Development -Consumer testing -Marketing Growth stage The growth stage is usually known for strong growth in sales and profit There is usually a profit increase Business spends more money on promotion to maximise the products growth stage.
Decline stage Products get discontinued The products price is reduced, in order to sell the remaining stock The promotion of the product is discontinued over time Why do products decline? Being replaced by a new, better product Gone out of style The product may not meet the consumer's new requirements, e.g. it may not be environmentally friendly.
Establishing objectives It is of little value for a business to plan and implement a marketing strategy without first deciding what its marketing objectives are. This decision is the single most important step in the marketing planning process. The marketing objectives should be closely aligned to the overall business objectives, but more customer-oriented than the objectives for the entire business. They are also concerned with products and markets. Three common marketing objectives include: increasing market share expanding the product range maximizing customer service. Such objectives can be measured and should include specific targets to be met Increasing market share All marketing plans aim to achieve a specified market share. Australian Consolidated Press dominates the young women's magazine market, In any market dominated by only a few large businesses, such as the snack foods market, increasing market share is of prime importance for each of the companies involved.
Expanding the product range Businesses are usually keen to increase their product mix, because this will increase profits in the long term. Product mix is the total range of products offered by a business. The same product mix will not remain effective for long because customers' tastes and preferences change over time and demand for a particular product may decrease. Maximising customer service Of the objectives examined so far, maximising customer service is perhaps the most important. High levels of customer service will result in improved customer satisfaction and a positive customer reaction to the products purchased. Customer service means responding to the needs and problems of the customer. Central to this response is making sure the desired product is delivered at the appropriate place at the right time
10.9 The product life cycle: Extension strategies — export and diversification KEY CONCEPT Exploring export markets and diversifying into new areas of business is a way to exploit business opportunities. Sales can be sustained by carefully planned strategies that result in exporting to new markets or diversifying and satisfying previously unmet demand. Expansion through export There are three major reasons why Australian businesses have increased their number of exports over the past decade.
Expansion through diversification Diversification involves both new products and new markets and is done to spread the risks encountered by a business. This strategy is based on the principle of 'not putting all your eggs in one basket'. Diversification can occur at two different levels: Diversification occurs when businesses vary their range of products or their field of operations. Product diversification. A business may decide to increase the range of products sold. This expansion strategy operates on the principle that a business selling a range of products has a degree of protection. For example, should sales decrease for one product, the business can fall back on its other products. Geographic diversification. This refers to operating in different locations both domestically and globally. Having a number of locations helps minimise the risk of business failure should one market suffer a decrease in sales.
Social media advertising Social media advertising is a form of online advertising that uses social media channels to deliver targeted commercial messages to potential customers. social platforms like Facebook, Twitter, LinkedIn, YouTube, blogs, podcasts. It also operates a social networking site for users to share their experiences. The main advantages of SMA are that it is: inexpensive in comparison to traditional marketing methods easy to use and monitor an effective method to gain exposure.
However, SMA does have two main disadvantages: A marketer does not have control over what online consumers write about the business's product. Bloggers have the freedom to discuss, review, criticise and even ridicule a product or a specific business. Unlike more traditional online advertising, it is difficult for a marketer to accurately measure the reach and frequency of SMA. The reason for this not-so-quiet revolution in advertising is that marketers realise they must go to where the customers are to be found. The reach of an advertisement measures the number of people exposed to the message. The frequency of an advertisement measures the average number of times someone is exposed to the message.
10.10 Relevant performance indicators to evaluate the performance of marketing strategies KEY CONCEPT To evaluate whether marketing strategies have been successful, a number of indicators can be used. These indicators include sales analysis, the percentage share of total market sales the business has compared to competitors (market share), and market profitability. To determine the success of this marketing strategy the marketing manager might analyse sales figures to see whether there has been an increase in the number of sales as a result of the advertising campaign. Performance indicators Let's now take a look at the three common performance indicators used to measure the success of marketing objectives and the strategies used: sales analysis market share analysis marketing profitability analysis.
Sales analysis Sales analysis uses sales data to evaluate the business's current performance and the effectiveness of the marketing mix. Sales analysis is usually the most common method of evaluation because sales reports are readily available in most businesses. By comparing forecast sales (what was expected) with actual sales (what happened), the business can determine the success of its marketing strategy. Market share analysis By undertaking a market share analysis, a business can evaluate its marketing strategies as compared with those of its competitors. This evaluation can reveal whether changes in total sales — either increases or decreases — have resulted from the business's marketing strategies or some uncontrollable external factor. Marketing profitability analysis. Marketing profitability analysis is a method used by the business to break down its total marketing costs into specific marketing activities. A full understanding can be achieved only by analysing the marketing costs involved with each marketing strategy. Using a marketing profitability analysis, the business breaks down its total marketing costs into specific marketing activities, such as advertising, transport, administration, order processing and so on.
Information may be gathered through: personal observation, such as when a researcher poses as a customer in a store mechanical observation, using camera, tape recorder or counting machines. The scanner and cash register at a store checkout counter, for example, can record data on sales and customers' purchase patterns. This method of data collection has become very popular over recent years, especially with the development of computerised technology. Such observation methods can be highly accurate, but their main limitation is that they explain only what happened, not why. The experimentation method Experiments involve gathering data by altering factors under tightly controlled conditions to evaluate cause and effect. Market researchers do this to determine whether changing one of the factors (a cause) will alter the behaviour of what is 297being studied (the effect). Experiments may be carried out in either the laboratory or in the field. This is called test marketing.
Secondary data Secondary data comprise information that someone else has already collected. It is referred to as secondary because it is information that has been collected for some other purpose — for example, census data and household expenditure surveys gathered by government and private organisations. With the advent of computer databases, an abundance of secondary data is available to market researchers. The two types of secondary data are: internal data, which is information that internal sources (that is, from inside the business) have already collected. Such data include financial statistics, annual management reports, research reports, customer feedback and sales reports. external data, which is published data from sources outside the business. Probably the best known are the numerous reports produced by the Australian Bureau of Statistics (ABS). Usually, market researchers will make use of both internal and external sources of data. Analysis and interpretation Once the data have been gathered, conclusions need to be drawn. Raw data are of little value until analysed and interpreted. Statistical interpretation analysis focuses on the data that represent average, typical or deviations from typical patterns.
Factors influencing consumer behaviour Four main factors influence consumer purchasing decisions: psychological influences, sociocultural influences, economic influences and government influences. Psychological influences Four main psychological factors perception motives attitude personality
Socio-cultural influence Family and roles peer groups social class cultural and sub cultural to develop the ideal product range a business must understand the customers needs.each item in a product line should attempt to satisfy the needs of different target market Economic influences Economic forces have an enormous impact on consumers' willingness and ability to spend. During a boom, for example, consumers are willing to spend because they feel secure about their jobs and source of income. During a recession, consumer spending falls to a very low level.
Product branding — symbols and logos A brand is a name, term, symbol, design or any combination of these that identifies a product. A brand name is that part of the brand that can be spoken. It may include letters , numbers or numbers and letters. A brand symbol or logo is a graphic representation that identifies a business or product. Brand packaging Packaging involves the development of a container and the graphic design for a product. Well-designed packaging will give a positive impression of the product and encourage first-time customers to purchase. Tasteful packaging can create an image of luxury, sensuality and exclusiveness, helping to promote the product. In addition, packaging helps preserve, inform, protect and promote the product.
The 'price' element of the marketing mix Pricing methods Once a business has decided on its objectives, it must select a pricing method. Different factors influence the price a business sets. Cost plus margin. This is the simplest method. The business determines the total cost of production and adds an amount for profit. This extra margin is referred to as the mark-up. Market. Instead of using costs to determine price, businesses sometimes set prices according to the level of supply and demand — whatever the market is prepared to pay. When demand is high, prices are high. When demand is low, prices fall. Competition based. This method is often used when there is a high degree of competition from businesses producing similar products. A business can choose a price that is either below, equal to or above that of the competitors.
Channel choice — market coverage How a business chooses the distribution channel best suited to its product depends largely on the location of the business's market or market coverage. A business can decide to cover the market in one of the three following ways, the difference being the intensity of coverage: Intensive distribution occurs when the business wishes to saturate the market with its product. Customers can shop at local outlets to purchase the product. Many convenience goods, such as milk and newspapers, are distributed in this way. Selective distribution involves using only a moderate proportion of all possible outlets. Clothing, furniture and electrical appliances are often distributed using this method. The customer is prepared to travel and seek out a specific retail outlet that stocks a certain brand. 311Exclusive distribution is the use of only one retail outlet for a product in a large geographic area. This method of distribution is commonly used for exclusive, expensive products.
The 'promotion' element of the marketing mix A promotion mix is the promotion methods a business uses in its promotional campaign. Methods include personal selling, advertising, and publicity and public relations. promotion attempts to attract new customers by raising awareness of a particular product increase brand loyalty by reinforcing the image of the product encourage existing customers to purchase more of the product provide information so customers can make informed decisions encourage new and existing customers to purchase new products change individuals' behaviour through information or persuasion.
Determining information needs The information must be relevant to the situation or problem. The best method to determine the relevance of data is to constantly ask questions concerning its ultimate use. Information is useful if the information: results in marketing strategies that meet the needs of the business's target market assists the business to achieve its marketing objectives may be used to increase sales and profits. Ideally, marketers should treat information in the same way as other resources within the business, and weigh up the costs of collecting information against the benefits it provides. Collecting data — tools and techniques Marketing data comprise the information — usually facts and figures — relevant to the defined marketing problem. Normally, market researchers use a combination of two types of data: primary and secondary data. Primary data Primary data refers to the information collected from original sources for the purpose of the specific research problem. This information can be collected by the business itself — a process that may be time consuming and expensive. Many businesses outsource this activity. The main advantage of primary data is that their collection is directed at solving a specific marketing problem. Their main function is to find out exactly what the customer is thinking. There are three main methods used to gather primary data
The survey method: Conducting a survey means gathering data by interviewing people. Surveys may be carried out by: personal interviews — face-to-face interviews conducted in public places focus groups — small groups of people who meet with the researchers electronic methods of collection — telephone, mail and the Internet questionnaires — a set of specific questions structured to obtain a response from the customer. The main benefit of a survey is that it gathers firsthand information that provides details of customers' opinions. However, gathering information through surveys is becoming more difficult because respondent rates are declining. The observation method Observation involves recording the behaviour of customers. No interviews are involved and direct contact with respondents is avoided. Instead, the actions of the customers are systematically observed. Such methods can raise serious ethical issues, especially regarding privacy.
10.7 Key elements of a marketing plan: The marketing mix (place and promotion and related strategies) KEY CONCEPTS The four basic marketing elements are: product, price, place (distribution) and promotion (the four Ps). The third 'P' of the marketing mix (product, price, place and promotion) is 'place', or distribution channels. The place (distribution channels) element of the marketing mix A distribution channel is a way of getting the product to its customer. This process usually involves a number of intermediaries or 'go betweens', such as the wholesaler, broker, agent or retailer. Apart from the retailer, the other intermediaries are often invisible; that is, the customer knows little about their role and operation.
There are four traditional types of distribution channel: Producer to customer. This is the simplest channel and involves no intermediaries. Virtually all services, from tax advice to car repairs, use this method. Producer to retailer to customer. A retailer is an intermediary who buys from producers and resells to customers. This channel is often used for bulky or perishable products such as furniture or fruit. Producer to wholesaler to retailer to customer. This is the most common method used for the distribution of consumer goods. A wholesaler is an intermediary who buys in bulk from the producer, then resells in smaller quantities to retailers. Producer to agent to wholesaler to retailer to customer. An agent distributes products to wholesalers but never owns the product. Agents are paid a commission by the producer. Usually agents are used for inexpensive, frequently used products. Businesses are always looking for different ways to distribute their products. Non-store retailing is gaining in popularity. Methods such as door-to-door selling, mail-order catalogues, party-plan merchandising and vending machines have been used for a number of years. However, with rapid changes in electronic communication businesses are beginning to exploit types of e-marketing (electronic marketing) as alternative methods. As more people shop online, the traditional distribution channels will be modified. Some retailers and wholesalers may be bypassed as customers deal directly with manufacturers. Electronic post and parcel delivery channels will be used more extensively to meet the increasing demand.
Criticisms of marketing Critics of marketing believe it lacks a strong code of professional conduct and sometimes blurs the lines between what is ethically right and wrong. The main ethical criticisms of marketing include: Creation of needs — materialism. Businesses use sophisticated and powerful promotional strategies (particularly advertisements) to persuade and manipulate customers to buy whatever the business wants to sell. These promotional strategies create needs, many of which are artificial, by playing upon an individual's emotions, which results in materialism. Product placement. The use of product placement in entertainment (e.g. television shows) is generally subtle, such as a can of Coca-Cola seen when a refrigerator door is opened, while at other times products are prominently displayed. Critics argue that, because of its 'concealed' nature, this type of advertising blurs the line between what is advertising and what is entertainment. Stereotypical images of males and females. In most advertisements it tends to be the male who uses the power tools, or who watches sport with his mates. Females, on the other hand, are portrayed preparing meals, cleaning the house or caring for the children. Use of sex to sell products. There is often an overuse of sexual themes and connotations to sell products. Unrealistic images are portrayed as attainable. Although many people are sceptical of such claims, advertisements that use sex appeal can have a subtle and persuasive impact.
Truth and accuracy in advertising. Advertising can represent real ethical dilemmas for marketers. False or misleading advertising is not only unethical, it is also illegal. However, the use of terms such as 'special', 'great value', 'low fat', 'light' and 'once in a lifetime offer' can be interpreted in many different ways. Invasion of privacy. The tracking of web users and using this information to target them with advertisements may breach consumer privacy laws. In 2010, the California-based data exchange company BlueKai had the computer addresses and 'purchasing intent' for about 8 million Australians who used the Internet to search for information about holidays, motor vehicles and online shopping. Sponsorship deals. Much attention is being given to the ethical issues related to company sponsorship arrangements, especially those involving schools. Two ethical issues raised include direct marketing to children and the overcommercialisation of schools. The marketing of junk food to children. The marketing of junk food — which is often portrayed as an essential part of a balanced diet — is strongly criticised 327by nutritionists and health advocates, especially as childhood obesity rates approach epidemic proportions.dilemmas are involved. Most marketing decisions can be judged to be ethical or unethical, legal or illegal. Sometimes, however, it is not so clear. What one person may consider reasonable could be totally unreasonable to another person.
10.3 Market attributes — market dimensions and segments KEY CONCEPT A business segments its market so it can better direct its marketing strategies to specific groups of customers. Market segmentation occurs when the total market is subdivided into groups who share one or more common characteristic. demographic — age, gender, occupation, education, religion, family size, ethnicity geographic — urban, suburban, rural, regional, climate, landform psychographic — lifestyle, socioeconomic group, motives, personality, consumer opinions and interests behavioural — regular user, first-time user, brand loyalty, benefits sought, usage rate. Age and gender are two of the most widely used demographic variables for segmentation purposes.
target market selection Once the market has been segmented, the business selects one of these segments to become the target market. usually the most appropriate segment. A business selects a target market so it can direct its marketing strategies to that group of customers, rather than the total market. This approach allows the business to better satisfy the wants and needs of the targeted group, and makes it easier for the business to increase sales and profits because it can: use its marketing resources more efficiently, which results in the marketing campaigns being more cost-effective and time-efficient use promotional material that is more relevant to the customers' needs, and is more likely to be noticed better understand the buying behaviour of the target market collect data more effectively and make comparisons within the target market over time refine the marketing strategies used to influence customer choice.
Tangible and intangible products It is convenient to group products as tangible goods or intangible services. Most products are combinations of tangible and intangible components. When customers purchase products, they buy both the tangible and intangible benefits In other words, a product is a 'collection of satisfactions' that might include a variety of things such as the package, brand name, warranty and after-sales service.
the term product is a much broader concept than most people think with mass-produced products its on the differences in the intangible benefits that product competition is based all products are a combination of tangible and intangible attributes. Product positioning Product positioning is the development of a product image compared with the image of competing products. Whenever a new product is launched, the marketers need to have clearly determined the desired positioning of the product. This will be achieved through the product's name, price, packaging, style, promotion and channels of distribution. Combined, these individual characteristics create the image of the product.